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THE CHAIRM AN OF THE COUNCIL OF ECONOM IC ADVISERS WA S H I N G T O N January 27, 1963 iEMORAXTCtra PC.R. T H S FRSSIDIDNT Subject: Bill Martin If there's still room for maneuver with Bill Martin, hero are three points worth making with him: That he sho-aid embrace the basic Presidential strategy lor econo mic expansion, particularly as reflected in your taa program, (His J E C testimony Friday is a good place to start.) This strategy has three parta: a. Expand demand, markets for both consumer and invest ment goods --at the Business Council, Martia spoke disparagingly of the " New Frontier economics” of purchasing power, etc., according to both K ermit Gordon and Kinder Staats. Zach concluded, independently, that Martin hurt m or e than helped the cause of tax reduction there. (Doug Dillon haa already opened this subject with Martin. ) b. Expand incentives for risk-taking and effort -- Martin's all for this. c. Use monetary policy, as needed, for balance-of-payments or price stability reasons, but don't offset the expan sionary effect of tax cuts. Your Economic Club speech gave Martin lots of aid and comfort on the first part of this, perhaps not enough emphasis on the second. He's done pretty well so far, but m a y need some stiffening at this point. 2. Monetary policy coordination: Martin should consult with the President and/or his major economic policy advisers before making significant policy' changes -- he does a good deal of this now with Treasury, but use of our "Quadriad" group for such coordination would be appropriate. 3. C lass C directors: Martin should use his influence to achieve some leavening of the boards of directors of the 12 Federal Reserve Banks by at least occasional appointment of New Frontier types to "C lass C“ directorships -- e .g ., a Jim Tobin or Bob Solow at the Boston Fed. One liberal or moderate intellectual on each 9- man board really shouldn't threaten the foundations of the Federal Reserve System. When you do re-appoint Martin, we'll all need a stout defense against Ms easy-money critics. The attached summary (prepared by a CEA staff member to arm me for tomorrow's tilting with Douglas, Patmah, Proxmire, and Reuss) may be useful in that connection. Walter W Heller .