View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

C o m m it t e e

to

F ig h t I n flatio n

A Policy
Statement




This statement was issued by the Committee to Fight Inflation
on June 23,1980, at the American Enterprise Institute,
Washington, D.C.
Arthur F. Burns, chairman of the Committee to Fight Inflation,
is distinguished scholar in residence at the American Enterprise
Institute.

Copies of this statement are available from:
Dr. S. L. Jones, Secretary, C o m m i t t e e t o F i g h t I n f l a t i o n
American Enterprise Institute
1150 Seventeenth Street, N.W.
Washington, D.C. 20036




Committee to Fight Inflation
Chronic inflation at unprecedented levels is a serious threat to the
stability of our system—
economic, social, and political Since
efforts to control inflationary pressures have not been successful,
a serious crisis of confidence has developed. The growing public
concern about the destructive effects of inflation has created an
opportunity to marshal and maintain broad support for effective
anti-inflation policies. A committee of private citizens with ex­
tensive experience in government has been form ed to promote
such policies. Founding members of the committee include:
F. B u r n s , Chairman, former Chairman of the Board of
Governors, Federal Reserve System.

A rth u r

H e n ry

H. F o w le r,

Vice Chairman, former Secretary of the

Treasury.
W.

M ic h a e l B lu m e n th a l,

Jo h n

W. B y r n e s , former Hanking Minority Member, Ways and
Means Committee, U.S. House of Representatives.

F re d e rick

C.

former Secretary of the Treasury.

L.

D e m in g ,

D o u g la s D i l l o n ,

former Under Secretary of the Treasury.

former Secretary of the Treasury.

W. M c C r a c k e n , former Chairman of the Council of Eco­
nomic Advisers.

Paul

H. M a h o n , former Chairman of the Appropriations Com­
mittee, U.S. House of Representatives.

G eo rg e

McC. M a r t i n , J r . , former Chairman of the Board of
Governors, Federal Reserve System.

W illia m

D. M i l l s , former Chairman of the Ways and Means
Committee, U.S. House of Representatives.

W ilb u r

G eo rg e

P.

W illia m

S h u ltz ,

E.

S im o n ,

former Secretary of the Treasury.
former Secretary of the Treasury.

J ohn J. W i l l i a m s , former Ranking Minority Member, Finance

Committee, U.S. Senate.







A Policy Statement
Committee to Fight Inflation
The problem of inflation has reached crisis proportions in our
country. From an annual average rate of rise in prices of 1.9 per­
cent over the eleven years ending in 1967, inflation accelerated to
a rate of 6.3 percent over the next eleven years, ending in 1978;
and then to a rate of 13 percent in 1979 and to a still higher rate
in early 1980.
The rapidity of price advances will abate during the reces­
sion that is now under way; indeed, the most recent price indexes
suggest that such a process has already begun. We must be alert
to the danger that this slowing will lead to complacency about
inflation, and that the concurrent rise in unemployment will again
elicit highly stimulative fiscal and monetary policies. In that
event we can be certain that prices will be rising more rapidly at
the start of the next economic recovery than in any preceding
recovery, that inflation will have gained strong new momentum,
and that the hope of ending it in the reckonable future will
sharply diminish.
The urgency of dealing with the inflation problem can hardly
be exaggerated. By causing economic imbalances, inflation has
been the primary channel through which recession—
and with it
widespread unemployment—
has come twice to our country since
1973. The signs of havoc brought on by inflation are all around
us. Inflation has created large and wholly arbitrary redistribu­
tions of income and wealth. Inflation has eroded the real value of
everyone's money income and monetary assets. For example, the
real value of a 1967 dollar had declined to 41 cents by early 1980.
Inflation has thus been depriving people of effective means
of planning for their future and of providing against the contin­
gencies that arise in life. It has been destroying the self-respect
of many of our citizens by forcing them onto the welfare rolls. It
has damaged our nation by increasing anxiety, and by breeding
discontent and social tension. It has reduced the efficiency of
financial markets and of the workshops of our economy, and it has
made our economy more vulnerable to recession. Ultimately, in­
flation threatens the survival of free competitive enterprise and of
our democratic institutions.
Our rapid domestic inflation has already substantially re­
duced the value of the dollar abroad, and with it the power and
prestige of the United States in the international arena. As infla­




1

tion continues, it poses a continuing threat of flight from the dol­
lar. and thus of further contraction of its value in foreign exchange
markets. Such a development would intensify domestic inflation
by raising the costs of all imported goods, and it would further
weaken our country’s international prestige.
We cannot afford delay in taking the measures needed to
restore general price stability in our country. If we are to rout
inflationary psychology we must act with determination to see the
matter through despite the short-run costs that will be incurred
by some, perhaps many, of our citizens. Under present circum­
stances, we must forswear superficially attractive but ultimately
counterproductive measures such as mandatory wage and price
controls.
We urge the prompt adoption of a program dealing with the
following areas:
i. Fiscal Policy. During recent decades there have been sharply
rising pressures on Congress to adopt new spending programs and
to expand existing programs. Pressures for spending cuts or tax
increases have been much weaker. The result has been a virtually
unbroken string of budget deficits over the last twenty years.
Moreover, these deficits have been generally increasing both in
dollar amounts and—
since the 1950s— a percentage of the gross
as
national product. This persistent pattern of deficit financing has
contributed powerfully to the impetus of inflation and to the
rapid spread of inflationary psychology.
In the Budget Act of 1974 Congress adopted new procedures
designed to deal on a unified basis with separate revenue and
expenditure decisions. While these procedures represent an im­
portant step forward, it is essential that the ability of Congress to
resist pressures for deficit financing be considerably strengthened.
We recommend a further revision of the budget process that
would make it much more difficult to run deficits. Our proposal
would require a balanced budget unless a deficit is authorized by
something more than a simple majority—
say, two-thirds— each
of
house of Congress. Such a measure would demonstrate to the
public that the Congress is finally ready to take stern and respon­
sible action to end the persistent budget deficits that have nour­
ished our inflation.
Deficits can, of course, be eliminated either by raising taxes
or by holding down expenditures. We believe that the national
interest would now be best served by restraints on expenditures.
We recognize that significant overall savings are becoming diffi­
2



cult to achieve partly because of the requirements of national
defense but also because of rapid growth of social security, federal
pensions, and the other entitlement programs that are automati­
cally linked to rising prices. We therefore urge the Congress to
consider proposals to weaken the tie between the price indexes
and outlays under the entitlement programs, insofar as that can
be done without injuring those most in need. In addition to its
beneficial effect on federal spending, such a course would
strengthen the constituency opposed to inflation, and it would also
set a constructive example for the private economy.
2. Monetary Policy. The ability of the Federal Reserve System to
combat inflation has in the past been limited by lack of under­
standing and support in the Congress. Although the System has
at times stepped hard on the monetary brakes, its policies have at
other times accommodated a good part of the inflationary pres­
sures in the market place. At present, the general thrust of mone­
tary policy is appropriately restrictive. The Federal Reserve has
been and will remain the faithful agent of Congress; but if it is to
continue to combat inflation forthrightly and with vigor, it must
have the strong and steadfast support of Congress. We recom­
mend that Congress adopt a concurrent resolution stressing the
importance of restrictive monetary policies in furthering the goal
of ending inflation.
3. Government Price-Raising Actions. Over the years, our gov­
ernment has persistently acted to raise prices by measures that
served to boost incomes and protect employment of particular
groups at the expense of the public at large. These measures in­
clude tariffs, import quotas, marketing agreements, and other
restraints on international trade. They include farm price sup­
ports and acreage restrictions that raise the cost and reduce the
supply of food. They include the minimum wage and DavisBacon legislation that tend to raise labor costs throughout the
economy. They include also restrictions on competition in the
transportation and numerous other industries. In view of over­
whelming evidence of the power of market competition to serve
the public interest by holding down prices, it is vitally important,
first, that Congress stop raising prices by enacting new restraints
on trade; and second, that it proceed methodically to dismantle,
or at least weaken, much of existing legislation that impedes the
competitive process.




3

4. Government Regulation. During the past decade Congress has
poured out a flood of legislation in response to public concerns
about degradation of the environment and hazards to the health
and safety of both workers and consumers. Much of this legisla­
tion and the regulations promulgated under it have been running
up costs and prices unnecessarily. It is essential that there be a
thorough reform of outstanding laws and regulations, and more
careful design in any future measures, so that basic national objec­
tives may be achieved at minimum feasible cost The reform
should take full account of costs as well as benefits; it should seek
the most efficient means of reaching agreed-upon goals; it should
give careful attention to the pace at which changes in processes,
practices, or products are mandated; and it should provide ex­
peditious procedures that yield timely and definitive conclusions.
5. The Environment for Business Investment. Inflationary pres­
sures have been fostered in recent years by a flattening-out of the
trend in the output of goods and services per manhour, and most
recently by an absolute decline in productivity. Our country
needs urgently to encourage productivity-enhancing capital in­
vestments and, more generally, a greater willingness by business
firms to innovate and assume risks. The Congress should promote
these objectives by scheduling reductions in business taxes in each
of the next five to seven years— reduction to be quite small in
the
the first two years but to become substantial in later years. This
sort of tax legislation, supplemented in due course by reduction in
the capital gains tax, would not run up the budget deficit in this
critical year or next; it would thus scrupulously avoid fanning the
fires of inflation. Its passage would, however, release powerful
forces to expand capital investment, thereby improving the na­
tion’s productivity and exerting downward pressure on prices
later on. Such tax legislation would also help in the more imme­
diate future to ease the difficult adjustments forced on many
businesses and their employees by the adoption of other parts of
our suggested program.
6. Other Measures to Increase Productivity. We urge that other
feasible means be adopted to increase the productivity of our
economy. These should include larger private and public outlays
for research and development; more carefully designed manpower
training programs; productivity councils in individual plants,
shops, and offices in communities across the country, in which
employees and employers can pool their ideas for improving the
4



efficiency with which their tasks are discharged; and other means
of encouraging cooperative efforts of labor and management in
furthering their common interest in greater efficiency.
7. Energy. The problem of energy is intertwined with that of
inflation. On the one hand, skyrocketing costs of imported oil
have contributed to our domestic inflation; on the other hand,
governmental actions to limit the rise in domestic prices of oil
products have weakened incentives for conservation and for ex­
pansion of the domestic supply of oil and of alternative sources of
energy. We believe that, despite the short-run effects on the price
level, the rapid decontrol of oil prices—
and perhaps the addition
of consumption taxes—
would serve the national interest by speed­
ing the day when our nation regains substantial independence in
the energy area. Only then will we be free of the threat to the
stability of our price level—
and to our national security—
that is
posed by present dependence on foreign energy supplies.
Concluding Comments
Our critical problem of inflation did not emerge suddenly. It has
been gathering force for many years. Its roots lie deep in the
political and philosophical attitudes that emerged from the Great
Depression of the 1930s.
While our inflation is largely a consequence of government
actions, those actions in turn reflect excessive public demands for
the good things of life—
rising living standards, better provisions
for income security, more assistance to the disadvantaged among
us, a cleaner environment, fuller protection of the public’s health
and safety, and special benefits for a growing number of interest
groups. Each of these demands is thoroughly understandable.
Together, however, they release persistent inflationary forces—
first, by requiring of government greater outlays than tax revenues
can finance, second, by demanding of the private economy greater
output than its languishing productivity can support.
At best, the task of ending inflation will be difficult. But there
is no hope of eventual success unless the American people come to
understand the nature of the problem and are prepared to support
the stern measures required to solve it. We see some signs that
the needed understanding and support are growing. And we look
forward to the time when our nation will again experience the
economic progress that is possible in an environment of generally
stable prices.




5