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https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  REMARKS BY THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE NATIONAL ASSOCIATION OF MANUFACTURERS WASHINGTON, D.C. MARCH 20, 1980  1  I have the pleasure of introducing  MR. FISHER: 1  the Honorable G. William Miller, Secretary of the Treasury.  2  best way to obtain the ear of government, is to have business­  3  men serve in government.  4  that we at NAM, witnessed our speaker, who became Chairman  5  of the Federal Reserve Board in March, 1978, and Secretary  6  of the Treasury in August of 1979.  7  Th  And, so it is with great pleasure  His business credentials are impressive.  He joined  8  Textron, Incorporated, in 1956; and subsequently became the  9  Vice President, President,•Chief Executive Officer, and finally  10  Chairman and Chief Executive Officer in 1974.  11  Director of the Federal Reserve Bank of Boston, and on the  12  Boards of several major corporations.  13  Business Council, the Business Roundtable, he was Chairman of  14  of the Conference Board, and Chairman of the National Alliance  15  of Businessmen.  16  He served as a  He was a member of the  Our speaker received his Bachelor’s Degree in Marine  17  Engineering from the U. S. Coast Guard Academy, and served as  18  a Coast Guard Officer in the Tar East and on the West Coast  19  of the United States.  20  University of California School of Law at Berkley, and joined  21 22 23  24  He received his law degree from the  the law firm later of Chrovti, Swain/, and Moore, in New York,  before moving on to Textron.  I was just discussing with Bill that this must have been a great shock to his thinking process to move out of the  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE. NW (202) 234-4433  WASHINGTON. D.C. 20005  (301) 261-4445  2  (  1  world of lawyers into the world of business, because, if  2  there is any problem I have in my business career, it is  3  arguing with lawyers.  4  He has devoted much time, effort and talent to And, as Chairman of the President’s Committee  5  public service.  6  to help, through industry, retaining an employment.  7  Chairman of the U. S. Industrial Payroll Savings Bond Com­  8  mittee, Co-Chairman of the U.S.-U.S.S.R Trade and Economic  9  Council, and the Polish Economic Council; and as a member of  10  numerous other boards and commissions.  11  12  And as  The NAM is honored and pleased to welcome our  speaker, Secretary of the Treasury, G. William Miller.  (Applause)  ( 14  MR. MILLER;  Thank you very much, John.  I had the  15  pleasure of addressing your meeting last year, that time at  16  breakfast.  17  lunch, or whether you just can't face the day on this subject,  18  and you wanted to be sure to get through a hearty lunch before  19  we discussed it; but I almost could repeat the speech that I  20  made last year, and I may do that; since very few of you  ^21  I don’t know whether inflation has elevated me to  probably remember it, and I kept the notes and/are convenient  22  The problem does persist, and inflation is indeed  ( 23  our most serious problem, certainly it must be the most  24  serious problem for you in business, and it is the most  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  (301) 261-4445  3  1  serious problem for the entire nation.  I’ve been involved now in government now for two  2  ^3  years.  And over this entire two years, I’ve been Grappling  4  with this issue, first at the Federal Reserve, and now at the'.  5  Treasury.  6  the subject that inflation has built up over a long period of  7  time; it's not just a recent phenomenon, it goes back for  8  some fifteen years.  9  it's become deeply ingrained in our system.  It's very clear with all of us who have dealt with  And because it's built up for a long time, It is going to  10  take a very intense effort if we are to bring it out of our  11  economic system, indeed.  In these two years, in one way or another, I’ve  12 13  been involved in trying to structure a comprehensive strategy  14  to deal with inflation.  15  a board array of policies that would help us wage and win a  16  war against inflation.  17  to put in place policies which attack the fundamentals and  18  not just the symptoms of this dreadful disease.  19  tick off a few of the very fundamental policies that we have  20  been pursuing; and then come back to some of the things that  21  we are now undertaking and some of the implications.  Z22  To marshall a board base of policies,  And in doing so, we've been endeavoring  The first is a new additude about  And let me  restraint  23  For too long, the nation has lived beyond it’s means, and year  24  after year, built up deficits.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Since the last time the United  States had a balanced budget, we have increased the national NEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE. NW (202) 234*4433  WASHINGTON. D.C. 20005  (301) 261*4445  4  1  debt by over one half trillion dollars.  v/2  SecondLYimportant policy is to impose monetary  3  discipline to wind down the growth, the rate of the growth  4  of money and credit, so that we relate our capacity to buy  5  with our capacity to produce.  6  Third is to seek voluntary cooperation in wage and  7  price moderation until the more fundamental policies can take  8  hold.  9 10  s/ll 12 13  Fourth is to assure a stable dollar, and to bring our international accounts into balance, which we've done, if you noticed the report that was released this morning!-/ 1979  current account was approximately in balance following a 14  billion dollar deficit in 1978.  14  /l5 16 17  18 19  Fifth is to deal with the energy issue.  else may be the causes of inflation, the fact^that in the  decade of the 70's, oil went up over 1,000 percent in price, and has worked it's way into every cost of every business. It's a fundamental problem that we must address and must re­  solve if we are to win the war.  20  21 22  Whatever  Sixth, we must intensify our efforts to reduce the regulatory burden which has inteferred with the process of  creativity and productivity essential to win the war.  Z 23  / 24 25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  (301) 261-4445  5  1 2 3  tutions, to the strengthening the market system itself, to  addressing the problem of productivity.  4 5  6 7 8  9 10  11 12 13  14  15 16  Those that go to financial insti­  problems of our economy.  The war against inflation, is by it’s very nature,  It must be pursued over considerable time.  dynamic.  involve a continuing concentration of effort.  to unpredictable changes.  It must  It must adapt  I've heard many people say that we  should announce an anti-inflation program that will take care  of it.  But in waging a total war against inflation, we must  be prepared not only to muster an array of policies, we must be prepared not only to field an army to deal with the issue,  but we must be prepared to carry on the campaign, to take the offensive, to adjust our tactics to the circumstance, to deal  with the unexpected and the unpredictable, and to be able to  take setbacks from time without relenting in our determination  to continue and to persist.  17  We must be able to deal with events in the world 18  that have impacted us adversely in recent months.  First the  19  change of government in Iran set off a series of events, that 20  led to the largest increase in oil prices that have ever taken 21   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  place since oil had been discovered.  In 1979, oil prices went  up 125 percent, some 18 dollars a barrel, more than the price  of oil had grown since it had first been discovered.  And that  has had an enormous impact upon the war we are waging.  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE. NW (202) 234-4433  WASHINGTON. D.C. 20005  (301) 261-4445  6  1  We must also be able to cope with events such as  2  Afhganistan, which has called upon us to adjust some of our  3  own economic and military policies to counter that particular  4  threat.  5  We must, in waging the war, be able to respond to  6  domestic trends.  7  good evidence of how our economy behaves in a period of high  8  sustained inflation in peacetime, because we have never ex­  9  perienced it and we have no data base.  We do not have, in econometric models, any  So we cannot predict  10  behavior patterns of consumers or businesses or government,  11  but we've got to be able to be willing to monitor and to ad­  12  just as these behaviorial patterns begin to asert themselves.  13  We must be willing to deal with the phenomonom of greater  14  spending and less saving that has seen to have been the re­  15  sponse of our system to inflation.  16 17  18 19  20  21  Since the budget of 1981 was first submitted last January, since it was formulated in December, we've had a  number of substantial changes.  mentioned, some others.  24  Let me just tick off a few of the  changes since we prepared the budget and the economic program  last December.  22 23  Somewhat along the lines I've  First, the inflation indicators have shown acceler­  ation.  We've been, all of us, somewhat surprised with'the  degree to which the oil price increases are now beginning to  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  (301) 261*4445  7  1  work their way into all prices, and into the structure of our  2  economy.  3  phenomenon.  4  indexes, have jumped up.  5  In the United Kingdom, in Japan, in Italy; in the last two  6  months, the wholesale prices are in excess of an annual rate  7  of 25 percent in those countries.  8  in the United States.  9  forceful for historic reasons in fighting inflation, the  This is a worldwide phenomenon, not just a U.S. Our wholesale price indexes, our consumer price But so have they in other nations.  So it isn’t just happening  And in Germany, which has been the most  10  wholesale price index for the last two months has been over  11  13 percent.  12  the world, in a very dangerous pattern.  13  So here we're seeing this begin to spread through  But the response of consumers to the circumstances  14  has been to spend even more, and to save even less.  15  seen the saving rate drop in the last two months to about  16  three percent, which is the lowest rate since the Korean war;  17  and is indeed, of great concern.  18  of acquiring goods, spending now, and letting the future take  19  care of itself, a dangereous trend.  20  changed in this period.  21  dicting a recession, starting early in the year.  22  of a recession, economic activity is continuing at a relatively  23  high level, except in housing and autos.  24  because of this pattern of behavior across the economy, of  We’ve  Because it shows a psychology  Economic activity has  All economist’s last fall were pre­ But instead  And this is partly  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW  (202) 234-4433  WASHINGTON, D.C 20005  (301) 261-4445  8 1  spending rather than saving.  2 3  4 5 6  7  8  This whole atmosphere of change also led many people to question whether Congress would be able to respond  to the President’s budget, and whether they would dispose of it by approving the levels of spending and taxing that had  been included.  11  12 13 14 15  16 17  would expand. Now in the face of these changes in economic outlook  in activity in the economy, in the behaviorial patterns of businesses and individuals, and the expectation as to the  budget; it's been necessary for us to re-examine and to inten­ sify the application of our fundamental policies.  20  intensify the disciplines that go with those policies to be  sure that they are enforced, and that we are successful in  driving them through to implimentation. We have, therefore,  the President 4at announced last  Friday, a series of new actions to intensify the discipline of  our economic policies in five major areas.  21 22  It's not  that we need to change those policies, it's that we need to  18 19  In fact, there was a wide-spread belief that  the budget might indeed get out of control and that the defici  9 10  First is to reinforce and to add additional restrain : to our j^woical policy, seeking to establish a balanced budget  23  in F. Y. 1981. 24  Second, to impose additional restraint on the 25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234*4433  WASHINGTON, D.C. 20005  (301) 261*4445  9 1  availability of credit.  2  Third, to strengthen the voluntary wage and price  3  program.  4  Fourth, to seek greater energy conservation to  5  reduce our dependence upon imported oil.  6  And fifth, to give greater attention to the  7  structural changes to encourage a more efficient and more  8  productive economy.  9 10  Let me start with the budget.  The budget that  we will propose for F. Y. 81 will be in balance.  11  It will  be the first balanced budget in 12 years, and only the  12  second one in 21 years.  This is not a budget exercise in  13  which the Administration has suddenly made a few changes  14  and intends to send up a few supplements to Congress.  15  effort to achieve, in fact, a balanced budget, has been  16  pursued through a unique and historic process.  17 18  The  For several  weeks, we consulted intensely with members of Congress of  both parties.  We spent over eight straight day’s meeting  Z19  in session with leadership of the Congress^ never done 20 21  22 23 24  beforein which members of the House and the Senate and the  Administration sat down to develop committments,  committments not only would we propose but we would deliver  a balanced budget.  And it is that process which adds a  new dimension to the outlet for the budget and to it’s  25 HEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW  (202) 234*4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON. D.C 10005  10  1  impact upon expectations and it’s impact upon our economic  2  progress.  3  The leadership of the Congress, as a result of  4  this, has committed to do several things.  5  far more attention and committment to achieving the 5.6  6  billion dollars of spending cuts that we had already sub­  7  mitted in January.  8  cuts of 13 or 14 or more in order to assure that we would  9  bring the budget into balance through spending reductions,  "io  One, to give  And second, to achieve further spending  and only through spending reductions.  And third, a commit/!  11  ment to maintain the discipline so that we will, in the  12  face of changing conditions, be able to reinforce and  13  reassure that we have the balanced budget for 1981  14  We are in substantial agreement with Congress­  15  ional leadership on the budget.  16  to mark up their budget resolutions along these lines.  17  But in the meantime, the Office of Management and Budget  18  has 25,000 lined items to process, and it has to go through  19  all the departments of government to lock up the details  20  and to be sure that our economic assumptions and feedbacks  21  have been developed, and it will take them, probably until  22  the end of the month, to present the final details of this  23  new budget.  24  And they are proceeding  But it will be in balance.  The second area is the area of restraint on  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234*4433  WASHINGTON, D.C. 20005  11  (  1  credit availability.  2  powers under the Credit Control Act of 1969, to operate to  3  constrain expansion of consumer credit as represented by  4  credit cards, overdrafts, revolving credits for consumers.  5  Not to inhibit credit for housing or automotive or durables  6  which are already in a serious downturn, already; but to  7  try to restrain this overspending that has taken on such  8  an importance in the economic profile.  9  The President elected to invoke his  Second, the President extended the power of the  10  Federal Reserve to impose credit restraints and reserve  11  requirements on non-member banks, on banks that are not  12  members of the Federal Reserve system.  13  And third, he extended the power of the Federal  14  Reserve to control credit in fields such as money market  15  funds and similar instruments.  16 17  18 19 20  21  The Federal Reserve itself then acted to tighten the reserve requirements for managed liabilities of major  banks.  And, of course, extended this for the non-member  banks under the new authority from the President.  And the  Federal Reserve also established a voluntary, special  credit restraint program, reaching all major financial  \/22  (  institutions, that will have as it’s purpose, the ofloirt  S23 24  of^ both the rate the growth of credit, and/to be -ouee that  the credit needs are met for small businesses, agriculture,  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234*4433  WASHINGTON, D.C. 20005  12  1  and that the concentration of credit is in areas that are  2  useful and productive for the economy.  3  credit restraint area, we have approached this on the  4  point of view of minimum amount of bureaucracy, and the  5  maximum amount of operating on the margin of the areas  6  we need to control.  y7  In this whole  It's for that reason we did not intro­  duce restraints on individual credit^ instead, the re­  8  straints are upon the aggregate availability of credit in  X9  targeted areas;  ^/here each enterprise, each financial  10  institution will be free to chose for itself whether it  11  just pays the price for extension of credit by depositing  12  reserves, or whether it exercises it’s own restraint and  13  it's own rationing in order to achieve the best results.  14  So we're leaving the market system to work, but  15  we're putting in effective and powerful restraints that  16  will create motivation to move in a way that is consistent  17  with the national needs.  18  The third area is the wage and price program.  19  And we can repeat every time we speak, because we are  20  committed to it, that we will not have manditory wage and  2\  price control.  22  They don't work, they wifci be inequitable,  they would be unfair, they would create distortions in the  23  economy, your businesses would be plaqued with bureaucracy,  24  and you would be having so many troubles in making a your  25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, D.C. 20005  13  decision^ it would impede the vitality and productivity  ' 1 2  of the private system which is contrary to the fight  3  against inflation.  4  area to seek the cooperation which we have had from  5  businesses and employee groups and labor, to see that we  6  all exercise evenly, some degree of restraint; so that by  7  sharing some ausperity fairly, we can all gain the benefit  8  of beginning to wind down inflation.  9  But, we will continue in the wage price  The fourth area has to do with energy.  The  10  President, on his own authority, has imposed a gasoline  11  conservation fee which will apply to imported oil, but  12  which will be allocated so that it results soley in a ten  13  cent fee on gasoline.  14  of any other petroleum product; it will not add to any  15  other aspect of the petroleum industry, it will solely  16  result in a ten cent increase in the price of gasoline  17  which is part of the effort to continue to seek conserva­  18  tion in this particular use of energy, which is the one  19  which is the most discretionary and has the most opportunity  20  short term for conservation.  21  added some 60 or 70 cents per gallon tax to gasoline.  22  this means that, with all of the other prior costs of imSc ported oil, that this year we'll be sending some 80 or W-  13 24  This will not increase the price  OPEC, in the past year, has  And  billion U.S. dollars, the wealth of our nation, to foreign  25  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE. NW (202) 234-4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON. D.C 20005  14  1  producers.  2  we're hoping to reduce the amount of that import, and  3  reduce the American dollars that are sent abroad.  4  particular fee will continue, but we will ask Congress to  ^5  By continuing to seek greater conservation,  This  substitute for it, a regular advfclorum tax that will in­  6  corporate the present four cent gasoline tax, plus the  7  new ten cent fee, into a new combined tax that will be a  8  continuing permanent system for seeking this kind of  9  restraint.  Let me emphasize, I'm sure you've heard this,  10  but let me say it to you very carefully, this fee will  11  generate revenue.  12  conservation fee will yield some 10 billion dollars in  13  revenue to the federal government.  But those funds will  14  not be used to balance the budget.  We are going to balance  15  the budget with spending reductions, and with funds that  16  come in from the conservation fee, will be held as surplus,  17  used to reduce the federal debt, or used later, if we  18  accomplish our purposes, to carry out some targeted efforts  19  to improve the economy.  20  will not be used, to balance the budget.  21  In 1981, we expect that the gasoline  But they will not be available,  The fifth area has to deal with the structural  22  areas of our economy, particularly, to intensify our effort  23  to reduce the regulatory burden.  24  pass as early as possible, the regulatory reform act.  We do need support, to  25  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, D.C. 20005  We  15  1  do need support to complete the work on the financial  2  institutions reform legislation, which is now through  3  conference and is waiting inactment.  4  regulate trucking and reduce regulation on railroads,  5  communications; and we do need to do all of these things  6  which are difficult to do, have proved to be hard to  7  achieve, but we need support from everyone to speed up  8  this process.  9  demonstrated to the American people that we can deliver  We do need to de­  And, beyond this, when we have actually  10  a balanced budget, in fact, when we've achieved it, when  11  it's been voted, when it's not just a proposal, but is an  12  active law; then we'll be in a position to consider target  13  tax reductions to encourage the saving and the investment  14  which is essential to the longer term improvement of our  15  economy.  16  In the meantime, the most important thing that  17  we can do, individually and collectively, is to give first  18  priority to changing the whole additude about what our  19  government can do in terms of it's own discipline and  20  bring it's budget into balance.  21  we can do for you, and for business, is to do this as a  22  means to restore confidence in the government process and  23  to restore order to financial markets so that more normal  24  credit conditions will make it possible for businesses,  The most important thing  25 NEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234*4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, D.C 20005  16 1  once again, to plan their futures and their investments  2  without the uncertainties that now covers us all. These intensified actions, which we are taking  3  Let no one be mislead about this.  4  are powerful.  5  not yet be apparent, but as the days and the weeks pass,  6  this will become more and more apparent.  7  that is going to bite is the credit restraint.  8  thing that is going to bite is the gasoline conservation  9  fee.  It may  The first thing  The second  The third thing that is going to bite is the addi­  10  tional fiscal restraint that takes place as we begin to  11  wind down government spending, and government borrowing.  12  Let me just give you one number to put in your mind to show  13  how powerful this will be.  14  from 1980 to 1981, will be 50 billion dollars.  15  duction, from a 39 billion dollar deficit in 1980, to a  16  surplus of 10 or more billion in 1981, if we include the  17  gasoline fee.  18  The swing in our fiscal posture  The re­  That 50 billion dollar swing is the largest  19  swing in nominal dollars that we have ever experienced in  20  our economy.  21  product, it’s among the largest shifts in fiscal posture  22  that we have ever undertaken.  23  government will be reducing, by some 25 billion dollars,  24  it’s own borrowings within the credit market.  And in terms of percent of gross national  And, in 1981, the federal'  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234*4433  WASHINGTON, D.C. 20005  And releasin  17 1  some 25 billion dollars to fill the credit needs of the  2  productive, private secter.  3  So these are forceful actions.  4  you that inflation will not disappear immediately.  5  expect disappointing inflation numbers in the weeks and  6  months ahead, because there is already a good deal of this  Z7  But let me warn  in the pipe line and it cannot be reversed.  We can  But as these  8  actions begin to bite, the inflationary pressure will  9  abate,  10  the program will begin to deliver a winding down  of inflationary forces and expectations.  11  The program will not be without cost or without  12  pain.  13  sacrifice.  14  of industry, you as leaders of your communities and your  "15  Everyone will be asked to bear their share of the  And, obviously, in that regard, you as leaders  nation, are a' critical importance.  16  We need your support  to understand this program, and to help us implement it.  17  There is nothing more important for you in the long term  18  than to see that this happens.  19  There is no greater threat  to private business than inflation unchecked.  And there  20  is nothing more important for your long term vitality,  21  than to wage and to win the war against inflation.  22  We,  like you, are committed to the vitalization of American  23  industry, and the first place to start, is to put our house  24  back in order, re-establish the disciplines, and to demon-  25  NEAL R. GROSS COURT REPORTERS ANO TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234*4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, D.C. 20005  18  1  strate that we will control our destiny, and return to  2  that sense of purpose and inovation and vitality, which is  S  the ultimate strength, not only of our economy, but of our  4  role in the world at large.  5  Thank you very much.  y  6  7  8  9 10 11 12 13  14  15 16  i  17 18 i  19  i  20 21  ii  22  I 23  i I 24  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  REMARKS BY THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE NATIONAL ASSOCIATION OF MANUFACTURERS WASHINGTON, D.C. MARCH 20, 1980  1 MR. FISHER:  I have the pleasure of introducing  1  the Honorable G. William Miller, Secretary of the Treasury.  2  best way to obtain the ear of government, is to have business­  3  men serve in government.  4  that we at NAM, witnessed our speaker, who became Chairman  5  of the Federal Reserve Board in March, 1978, and Secretary  6  of the Treasury in August of 1979.  7  Th  And, so it is with great pleasure  His business credentials are impressive.  He joined  8  Textron, Incorporated, in 1956; and subsequently became the  9  Vice President, President, Chief Executive Officer, and finally  10  Chairman and Chief Executive Officer in 1974.  11  Director of the Federal Reserve Bank of Boston, and on the  12  Boards of several major corporations.  13  Business Council, the Business Roundtable, he was Chairman of  14  of the Conference Board, and Chairman of the National Alliance  15  of Businessmen.  16  17 18  19 20  21 22 23  24  He served as a  He was a member of the  Our speaker received his Bachelor’s Degree in Marine Engineering from the U. S. Coast Guard Academy, and served as  a Coast Guard Officer in the Tar East and on the West Coast  of the United States.  He received his law degree from the  University of California School of Law at Berkley, and joined the law firm later of Chrovai, Swain/, and Moore, in New York,  before moving on to Textron.  I was just discussing with Bill that this must have been a great shock to his thinking process to move out of the  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE. NW (202) 234-4433  WASHINGTON, D.C. 20005  (301) 261*4445  2  1  world of lawyers into the world of business, because, if  2  there is any problem I have in my business career, it is  3  arguing with lawyers. He has devoted much time, effort and talent to  4  5  public service.  6  to help, through industry, retaining an employment.  7  Chairman of the U. S. Industrial Payroll Savings Bond Com­  8  mittee, Co-Chairman of the U.S.-U.S.S.R Trade and Economic  9  Council, and the Polish Economic Council; and as a member of  10  And as  numerous other boards and commissions.  11  12  And, as Chairman of the President’s Committee  The NAM is honored and pleased to welcome our speaker, Secretary of the Treasury, G. William Miller.  13  (Applause)  14  MR. MILLER:  Thank you very much, John.  I had the  15  pleasure of addressing your meeting last year, that time at  16  breakfast.  17  lunch, or whether you just can’t face the day on this subject,  18  and you wanted to be sure to get through a hearty lunch before  19  we discussed it; but I almost could repeat the speech that I  20  made last year, and I may do that; since very few of you  21  probably remember it, and I kept the notes and are convenient.  I don’t know whether inflation has elevated me to  -t/L£c,L  22  The problem does persist, and inflation is indeed  23  our most serious problem, certainly it must be the most  24  serious problem for you in business, and it is the most  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW  (202) 234-4433  WASHINGTON, D.C. 20005  (301) 261*4445  3  1  serious problem for the entire nation. I’ve been involved now in government now for two  2 ^3  years.  And over this entire two years, I've been Grappling  4  with this issue, first at the Federal Reserve, and now at the  5  Treasury.  6  the subject that inflation has built up over a long period of  7  time; it's not just a recent phenomenon, it goes back for  8  some fifteen years.  9  it's become deeply ingrained in our system.  It's very clear with all of us who have dealt with  And because it's built up for a long time  It is going to  10  take a very intense effort if we are to bring it out of our  11  economic system, indeed.  In these two years, in one way or another, I've  12 13  been involved in trying to structure a comprehensive strategy  14  to deal with inflation.  15  a board array of policies that would help us wage and win a  16  war against inflation.  17  to put in place policies which attack the fundamentals and  18  not just the symptoms of this dreadful disease.  19  tick off a few of the very fundamental policies that we have  20  been pursuing; and then come back to some of the things that  21  we are now undertaking and some of the implications.  ^22  To marshall a board base of policies,  And in doing so, we've been endeavorin<  And let me  The first is a new additude about pfry±ea 1 restraint,  23  For too long, the nation has lived beyond it's means, and year  24  after year, built up deficits.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Since the last time the United  States ha^ a balanced budget, we have increased the national NEAL R  GROSS  COURT REPORTERS AMD TRANSCRIBERS 1330 VERMONT AVENUE, MW (202) 234*4433  WASHINGTON, D.C 20005  (301) 261-4445  4 1  debt by over one half trillion dollars.  v4  Second?Yimportant policy is to impose monetary  3  discipline to wind down the growth, the rate of the growth  4  of money and credit, so that we relate our capacity to buy  5  with our capacity to produce.  6 7  8  Third is to seek voluntary cooperation in wage and  price moderation until the more fundamental policies can take  hold.  9 10  y ii 12 13  Fourth is to assure a stable dollar, and to bring our international accounts into balance, which we've done, if  you noticed the report that was released this morning!-? 1979 current account was approximately in balance following a 14  billion dollar deficit in 1978.  14  v/l5 16 17  18 19  Fifth is to deal with the energy issue.  else may be the causes of inflation, the fact^that in the decade of the 70's, oil went up over 1,000 percent in price, and has worked it's way into every cost of every business.  It's a fundamental problem that we must address and must re­  solve if we are to win the war.  20 21  22  Sixth, we must intensify our efforts to reduce the regulatory burden which has inteferred with the process of  creativity and productivity essential to win the war.  Z 23 / 24  Whatever  And seven, we need^ and have been endeavocWy to put  in place^ policies to address the longer term structural  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  (301) 261-4445  5  1 2  3  tutions, to the strengthening the market system itself, to  addressing the problem of productivity.  4 5 6 7 8  The war against inflation, is by it's very nature,  It must be pursued over considerable time.  dynamic.  involve a continuing concentration of effort.  to unpredictable changes.  It must  It must adapt  I've heard many people say that we  should announce an anti-inflation program that will take care  9 of it. 10  Those that go to financial insti­  problems of our economy.  But in waging a total war against inflation, we must  be prepared not only to muster an array of policies, we must  11  be prepared not only to field an army to deal with the issue, 12  but we must be prepared to carry on the campaign, to take the 13  14  15  16  offensive, to adjust our tactics to the circumstance, to deal  with the unexpected and the unpredictable, and to be able to  take setbacks from time without relenting in our determination to continue and to persist.  17  We must be able to deal with events in the world 18  that have impacted us adversely in recent months.  First the  19  change of government in Iran set off a series of events, that 20  led to the largest increase in oil prices that have ever taken 21  place since oil had been discovered.  In 1979, oil prices went  22  up 125 percent, some 18 dollars a barrel, more than the price 23  of oil had grown since it had first been discovered.  And that  24  has had an enormous impact upon the war we are waging. 25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  (301) 261-4445  6 1  We must also be able to cope with events such as  2  Afhganistan, which has called upon us to adjust some of our  3  own economic and military policies to counter that particular  4  threat.  5  We must, in waging the war, be able to respond to  6  domestic trends.  7  good evidence of how our economy behaves in a period of high  8  sustained inflation in peacetime, because we have never ex­  9  perienced it and we have no data base.  We do not have, in econometric models, any  So we cannot predict  10  behavior patterns of consumers or businesses or government,  11  but we’ve got to be able to be willing to monitor and to ad­  12  just as these behaviorial patterns begin to asert themselves.  13  We must be willing to deal with the phenomonom of greater  14  spending and less saving that has seen to have been the re­  15  sponse of our system to inflation.  16 17  18 19  20  21  Since the budget of 1981 was first submitted last January, since it was formulated in December, we've had a  number of substantial changes. mentioned, some others.  24  Let me just tick off a few of the  changes since we prepared the budget and the economic program  last December.  22  23  Somewhat along the lines I've  First, the inflation indicators have shown acceler­  ation.  We've been, all of us, somewhat surprised with'the  degree to which the oil price increases are now beginning to  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  (301) 261-4445  7  1  work their way into all prices, and into the structure of our  2  economy.  3  phenomenon.  4  indexes, have jumped up.  5  In the United Kingdom, in Japan, in Italy; in the last two  6  months, the wholesale prices are in excess of an annual rate  7  of 25 percent in those countries.  8  in the United States.  9  forceful for historic reasons in fighting inflation, the  This is a worldwide phenomenon, not just a U.S.  Our wholesale price indexes, our consumer price But so have they in other nations.  So it isn’t just happening  And in Germany, which has been the most  10  wholesale price index for the last two months has been over  11  13 percent.  12  the world, in a very dangerous pattern.  13  So here we’re seeing this begin to spread through  But the response of consumers to the circumstances  14  has been to spend even more, and to save even less.  15  seen the saving rate drop in the last two months to about  16  three percent, which is the lowest rate since the Korean war;  17  and is indeed, of great concern.  18  of acquiring goods, spending now, and letting the future take  19  care of itself, a dangereous trend.  20  changed in this period.  21  dicting a recession, starting early in the year.  22  of a recession, economic activity is continuing at a relatively  23  high level, except in housing and autos.  24  because of this pattern of behavior across the economy, of  We’ve  Because it shows a psychology  Economic activity has  All economist’s last fall were pre­ But instead  And this is partly  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R  GROSS  COURT REPORTERS AMD TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C 20005  (301) 261-4445  8 1  spending rather than saving.  2  3  4 5 6  7  8  This whole atmosphere of change also led many  people to question whether Congress would be able to respond to the President’s budget, and whether they would dispose of it by approving the levels of spending and taxing that had  been included.  the budget might indeed get out of control and that the defici  would expand.  9 10 11  12 13  14  15 16 17  Now in the face of these changes in economic outlook  in activity in the economy, in the behaviorial patterns of businesses and individuals, and the expectation as to the budget; it's been necessary for us to re-examine and to inten­ sify the application of our fundamental policies.  20  It's not  that we need to change those policies, it's that we need to intensify the disciplines that go with those policies to be  sure that they are enforced, and that we are successful in driving them through to implimentation.  18 19  In fact, there was a wide-spread belief that  "Therefore, the President  announced last  Friday, a series of new actions to intensify the discipline of our economic policies in five major areas.  21  First is to reinforce and to add additional restraint  22  policy, seeking to establish a balanced budget 23  24  Second, to impose additional restraint on the 25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE. NW (202) 234-4433  WASHINGTON. D.C. 20005  (301) 261-4445  9 1  availability of credit.  2  <  Third, to strengthen the voluntary wage and price  3  program.  4  Fourth, to seek greater energy conservation to  5  reduce our dependence upon imported oil.  6  And fifth, to give greater attention to the  7  structural changes to encourage a more efficient and more  8  productive economy.  9  Let me start with the budget.  10  we will propose for F. Y. 81 will be in balance.  11  second one in 21 years.  This is not a budget exercise in  13  which the Administration has suddenly made a few changes  14  and intends to send up a few supplements to Congress.  15  effort to achieve, in fact, a balanced budget, has been  16  pursued through a unique and historic process.  17  The  For several  weeks, we consulted intensely with members of Congress of  18  both parties.  Y19  We spent over eight straight day’s meeting  in session with leadership of the Congress^ never done  ^20  before/f in which members of the House and the Senate and  21  <  It will  be the first balanced budget in 12 years, and only the  12  (  The budget that  the  22  Administration sat down to develop committments,  committments not only would we propose but we would deliver  23  a balanced budget.  24  And it is that process which adds a  new dimension to the outlet for the budget and to it*s  25  HEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW  (302) 234*4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON. D.C >0005  10  1  impact upon expectations and it’s impact upon our economic  2  progress.  3  The leadership of the Congress, as a result of  4  this, has committed to do several things.  5  far more attention and committment to achieving the 5.6  6  billion dollars of spending cuts that we had already sub­  7  mitted in January.  8  cuts of 13 or 14 or more in order to assure that we would  9  bring the budget into balance through spending reductions,  xio  One, to give  And second, to achieve further spending  and only through spending reductions.  And third, a commits  11  ment to maintain the discipline so that we will, in the  12  face of changing conditions, be able to reinforce and  13  reassure that we have the balanced budget for 1981  14  We are in substantial agreement with Congress­  15  ional leadership on the budget.  16  to mark up their budget resolutions along these lines.  17  But in the meantime, the Office of Management and Budget  18  has 25,000 lined items to process, and it has to go through  19  all the departments of government to lock up the details  20  and to be sure that our economic assumptions and feedbacks  21  have been developed, and it will take them, probably until  22  the end of the month, to present the final details of this  23  new budget.  24  And they are proceeding  But it will be in balance.  The second area is the area of restraint on  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  11  1  credit availability.  2  powers under the Credit Control Act of 1969, to operate to  3  constrain expansion of consumer credit as represented by  4  credit cards, overdrafts, revolving credits for consumers.  5  Not to inhibit credit for housing or automotive or durables  6  which are already in a serious downturn, already; but to  7  try to restrain this overspending that has taken on such  8  an importance in the economic profile.  9  The President elected to invoke his  Second, the President extended the power of the  10  Federal Reserve to impose credit restraints and reserve  11  requirements on non-member banks, on banks that are not  12  members of the Federal Reserve system.  13  And third, he extended the power of the Federal  14  Reserve to control credit in fields such as money market  15  funds and similar instruments.  16 17  18 19 20  21 22  23 24  The Federal Reserve itself then acted to tighten the reserve requirements for managed liabilities of major  banks.  And, of course, extended this for the non-member  banks under the new authority from the President.  Federal Reserve also established a voluntary, special  credit restraint program, reaching all major financial  institutions, that will have as it's purpose, the offort of^ both the rate the growth of credit, and/to be-o are that  the credit needs are met for small businesses, agriculture,  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  And the  NEAL R. GROSS COURT REPORTERS ANO TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  12 1  and that the concentration of credit is in areas that are  2  useful and productive for the economy.  3  credit restraint area, we have approached this on the  4  point of view of minimum amount of bureaucracy, and the  5  maximum amount of operating on the margin of the areas  6  we need to control.  yi  In this whole  It's for that reason we did not intro­  duce restraints on individual credit^ instead, the re­  8  straints are upon the aggregate availability of credit in  X9  targeted areas;  ^/here each enterprise, each financial  10  institution will be free to chose for itself whether it  11  just pays the price for extension of credit by depositing  12  reserves, or whether it exercises it’s own restraint and  13  it’s own rationing in order to achieve the best results.  14  So we’re leaving the market system to work, but  15  we’re putting in effective and powerful restraints that  16  will create motivation to move in a way that is consistent  17  with the national needs.  18  The third area is the wage and price program.  19  And we can repeat every time we speak, because we are  20  committed to it, that we will not have manditory wage and  y21  price control.  22  They don’t work, they  be inequitable,  they would be unfair, they would create distortions in the  23  economy, your businesses would be plaqued with bureaucracy,  24  and you would be having so many troubles in making a your  25 HEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234*4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, D.C 20005  13  z 1  decision^ it would impede the vitality and productivity  2  of the private system which is contrary to the fight  3  against inflation.  4  area to seek the cooperation which we have had from  5  businesses and employee groups and labor, to see that we  6  all exercise evenly, some degree of restraint; so that by  7  sharing some ausperity fairly, we can all gain the benefit  8  of beginning to wind down inflation.  9  But, we will continue in the wage price  The fourth area has to do with energy.  The  10  President, on his own authority, has imposed a gasoline  11  conservation fee which will apply to imported oil, but  12  which will be allocated so that it results soley in a ten  13  cent fee on gasoline.  14  of any other petroleum product; it will not add to any  15  other aspect of the petroleum industry, it will solely  16  result in a ten cent increase in the price of gasoline  17  which is part of the effort to continue to seek conserva­  18  tion in this particular use of energy, which is the one  19  which is the most discretionary and has the most opportunity  20  short term for conservation.  21  added some 60 or 70 cents per gallon tax to gasoline.  22  23  this means that, with all of the other prior costs of imSc ported oil, that this year we’ll be sending some 80 or W  24  billion U.S. dollars, the wealth of our nation, to foreign  This will not increase the price  OPEC, in the past year, has  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234*4433  WASHINGTON, D.C. 20005  And  14 1  producers.  2  we’re hoping to reduce the amount of that import, and  3  reduce the American dollars that are sent abroad.  4  particular fee will continue, but we will ask Congress to  5  substitute for it, a regular advfclorum tax that will in­  6  corporate the present four cent gasoline tax, plus the  7  new ten cent fee, into a new combined tax that will be a  8  continuing permanent system for seeking this kind of  9  restraint.  By continuing to seek greater conservation,  This  Let me emphasize, I'm sure you've heard this,  10  but let me say it to you very carefully, this fee will  11  generate revenue.  12  conservation fee will yield some 10 billion dollars in  13  revenue to the federal government.  But those funds will  14  not be used to balance the budget.  We are going to balance  15  the budget with spending reductions, and with funds that  16  come in from the conservation fee, will be held as surplus,  17  used to reduce the federal debt, or used later, if we  18  accomplish our purposes, to carry out some targeted efforts  19  to improve the economy.  20  will not be used, to balance the budget.  21  In 1981, we expect that the gasoline  But they will not be available,  The fifth area has to deal with the structural  22  areas of our economy, particularly, to intensify our effort  23  to reduce the regulatory burden.  24  pass as early as possible, the regulatory reform act.  We do need support, to  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE. NW (202) 234-4433  WASHINGTON. D.C 20005  We  15 1  do need support to complete the work on the financial  2  institutions reform legislation, which is now through  3  conference and is waiting inactment.  4  regulate trucking and reduce regulation on railroads,  5  communications; and we do need to do all of these things  6  which are difficult to do, have proved to be hard to  7  achieve, but we need support from everyone to speed up  8  this process.  9  demonstrated to the American people that we can deliver  We do need to de­  And, beyond this, when we have actually  10  a balanced budget, in fact, when we’ve achieved it, when  11  it's been voted, when it's not just a proposal, but is an  12  active law; then we'll be in a position to consider targete d  13  tax reductions to encourage the saving and the investment  14  which is essential to the longer term improvement of our  15  economy.  16  In the meantime, the most important thing that  17  we can do, individually and collectively, is to give first  18  priority to changing the whole additude about what our  19  government can do in terms of it's own discipline and  20  bring it's budget into balance.  21  we can do for you, and for business, is to do this as a  22  means to restore confidence in the government process and  23  to restore order to financial markets so that more normal  24  credit conditions will make it possible for businesses,  The most important thing  25 NEAL R  GROSS  COURT REPORTERS AND TRANSCRIBERS  1330 VERMONT AVENUE. NW (202) 234*4433   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON. D.C 20005  16 1  once again, to plan their futures and their investments  2  without the uncertainties that now covers us all. These intensified actions, which we are taking  3  Let no one be mislead about this.  It may  4  are powerful.  5  not yet be apparent, but as the days and the weeks pass,  6  this will become more and more apparent.  7  that is going to bite is the credit restraint.  8  thing that is going to bite is the gasoline conservation  9  fee.  The first thing The second  The third thing that is going to bite is the addi­  10  tional fiscal restraint that takes place as we begin to  11  wind down government spending, and government borrowing.  12  Let me just give you one number to put in your mind to show  13  how powerful this will be.  14  from 1980 to 1981, will be 50 billion dollars.  15  duction, from a 39 billion dollar deficit in 1980, to a  16  surplus of 10 or more billion in 1981, if we include the  17  gasoline fee.  18  The swing in our fiscal posture The re­  That 50 billion dollar swing is the largest  19  swing in nominal dollars that we have ever experienced in  20  our economy.  21  product, it's among the largest shifts in fiscal posture  22  that we have ever undertaken.  23  government will be reducing, by some 25 billion dollars,  24  it’s own borrowings within the credit market.  And in terms of percent of gross national  And, in 1981, the federal'  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C. 20005  And releasin  17  <  1  some 25 billion dollars to fill the credit needs of the  2  productive, private secter.  3  So these are forceful actions.  4  you that inflation will not disappear immediately.  5  expect disappointing inflation numbers in the weeks and  6  months ahead, because there is already a good deal of this  But let me warn  in the pipeline and it cannot be reversed.  We can  But as these  8  actions begin to bite, the inflationary pressure will  9  abate, the program will begin to deliver a winding down  10  of inflationary forces and expectations.  11  The program will not be without cost or without  12  pain.  13  sacrifice.  14  of industry, you as leaders of your communities and your  »Xl5  Everyone will be asked to bear their share of the  nation, are  And, obviously, in that regard, you as leaders  critical importance.  We need your support  16  to understand this program, and to help us implement it.  17  There is nothing more important for you in the long term  18  than to see that this happens.  19  to private business than inflation unchecked.  20  is nothing more important for your long term vitality,  21  than to wage and to win the war against inflation.  22  like you, are committed to the vitalization of American  23  industry, and the first place to start, is to put our house  24  back in order, re-establish the disciplines, and to demon-  There is no greater threat  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NEAL R  GROSS  COURT REPORTERS AMD TRANSCRIBERS  1330 VERMONT AVENUE, NW (202) 234-4433  WASHINGTON, D.C 20005  And there  We,  18 1  strate that we will control our destiny, and return to  2  that sense of purpose and inovation and vitality, which is  3  the ultimate strength, not only of our economy, but of our  4  role in the world at large.  5  Thank you very much.  y  6  7  i  8  910  11 12 13  14 15 16  i  17 18  i i  19 20 21  Ii  22 23  24  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I I