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Speech given by Chairman G. William Miller before the
National Press Club, Washington, D. C , June 197B.
(from THE AMERICAN BANKER, June 12, 1978, p.4,7, & 9.)


•. I do want to say that it is a special
^pleasure for me to address the National
Press Club today because this is my first
appearance. I'm surprised to be here,
just as you are surprised to have me,
because I never expected to be a banker
of any kind. And certainly I never expected to be a central banker.
It's true that the Wall Street Journal
headlined my a p p o i n t m e n t w i t h
"William Who?" But it's also true that
my secret ambition, at the end of my
four-year term as chairman, is to find a
repeat of that headline in all of your
publications . . . "William Who?" If at
that time no one knows or cares who is
chairman of the Federal Reserve, then
America will be enjoying an u n paralleled period of prosperity without
inflation and with a strong dollar.
I will be forgotten, but the world will
be better off.
In the meantime, conditions are
otherwise. The past dozen years havebeen characterized by dramatic shocks
and discontinuities. The war in Viet Nam
was divisive. The state of domestic tranquility was interrupted by civil disorders. Failure to pay for that war planted
the seeds of inflation. The treat of inflation led to imposition of direct wage
and price controls which proved to be
both inequitable, and ineffective.
The international monetary system
broke down. With controls holding on
the lid, the United States economy was
reflated, building up a head of steam in
the kettle. When the wage and price
controls were removed, the steam blew
off. The double-digit inflation and
double-digit inflation rates.
To compound the difficulties, the oil
boycott ushered in a five fold increase in
world petroleum prices. The Watergate
incident, and its aftermath, led to a
general distrust of all institutions public
and private. Finally, there was the great
recession of 1975, with 9% unemployment and the greatest economic distress
since the Depression of the 1930s.
Now we are in the fourth year of
economic recovery from those troubled
times. The level of prosperity has advanced considerably. Social and political
conditions have become more stable.
Yet, in the face of progress, there
remains nagging uncertainty. This is not
because of any lack of agreement on
economic goals. There is universal accord that our objectives should be full
employment, price stability and a sound

The uncertainty arises because many
have come to question whether those
goals can be achieved.
America's economic goals can be
achieved. The means to do so are at our
disposal. All it requires is the will. All
that is needed is the realization that
there is a confluence in our individual
self-interest that compels us toward a
common effort. Divided, we shall
realize none of our goals. United, we
shall accomplish all.
Inflation is now our most serious
domestic problem. It is the No. 1 issue
not because it has precedence over the
quest for full employment but because,
. under present circumstances, it is the
primary obstacle to achieving full employment. Inflation is inextricably linked
with unemployment Our hopes for full
employment on a continuing basis depend upon wiping out the virulent disease of inflation.
Inflation destroys values and incomes
and dries up job-creating investments,
impairs the prospect for new housing
and other construction and breeds
Perhaps the best way to, illustrate the
clear and present danger of inflation is
to consider the consequences for young
people who are graduating this month
from America's colleges and universities. If inflation should be permitted to
continue at the present annual rate, expected to be 7% or more this year, then
when today's college graduates reach
normal retirement age, the dollar they
now hold will be worth less than a dime.
At age 65, the dollar of today's graduate
will be worth less than 10 cents. We cannot let that happen to our young people
or to Americans of any age, or to the
world. We simply must prevail.
The value of the dollar is related to inflation. The decline in the value of the
dollar since last September has caused a
worldwide concern. The' reason for the
slide can be traced to the record U.S.
trade and current account deficits and
to the level and persistence of U.S. inflation rates. The decline in the dollar itself
adds to inflationary pressures as the
goods we import cost more, and
reduced competitive constraints on
domestic products.
The U.S. has a special responsibility to
maintain a sound and stable dollar. It is
the currency for most international
trade and finance. It is the principal
reserve asset for the world's monetary
system. The dollar is therefore the key to
world economic progress and, in our
own self-interest, we need a sound
dollar to dampen inflationary pressures
here at home.

As the world becomes more interdependent, the role of the dollar will be
a continuing challenge. The bridging actions taken in recent months have
helped stabilize the dollar and it has
regained some of the lost ground. More
important, most important perhaps, a
stable dollar over the long term depends upon creating a clear trend
toward lower inflation and reduction in
our international deficits.
One important factor in all of these
considerations is energy. America was
fortunate to be able to develop as a nation by utilizing the seemingly boundless
resources of a vast, almost u n populated continent. The availability of
abundant and inexpensive energy
fueled the growth of a great industrial
economy. But with 6% of the world's
population consuming 30% of its
energy, it was inevitable that a day of
reckoning would come. The forces of
supply and demand came into play with
a vengeance.
In 1973, the U.S. imported $8 billion in
oil products. Last year it was $45 billion.
This contributed to the large U.S. trade
deficit and to the pressure on the dollar.
The task ahead is to convert our in.dustrial, c o m m e r c i a l , residential,
transportation and public infrastructures i n t o more-energy-efficient
systems. We need to conserve present
energy reserves, to reduce dependence
on foreign petroleum and to change
over to alternate, more economic
energy sources. This process will certainly take more than a decade or

It is clear that our economic problems
are interrelated. Inflation contributes to
the decline of the dollar. The decline of
the dollar contributes to inflation. Inflation drives up interest rates and breeds
recessions, which cause unemployment.
• Unemployment causes large Federal
deficits which contribute to inflation.
Our task is to break the vicious circle,
In endeavoring to do so, we can learn
from history — but the lessons of the
immediate past are not encouraging.
Perhaps it is time for us to take new
directions to help shape a stronger
America and a better world.
One such new direction would involve a conscious shift in the philosophy
for U.S. economic policy from demand
or consumption management to supply
or investment management. Let me cite
two periods when leading world powers
have been subjected to hyperinflation.

The first occurred in the 16th century,
Spain. The discovery of the New World
gave Spain access to vast amounts of
gold and silver. Cold from the New
World introduced massive unearned
purchasing power into Spain which
drove prices up perhaps a thousand per
cent. That purchasing power did build
great palaces and did provide the most
elegant life style that had ever been experienced up to that time in Europe.
However, the use of resources was for
consumption, with little attention to investments for the future. So, by 17th
century Spain had run through its
wealth and was economically barefoot.
Is there a parallel in our 20th century
experience? Through the printing
presses there has been a massive creation of unearned money and credit. U.S.
has built the most affluent nation ever
known, with the highest standard of living for the greatest number of people. Is
this but aoother example of overindulgence in consumption? Will we
neglect investment and deplete our
capacity for future generations? Will the
legacy of our time be an economic desert?
A second new direction would be to
shift resources from the public sector to
the private sector. The present percentage of gross national product represented by Federal government expenditures and state, and local government
expenditures has grown steadily until it
may have reached the point of being
counterproductive. During the last
decade it has become apparent that
government spending does not always
produce the results — economically or
socially — and may not be the most effective way of reaching our desired objectives.
Amidst growing disenchantment, a
more promising course would be to
return more of the spending decisions
to individuals and to businesses, where
the cumulative effect of thousands and
millions of private initiatives would be
more efficient in sustaining and 'expanding economic progress.
The new directions for economic
policy should include specific strategies
and quantitative targets to give all of us a
clear picture of where we are going.
With such a blueprint, it would be possible to evaluate all proposed policies and
actions as to their contribution toward
achieving the established goals.


Perhaps this could best be understood
by designing a model economy that
would represent, the ideal condition
sought within a reasonable time,
perhaps five or six or seven years. Then
our economic policies could be directed on a.steady course to reach those
targets as we decide upon them in our
model. The components of such a
model might include the following:
First, a balanced budget with full employment. With the steps already taken
or planned, the budget deficit for fiscal
year 1979 is now expected to be $50
billion or less, down from the original
$60 billion. The trend should be continued with reduction to less than $40
billion for fiscal year 1980, for less than
$20 billion in 1981 and for a balanced
budget in 1982.
Second, the percentage of GNP
represented by Federal expenditures
should be reduced gradually over the
five- to seven-year period from 22% of
GNP to 20%. Even though the Federal
government would still be spending
more, such a program would mean
spending $50-$75 billion • less than
otherwise would be the case, and these
resources could be shifted back to the
private sector.
Third, should be a policy to achieve a
substantial increase in business fixed investment. The U.S. has been neglecting
its capital base, the issue of investment
for the future, the explanation of Spain
in the 16th century. We are falling
behind other principal nations. Japan
spends 15% of its GNP for capital investment, Germany 21%. United States, 8 or
Over the decades, we are falling
behind in our productive capacity,.our
efficiency, our productivity and our
t e c h n o l o g y . O n e technTque in
stimulating more capital investment
would be a substantial liberalization of
depreciation guidelines so that the cash
flows from risky investments would
justify the investment.
Later there could be the possibility of
examining other capital formation areas
for stimulation for private investors and
for entrepreneurship. But, overall, the
goal should be over the five- or seven year
period to increase our capital spending
from 9% to 12% of GNP.
Fourth, we should have a policy as to
housing which again has, in many
periods, fallen behind our demands. In
the next five years it would be appropriate to see housing increased by
75,000 or 100,000 units per year each
year until we reach the levels that would
be consistent with our national needs.
Fifth, we should have a vigorous
program for export, with a definite goal
to increase our exports from 7% of GNP
to 10%, which would go very far in
correcting the balance-of-payment
deficits which plague us and which
threaten the value of the dollar.

Sixth, as our program progresses, and
as we have the capacity to shift
resources to the private sector, we*
should be prepared for additional tax.
reductions for individuals consistent
with the goals to balance the budget,
but also consistent with reducing
government expenditures and giving
the expending decisions back to people.
Seventh, we should be more serious
than we yet have been about regulatory
reform to remove the nonmonetary and
fiscal aspects of government action from
their inflationary impact.
And eighth, we should have a definite
commitment to reduce inflation on a
steady basis, at the rate of reduction of
one-half to three-quarters of a per cent
per year until we reach our goal of price
, stability,, full employment and a sound
• dollar.
These are eight points of new directions on a strategy that could see us
overcome in a reasonable period, an attainable period, all of those terrible diseases which now threaten ourvitality.™
I must say to you that since I have;
been in'Washington, most of my atten-"
tion has been directed to the short-term,
problem. The dilemma we face at the$
Federal Reserve is trying to react against I
inflation in the short term, and the'
necessity that we find a coordinated
policy of fiscal monetary policies to be
sure that the Federal Reserve and the
monetary policy is not left to do the job
alone. A great deal of progress has been
made in that regard. It is extremely en-'
couraging to see the change of attitudes
in Washington and to see the specific
concrete steps that have been taken
along these lines.
But we still face a very trying period
because in the next few quarters we will
face the test of being able to restrain inflationary pressures enough to avoid the
dislocations that otherwise will result
while not slowing down our economy
into a recession, and this will require the
best skills that we can marshal from all
those who participate or are involved with
the government. And from all those who
have management and financial responsibility in the private sector.
Beyond that, the opportunity for our
longer-range strategies can be brought
into play.
My message today is inflation is a
terrible problem. We must conquer it.
In the short term we have a very difficult
task to tread our ways through a narrow
passage. In the longer run, with a united
nation, we have great prospects to
achieve our goals.
And if we do, economic stability, full
employment, sound dollar will not only
contribute to our well-being but it is the
only sure way that we will have peace
and prosperity throughout the world. •