Conversation 113-004

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I decided today I must agree is not quite as fun because it's the budget.

I've always said to my colleagues, having spent too many budget sessions in the eyes and ears and also the time that we've been in, it's always a great channel.

It's not waged here necessarily, it's waged on philosophical lines, but it's one that we have to face up to.

We want to present, we can't quote the leaders, it's a legend, that's what we'll be coming up with.

I'm making a little talk on Sunday night on Facebook, which we're going to set this time, and it's huge, it's about the transition.

What we'd like to give you is a random name for why we have come up with this.

$250 billion for 1973, which we have now reached.

And a number of 268 .74, which is a lot of gold.

And I think, I found it very helpful in presenting the money, rather than just going to the budget, it's the first step that you've got to get an economic look on it, so you know where we stand as an economy.

Because of the budgetary relations, it was always, it was always, what will it do to the economy, how is the economy doing?

When the economy is flat, you need an expansion of the budget.

When the economy is as a head of state, you need one that doesn't go quite as far as the thing Wilbur raised the other day on the Fed.

The Fed's policies, he feels, have been too expanding lately, and they were certainly too restrictive in the earlier time, and they do over-religionizing.

That's trouble going up and down.

The budget and the Fed are the two items, the two institutions that we, well, we don't control the Fed, but the budget is the one that we control, and it must relate to the Fed's policy.

So, her design will be the...

the leader on this, and Bill Chang, who is the moderator.

Herb, I have, is one of the new economists that talks in a language that I don't understand.

I think he translates for all of us today.

Mr. Fred, I'd like to, of course, that's easy.

There are a lot of people that don't know my account.

We will set up our economic report on Wednesday, which in 200 fast-paced pages will explain to you what happened last year and what we expect is going to happen this year.

But I will try to summarize it in about five minutes and say that 1972 turned out, as we can all agree now, to have been a very good year in the economy.

was a year in which we had the biggest increase in civilian employment that we've had in 25 years.

We had an increase in real output from the beginning to the end of the year of about 7, a little over 7.5%, which was one of the biggest year increases in the post-war period.

We got the unemployment rate came down from

about 6% at the end of last year to the end of 1971 to about 5.1% at the end of 1972.

And the thing that has been generating great anxiety in the country for years, the inflation rate, shows unmistakable abatement.

The rate of inflation as measured by the Consumer Price Index at the end of the year, in the last quarter of the year, was 3.2% as compared with something a little over 6% in 1959.

So a great deal of progress was made on both fronts since everybody was concerned about unemployment and inflation.

Well, in the fourth quarter, the annual rate of increase of the consumer price index was 3.2%.

For the year 1969, it was 6.1%.

So the rate, that means the rate was approximately cut in half.

And of course, everybody who was here knows a great deal of the increase in the price index in 1972 was in food prices, non-food prices rose much less than that.

As we look ahead to 1973, we think we have the prospect of not only another one good year, but the prospect of a year which will introduce, make possible a period of sustained high employment, reasonable price stability, and strong growth because the expansion that is underway, and which most people foresee as being underway in 1973,

It's a very well-balanced one.

It does not depend on extremely large amounts in any particular sector.

It does not depend on a sustainable amount in any particular sector of the economy.

In the Guadalupe Pacific, for example, an area taken by the military is always somewhat unpredictable.

based on that.

No, it's kind of leveling out.

We have now absorbed, we have absorbed in the economy an enormous reduction of military expenditures from about the fourth quarter of 1968 when the peak was reached.

In real terms, we've had an increase which in present, a decrease which in present dollars is of the neighborhood of 25 or 30 billion dollars.

We have absorbed that into the economy.

We do not have

a post-war economy problem before us.

We have, relative to the size of the economy, reasonable stability in the defense sector.

For us, it's also a sort of herd of almost 2 million men from the armed services, and armed services included, people who are in the war time and peacetime.

That's right.

So if you look at your arm, find a figure of 5'2", or whatever it'll be, or 5'1".

Would you look at unemployment figures?

That had soared to 2 million, right?

Oh, certainly.

The increase in unemployment has been much less than the reduction in defense-related employment in the last several years.

And as we look at how, in 1973, we see a very strong

Continued business investment in plant equipment at about the same rate as last year.

We see very strong consumer expenditures.

Consumers have been strong in 72.

Consumers will be getting big increases of income in 73.

We look to that as a major source of expansion.

We expect, as most people do, a decline in housing starts, but we do not expect it to be very large.

We expect that 1973 housing starts will be the second biggest in history, only exceeded by 1972, which was the all-time record of almost about 2.4 million houses.

We think we may be at around 2.2 in 1973.

Mr. President, may I interrupt?

Well, I think they've just got very jittery and nervous about what's going on here.

We see the fundamental forces vacancy rates, although they have risen somewhat, are still relatively low.

Given the budget picture that we project, that it's a budget which is not going to be taking more out of capital markets, but going to take less out of the capital markets, that there will be a good supply of mortgage money.

And as far as 1973 is concerned, the amount of subsidized housing starts, the government subsidized housing starts will be a little larger than 1972.

So we need that number of homeowners, the whole builders here in Texas.

we do not foresee some drop off and perhaps further at 74 or 73.

But the point that we make in our report, and that's important for this morning, is that these quite favorable prospects, not only for 1973, but really didn't give numbers for 1973, but we do expect that the unemployment rate by the end of 1973 would get down to the neighborhood of about 4.5%, and that we would get the inflation rate down to 2.5%.

or lower, and that we would then be in a position to enter a sustained path of growth and responsibility.

But all this depends on our pursuing prudent policy in 1973, and of course we have been at such moments

before where things depended on pursuing prudent policy and we didn't pursue prudent policy and we went through a lot of ups and downs as we all remember.

As we look at the 73 policy problem, there are three main

areas and tackling in the directest, forceful manner possible by taking steps to increase the supply of food.

There's nothing else that you can effectively do to deal with the food price problem because people don't want low prices on food that isn't there.

They want low prices on food that isn't there.

That's what we're trying to bring forth.

The second area is the area of phase three, the area of the controls, where we have shifted to a program which involves less threat, pays more self-administration,

decision and the detail of control and more emphasis on the essential results of control, which are restraints and an average increase of weight in a crisis since we have a system there that is well adapted to the requirements of 1973, which the administration is prepared to manage with force and we believe will be effective.

The third main area, and really by far the most important for 1973, is the budget.

The problem is to avoid repetition of previous experiences when, as we approached the zone of full employment, we got a big explosion in the budget with expenditures rising too rapidly, as we did when we were approaching the same kind of situation in 1965, with expenditures rising

uh... or

steady and strong growth of the economy in 1973 are predicated on a budget in which the year-to-year increases in expenditures are moderate and fairly steady.

The $18 billion increase this year, $19 billion increase next year, in which we make a moderate transition from a position in which there would be a deficit at full employment to a position in which the budget would be balanced at full employment.

in which the actual deficit is allowed to decline quite significantly as the economy rises, which, of course, is what everybody wants.

We think with such a budget, we can have a strong steady growth, but that we are on the verge, on the margin of being too expansive.

Congressman Mills talked about being too expansive on the monetary side.

We are concerned about that.

The Fed is concerned about that.

We had a statement in our report which they have approved that the situation ahead calls for more monetary growth and we've had the problem about that.

The problem is to behave ourselves on the fiscal side.

And I'd like to conclude by reading the last paragraph of the President's economic report, which will come out on Wednesday, which he says that the general prediction is that 1973 will be another very good year for the American economy.

I believe that it can be a great year.

It can be a year in which we reduce unemployment and inflation further and enter into a sustained period of strong growth, full employment, and price stability.

1973 will be a great year, only if we manage our fiscal affairs prudently and do not exceed the increases in federal expenditures that I have proposed.

This is the practical lesson of the experience from 1965 to 1968, when loose fiscal policy turned a healthy expansion into a feverish boom, followed by a recession.

I am determined to live by this lesson, and I urgently appeal to the Congress to join me in doing so.

I was about to say one thing over on that.

The concept of crisis.

I think you would agree.

The best problem has been.

rather than that way.

Do you agree?

Exactly.

Because they were too restrictive.

Mr. Stein, could I ask you to repeat the figures that you anticipate or estimate for calendar year 70?

for coming here 73 unemployment and inflation i think was 2.5 inflation rate at the end of the year would be two and a half percent or less and that the unemployment rate would be in the neighborhood of four and a half percent last just two short questions what rate of inflation

or are you predicting for 1973, just guessing, just a guess or something?

What do you anticipate might happen, and what rate of economic growth in real terms do you think we could hope for?

Well, we are predicting real growth from 72 to 73 at about 6.75%.

And for the year-to-year change as measured by the GNP deflator, about 3%.

So that my GMP would rise by about 10%.

You know, I could start a basis about how much deficit or surplus do you expect to have to do it?

For fiscal 73, it's about 13.

No, I mean 74.

74, about 12.

And 73, about 25.

That's the actual test.

73, 25, right?

Yes, sir.

That's down, John, because of it.

We looked about 35 or so, but it's down because the growth factor is greater.

And what are you anticipating in 74?

74 is 12.

Yes, sir.

13.

Excellent.

What is the budget deficit for the federal funds basis?

You say it's about $12 million on a unified budget, so you'd be borrowing trust funds now.

what is federal funds for 74 would be 27 what is that so you want to borrow a lot of money from the trust fund well we have to do it now but not that much please they invest in federal insurance

$100 million in federal funds for the administration as compared to $13 million this year.

Mr. President, I just wanted to make the point, as you know, Mr. Chairman, there is a gigantic club of federal funds into trust funds.

And that has stepped up some this year because of general revenue share, which flows through a trust fund and increases this transfer from one of those accounts to the other.

$20 million goes from the federal funds into the trust funds each year in 74.

I'd like to ask what is the total amount of trust fund

fix the expense that the corporation is committed and cannot touch, what is the total amount in your budget?

Well, I call it the sacred cow.

We can't touch it.

The budget request of the president for 1974 is $268.7 billion and uncontrollable items in that are $2.2 billion.

About 74%.

$202 billion is uncontrollable.

That's right.

That's what we're doing with the budget, John.

It means that you've got only, how many, how many can you do?

Well, you've got about $64 billion, $64 billion out of which, in which decisions can be made practically.

So 74% is now, where do we get that $200 and some odd billion?

That's what I was going to ask you.

No, it's trust funds, interest on the debt, unemployment insurance, Medicare, welfare, retired pay, all of these things added together in uncontrolled categories.

But the debt spending alone exceeds the $64 billion.

Well, about 30% of demand spending is uncontrollable, and about 68% is controllable.

In the technical sense that we use it, sir.

I understand that all the appropriation committee has...

The appropriation committee acts on bills that exceed that amount.

Quite a lot.

But I'm saying we're trying to get out of cutting the budget here, or holding the ceiling in one thing or another.

You say the defense appropriation, 30% of it, we couldn't touch if you wanted to.

Pretty much just, sir, because it's pensions and going previous commitments.

Is this actually correct now?

$64 billion is what the appropriation committee has.

Well, the appropriation doesn't have that much.

The appropriation committee acts on more than that, but there is really only about $64 billion that is controllable.

In other words, while we have the opportunity to review, yes, sir, but that's everything, sir.

That's all the legislative appropriations, the judicial appropriations.

That's everything that is theoretically controllable.

The rest of it is really not.

It's trust funds, interest, unemployment insurance,

that you just have to honor past commitments.

Now, one example of how control was put in was the ceiling that you put in on social services.

That program would have cost us a little over $6 billion instead of $4 billion if you had not put a $2.5 billion ceiling on it.

It would have gone to sex.

I just...

and be concerned about it some more as an opportunity

to reduce the expenditure is $64 billion, correct?

I'm talking about as of now.

I take this information, talking about people entitled to know, entitled to know.

Mr. Weinberger, your figure for budget outlay is $168.7 billion.

What is it for our official authority?

The official authority, Senator, I think is in the $290 range this time.

We are primarily concerned at this point with outlays, so I don't have it right in my mind, but let me get it for you right here.

While he's looking for that, George, imagine what you're making.

Well, I wanted to just comment on the...

this point of what you have control over, one of the things that's come through to me most strongly from working on the budget is the length of time involved in the unfolding of any decision that was made so that the actions of the Appropriations Committee this coming year will be important for Fiscal 74

But they'll be also very important for fiscal 75 and fiscal 76 and fiscal 77.

And the need for taking a view of the thing that goes across several years rather than just one year, if you're really going to make an impact, I think is very strong.

And in that connection, this budget has a major innovation in that it projects a fairly detailed fiscal 75 budget.

for you to examine, and of course, continuously to tackle the process of showing charter in a minute, which shows that if we had not, for example, I don't want to get ahead of Kathy, for example, if we had not imposed on ourselves, if we did the $250 million city for this year, it was our projection that we would have spent $261 million this year, $261 million, but we imposed $250 million.

All right.

If we had spent 261 this year, if that was a one-time shot, maybe that's okay.

But the problem was that that 11 bulge escalates until two years from now, it's up to 25 acres.

In other words, the moment you, whenever you exceed a budget, or whenever you add something to a budget, then these controllable parts, the next year, it goes up almost by geometric proportions.

And I think John has made a very good point, and I remember this travel president, I used to sit here, I'm sure President King, President Johnson, you sit at these budget meetings, and you hear about these huge budgets and arrests,

And you get all your cabinet around, and you say, what is controllable?

Well, of course, when you come right down to it, it depends.

Some people are less advanced, more aggressive.

But you can't go below a certain amount, but it's got to be there.

But even leaving that thing out of it, there's about 30% of veterans and all the rest has to be paid.

When you stop to think that only 25% of this budget is controllable, that only 60%

billion dollars roughly.

That's the area in which you have to figure and use your restraint.

It shows you what an enormous responsibility the appropriations committees have, and of course we have here.

That's why when you do make cuts,

that sometimes they say, well, why do you have to cut as much here?

Well, if you were cutting, they say, why don't you just cut across the board over 250, cut 5% or 250?

If you could, that'd be great.

Then nobody would be hurt too much.

but if you cut it but when you're only dealing with 60 billion out of 250 then you gotta go to 25 percent if you reach the same amount of money maybe mr president all right you can go ahead turn your chair around you gotta get certain this is the uh just the uh comparison of the three fiscal years uh it's 72 the actual figures are in now

208 receipts, 231 expenditures, or about a $23.5 billion deficit.

73 revised is 225 receipts, and the President is reporting the revisions Monday along with the 74 budget at 249.8, just under 250.

or 25, roughly 24.8 or 25 billion dollar deficit, actual deficit this year.

Now these two years also both have full employment deficits of just about 3 billion, 3.5 billion each, which is right out of the verge of being inflation-producing full-employment deficits.

do slip over that discipline that we've tried to impose of the full employment balance.

This year, 74, will cut the actual deficit from 24 to about $12 billion, and it will be balanced at full employment, which is what the President's instructions were to me last summer, to bring in a full employment balance budget so that it will not be inflation-producing, so it will not require more taxes.

This one very briefly just shows that the federal budget is roughly running about the same, a little drop this year, as a percent of the GNP.

It's right in the 20% range.

It's a little bit above in 1970.

It's right about 20%.

The other thing that isn't wrong on this chart is on top of this, state and local government is now up to 34% so that more than a third of the gross national product is now going to government.

Now this one shows the point the President made a moment ago about the need for a strained-in 73.

Just about a year ago, like a year ago yesterday, the President sent to the Congress a 73 budget of $246 billion.

If that had gone to 250 and we were able to estimate, looking at the bills pending and the likelihood of their passage and some changes in the estimates that we had made and all the rest,

that it would very likely be in the $260 billion range unless something was done about that.

A strong pressure for the Senate to do a 250 came about that time.

When Congress did adjourn on October 27, it was $261 billion.

And the budget the President will report on Monday, the revisions for 1973, will bring that back down to just under 250.

If we're allowed to stay in this, we would have about a $35 billion actual deficit and about a $14 billion full-employment deficit.

And I don't know of anyone who doesn't agree that that would be inflation-producing and would certainly require a tax increase.

Now, this is the point that the President made just a moment ago about the effect of making an $11 billion reduction

in the 1973 budget.

By doing that, he brought it down to 250.

It's about an $11 billion reduction, and he'll show us in just a moment and have it set out in the budget totals, the full detail of this.

By doing that, you would achieve essentially a $19 billion saving in 1974.

If we hadn't made this restraining action here,

and reduce these expenditures from the 261 down to 250, then just letting it put the programs in place alone, with no change, would have meant that we would have been up at 288 instead of 269 for 1974.

Nothing new there, but just the expanding effect of these programs, so that we would then have had an extra $19 billion on top of that.

So instead of the $12 billion deficit this year,

we would have had about a $32.5 billion deficit in 1974.

By making this reduction here, we can get this down to the point where it's a full-blown balance, and where there is only, at this point, half the deficit there was issued.

In 1975, as the President said, we've had a rather very detailed examination of 75.

Really, this book that will come up on Monday, which you'll have, most of you, all of you will have copies today,

This book is almost three budgets.

It's a revision of 73, it's a 74 budget, and it's a very detailed look at what 75 will be like given the continuation of these programs of changes the president's proposing.

And that will, we know, will bring us out at this figure here of just about $288 billion in expenditures.

That 288 billion would have been 312 if we hadn't made these savings this year and added nothing new.

That's the ballooning effect of these expenditures, this extra increment that went on this year.

Now, at 288, that budget in 1975 should be just about exactly at actual pounds.

It'll have a small bull plumb surplus because we should be just about at bull plumb during that period, as Herb indicated.

That, by following this path now, we can just about bring it out to actual balance, very close to it, and have a full employment balance in 74, full employment balance in a very small full employment surplus in 74.

How does, with this $11 billion reduction, how does outgo and income match up?

With the $11 billion reduction, we will have a $25 billion deficit in 1973.

We bring this down to $250 billion or just under, the revenues are $225 billion.

If we let it alone, we would have an extra $11 billion or about a $36 billion deficit.

And then this next chart here is the one that shows the other way in which the economy was stimulated during this period.

This is the reduction in taxes that has taken place since 1969.

The individual income taxes, we would be taking it

Given the continuation of all of these factors, and we all know that maybe the GNP wouldn't have been quite the same if the taxes hadn't been left alone, but in any event, as closely as it can be figured, and granted there's some assumptions in here, this reduction would have been just $25.6 billion less that we're taking in now in income taxes than we would have been taking in.

had the tax structure remained the same as it was in 69.

Now that, everybody will now be saying, I'm sure, but that isn't the full story.

The full story is that, of course, payroll taxes have gone up.

Payroll taxes have gone up just about 20 billion.

So your net tax reduction is about 4 billion dollars.

Your benefits in social security have gone up about 21 billion.

And the big increase, huge increase, came between 73 and 75.

So that's the

Your actual tax take in this one year, and it evens out in out years, is $68 billion.

It's now coming from payroll taxes, and about $100 billion from the income tax.

So you can see the $137 billion in contract and $11 billion in income tax.

So you can see that your payroll taxes are getting right up there now, and the benefits have joined, too.

This is a chart that shows the

changing priorities that have occurred since 1968.

It vests just about level in dollars.

It vests a very sharp reduction in

a very sharp reduction in percentage of the total budget.

Human resources, a very sharp increase in dollars from about 60 billion to 127 to 130 billion, estimated in 1975.

Human resources, a very sharp increase in percentage of the total budget, up now to 47%, 46%.

Defense now below 30% of the total budget.

And these categories, incidentally, are exactly the same as we've been using right along.

Some people have some quarrels over the things that go in the categories, but the rules have remained the same, the boundary lines that we're using.

So these are true changes in percentages and priorities.

Defense, as we said, has remained just about the same.

you

I've got on the back of my head here a few of the justices.

I'm going to take a look at the bill there soon.

In a moment, I'm going to take a look at the bill there soon.

And today we were able to lead an entire different atmosphere.

Uh, I like to put it that way on a cross, you know.

Uh, it's Saturday.

I don't get it.

I want you to know that when I made my brief talk in the Navy the other day, I was quite about it.

There were, and I understand, the other people, so it's okay.

that we even were perhaps going to do the same thing we want.

But I can say that there is no group in America at a greater stake than ending the war as quickly as possible without retiring a House of Representatives.

But the reason that I said that these are some of the bravest people in the land that ever lived is because they never waited.

They always said, we want our men back, but we also want peace and honor to what they fought for.

That's what they did back in the day.

Thank you.

the possibility of a resolution passed by the House of Representatives.

I ask you for a question, ma'am.

I don't know.

support for you