Conversation 125-002

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You know, George, I don't know whether you go on board or something, but if I were you, fellas, the best time to put on is June, July.

You know, it's warm.

The water's great.

I looked down and I wanted to keep a scan in there.

Just a big, beautiful, little person.

I saw three cars at 3 o'clock in the afternoon.

Three cars.

I don't think they've seen the whole championship.

I'll pick up the game myself.

Well, we don't know yet.

Frankly, the...

They are very concerned about security.

You remember to see him have a very nasty incident in America.

We did not want him to have an embarrassing incident.

There have been some threats made, which we, of course, we get a lot of noise about.

But we've got Eastern Europeans, and also we've had here,

As all of you know, we have a very vigorous and rather, shall we say, followable group of people.

You've got to have this, as you know, take a look at my own time.

You've got the virtues, far right.

They might, you've got it, right?

You've got the possibilities.

You've got, of course, the possibilities.

I'd rather keep you right here.

All of us, everybody in this table will approve of it.

Let me say first that I appreciate your coming to this meeting.

And before we get into the grinding business, I say grinding business because I've been at it for the last two weeks, and we were at it all morning this morning, of price, weight, controls,

But on the plus side, I just don't think there's ever been labor management people who have better served the country than this group.

When you look, for example, at the fact that we've had, in terms of work stoppages, one of the best records I think in history.

This is really quite impressive.

But you think of the settlements that have always made, and I'm not suggesting you compromise your vigorous

I know you come up to bat, by the way.

You're up to bat, aren't you?

We're on second right now.

Good ball players.

You've always wanted to let the double play.

I'll keep you posted.

The other thing is that in terms of the, and this is something that I have a lot to say and any of you have a lot to say,

whatever remarks I have to say later this week.

Because the country needs to know, needs to know that, I remember when you used to talk about the tremendous cost-price push, you know, in the construction industry.

Remember?

16%, 18%, remember that Kansas City settlement?

And we now find that in terms of behavior, the economy, the wage price there is quite a record.

It is quite a record.

At least that's what my statisticians thought.

The country needs to know it.

So much for that.

What I would like to do here today is to have you gentlemen here, the presentations and I, and then the purpose of this is not to present to you a decision, because I have .

The purpose of this is to get .

where we are first in that political reality in terms of what the Congress

what you've said about collecting bargaining pictures so far this year, and then particularly about this group.

It has been a group that has talked very well with each other, very frankly with each other.

They've had the practice of not having a lot of staff sitting around listening to what they have to say.

I think you'll find them direct and frank to the point.

I believe the record is a complete one.

The discussions of this group have been privileged.

They haven't leaked out on a very frank discussion.

That's the way we would tend to proceed here.

It would be very important today, I would urge, well I don't need to urge because that hasn't been the case in the past, but we have the discussion on a privileged basis because any suggestions as to which way we were going to go could have a rather detrimental effect on the behavior of the market and a lot of other things.

confidence we have in their confidentiality this morning at L-18 minutes.

And he said to Bill Taylor, he said, it's very important that you meet him in this labor management group and it's relevant that you have him meeting the bipartisan leaders today.

He said, I'll meet the bipartisan leaders shortly before the gas.

It's just the fact that it was very difficult for anyone in political life to move.

Go ahead.

Well, we thought, Mr. President, we'd ask Herb Stein to very quickly present the way the price picture has been unfolding as we see it, and also just a word about the state of the economy, because that is an important background to a discussion of the subject, and then ask John to

simply state this very wide array of possible things that might be done that we have been talking about

Ladies and gentlemen, since we will be talking mainly about inflation today, I do want to start by reminding you about some aspects of the economy other than inflation.

Basically, the real state of the economy is good.

That is, the real state of the economy is measured by real output, real incomes that people have, and by employment.

Real total output has increased since the new economics policy began, since the fall of 1971, by over 11%.

For capital, real disposable income.

paying taxes, and after allowing for inflation, has increased by 8.7%.

Civilian employment has increased 4.4 million, or about 5.5%.

And unemployment has declined from 6% to 5%.

And the character of the unemployment has changed somewhat.

But the obvious fact is that we've had a big surge in inflation in 1973.

This is very clearly shown, if anybody needed any evidence, in the chart that I put before you.

In this chart, we break down the sources, or at least the areas, in which the big increase has come, making the division primarily between food and non-food commodities or non-food items in the Consumer Price Index.

And you can see that 75% of the increase in the...

The rate of inflation of the CPI came from the food sector during phase three.

To compare phase three with phases one and two, and as we heard the big increase in the rate of inflation come from, 75% of it came from food.

And on the wholesale prices throughout this period, the farm food products have contributed about half of the total inflation and are still contributing about half of the total inflation.

What are those, the three boxes I can't see through quickly?

Well, this is the regiment placed during phase one and two.

Oh, I see.

We'll bring them over a little, I think.

Phase one, phase two, and phase three.

This is phase one, then two.

This is phase three.

And this is the difference between them being phase three so far.

consumer price index rose at the rate of 9.2%.

Phase one and two, it rose at the rate of 3.3%.

Well, the difference there is 5.9%, that's this whole thing, and 75% of that increase was contributed by the food, and the same pattern is followed here, and 50% of the increase was contributed by farm and food products.

Is that through April or through May on the CPI?

The CPI is through April, and the WPI is through

is phase three.

Right.

Phase three, when you compare it to phase one and two, phase one and two is a much longer time frame than phase three.

But these are converted to annual rates.

They're converted, there are adjustments made to the different number of months here.

And then as this is, is phase three converted to an annual rate?

Yes.

This, 92, is the annual rate.

Okay.

And the difference is in the annual rate.

And first again, when we went from phase one to phase two, we had both.

When we went from phase two to phase three, we had both, but this is more

which I can't show here, but it's true that although we divide this thing at the beginning of phase three, this big surge in food prices had been going on during 1972, although not at such an extreme rate, but this was the thing that was most bothering us during 1972, especially from about the middle of the summer.

Now, if we look outside the food sector, and I have this for the wholesale prices, let's just see where the big increases came

in the WPI industrials, you see that fuels and related products contributed over 20%.

That's mainly petroleum and petroleum products.

Lumber and wood products, almost 20%.

Metals and metal products, something less than 20%.

These three categories together account for 60% of the increase in the WPI industrial product.

And these are all have been very heavily influenced by international developments, particularly

fuels, that's most obvious in the case of petroleum.

But in the metals, we've had enormous increases in the prices of non-ferrous metals, copper, tin, and so on.

The lumber has been heavily influenced by the export demand, primarily the Japanese demand.

I don't have a chart on it, but we can see the same thing.

Similar concentrations in consumer prices.

Gasoline alone contributed 10% of the...

I have one question there, if you would put down, George, some thoughts.

You know, this question has come up to me several times in the Lunker field about this, the shipment of logs to Japan.

You've got a violent split of opinion there.

The congressman from Washington and Oregon all say continually, people that are markets are, you know, allowed to be, that's a, you know, stop, or at least control it.

I'd like to have that thought on our minds as we look at this thing.

We have a more or less an agreement with the Japanese that they're going to curtail their purchases for a while.

I think mainly because they have bought ahead in most of the things.

They probably don't need them so much.

And there is, I think, some fairly definite signs that the lumber situation is turning itself around.

And that will moderate.

And we've seen some fairly substantial decreases in the prices.

of plywood and some other catalyzed products there.

We do see that some of the more heavily manufactured products, that is the products with more labor capital input and less crude raw material input, have contributed less.

On the CPI side, it's amazing to note that the increase in gasoline prices have contributed 10% of the increase in non-food consumer prices so far this year.

The price of used cars contributed 9%.

But used cars?

Used cars, yes.

Used cars have gone.

Well, there's such an advance for all of them, including the new ones.

The prices of new cars have been held down fairly well, but the used car prices are, the free market prices are there, soaring.

It seems to me that if new car prices were held down, the used car prices would, I don't know if people want to buy used cars.

There's a good bias.

I never bought a new car until I was four years old.

And I think some of this comes into the picture of the upgrading equipment on these cars, too.

Perhaps there's no adjustment made for that.

Our cars are made up of air conditioning and radios and power devices.

None of which we need.

Not in Washington.

Particularly those windows that go up and down and you get locked in and so forth.

It's also, I gather, it hurts to buy a car before it has a fairly expensive solution for it.

Go ahead, Tony.

One thing that we're sure is very important in the 1973 surge, which we find difficult to measure, is the international influence on our prices.

Here we have at least a kind of symbolic representation of it in the

prices of our imports and our exports, both of which have much more effect than just on the commodities that are themselves imported and exported, because if the prices of the things we export are rising, the prices of similar things, of course, sold at home will rise.

If the prices of things we import are rising, then the prices of similar things produced at home or bought in those commodities will rise also.

So there's a very

spreading widespread effectiveness.

And here you can see quite a rapid, extraordinary surge in the prices of both exports and imports.

between the fourth quarter and the first quarter.

These, of course, are prices made in dollars, and to some extent, reflect the devaluation.

But to some extent, they reflect the worldwide enormous demand for the basic materials, which are internationally traded, which we produce.

And of course, in the export side here, our products are very heavily represented.

But this was a major influence on this surge in 1973.

If I can interrupt.

It's ironic.

The problems we have are ones that we ourselves were working for.

I mean, there's an enormous increase in exports.

You know, we wanted to sell wheat.

We had surpluses and all that sort of thing.

Soybeans, it's going to be $2.50 or $10 or something like that.

And so on down the line.

But what is happening is that around the world,

the demands for energy, the demands for food, and so forth, have just escalated because people are doing better in the world, including, of course, in ourselves, and that pulls it all up.

Is there any way of defining how much of those areas like the petroleum, the adverse trend there, how much of that is attributed

I suppose I could accept that I'm not able to give you the answer to that question.

But you're culminating the two, I guess.

Because the world price of petroleum is rising, not just in dollars, but in terms of other currencies.

Yeah, that's what I mean.

Is there anything I would like to say for the confidential...

very healthy energy thing.

There will be a major energy announcement on Thursday, which I think most people will, I hope, approve.

Well, I think this is really the most interesting, fun, best chart, it seems to me.

Because we show here in this red line what is the total demand for output by individuals, businesses, governments, what they were spending for output.

And here we show the rise of non-farm output, which very nearly kept pace with the rise

Total demand, total demand over this period from the beginning of the new economic policy rose 17% and non-farm output rose 12%.

And these things, these lines were exactly identical.

There would be no inflation at all.

But the non-farm...

The farm output didn't keep up.

It actually shrank during this period with some little wiggles.

In the first quarter of 1973, farm output was 7% less than in the third quarter of 1971, although we had, as I indicated earlier, about 4.4 million more people at work earning a higher pay, out-demanding farm products.

Now that produces enormous rise.

in farm prices, especially now.

This is the real tragedy in our situation.

The farm output?

Yeah.

Yeah, so we think with the new crops, well, we know the wheat crop is going to be enormously bigger than we had in the last year.

It will be by far the biggest we've ever had.

The corn crop and the soybean will be larger than last year.

Last year, there was a little difference in how much.

We're quite sure that we're going to have more food.

in the latter part of this year and early next year.

But meanwhile, of course, incomes keep rising and there's a kind of race going on here.

Our expectation about this is that

We will have a leveling out in the rate of increase of food prices sometime in the remainder of this year, but that 1974 still contains some uncertainties that are partly related to the very high price of the feed grain now, which will affect the supply of meat out there.

But nevertheless, nobody thinks that we're gonna go on getting the rate of increase of food prices.

And on the farm thing, the reason for that crop is the farmers were working the rest of the, as you all know, we had lousy weather.

There were more disaster declarations in the first of this year.

I mean, they flooded in Mississippi and Arkansas and Virginia and every place else.

But apparently in the last month,

From what I've heard, it ups the rains a ton or whatever, just in time.

I think we're going to have proof of the crop.

Well, if the corn crop is in apparent... What's going to be the effect of this tremendous increase in feed rains on meat prices next year?

Soybeans a year ago, I think, was approximately $3.50 a bushel.

It went as high, it went to $12.85 last week, then now down to about $11.

But that's a hell of a jump in the air.

If they say $11, it's not going to be very tough for meat prices next year.

Soybeans are $11, I think, partly because...

unwarrantedly gloomy expectations about the crop.

But we believe that when the crop becomes firmer, prices will become lower.

But in the meantime, we have farmers making decisions about whether to produce more hogs,

more chickens and so on in the face of these high feed grain prices and that creates a real difficulty even if the prices later do come down.

So that's one of the reasons we're worried about 1974.

But I will repeat that our worry does not extend to the possibility of having a repetition of the big increase that we've had.

this year is mainly to worry about whether things will flatten out as we said, as thought, or whether we will have some continuing rate of increase in food prices like three, four, five percent.

And in that range, I think the uncertainty lies not whether we're going to get 10 or 20 percent increases such as we have in the first part of this year.

The situation in terms of

Of course, we all know that earlier in the year, before we knew what the weather was, we would have suggested that the very good reason that the food price situation began in the summer of the second and third quarter began to level out.

It has not yet.

And I, being quite candid, I don't see it leveling out this summer.

Is that right?

I'm referring to all of the increases.

I mean, don't figure this one go down.

You can't go down if you've got .

If you've got soybeans at $9 or $10, whatever it is, maybe $9 or $10, rather than $3, that's just going to have its effect.

So that's one of the reasons we're so concerned about the food price situation.

But it's still a little long.

What's the effect of the Russian and Chinese purchases going to be on domestic supply?

I don't have that separately.

The export picture, the exports are very important in the supply of green soybeans and can make a critical difference in the price.

One thing is we don't really know when the exports are going to be.

That's the thing we talk about during the discussion, getting a better picture of that.

How much of the soybean crop was exploited today?

I really don't remember that.

We are the world's main supplier of soybean.

There would be a significant part of the crop that stands apart.

The export would be a substantial part of the total demand, and it would be larger for soybeans than for wheat grains.

The matter is that even though it was a small percentage, it's close to 15 or 20, it's just enough to give that huge,

The problem here, I think something like 30% of our agricultural acreage, so to speak, is devoted to exports.

So we have had a large export component.

Let us also point out that we are quite correct on that.

We have tried to open for imports.

We have asked the Congress to remove the tariffs.

For example, there's a three-cent-a-pound, there's a three-cent-a-pound tariff on the reports of meat that's selling at this particular time.

We've asked them to remove that.

One of the things we want to certainly include in whatever action can be sent here.

The farm block doesn't like it, but it has to be done.

And in terms of the acreage and so on, there's a huge new amount of acreages gone in instead of trying to restrict it by kind of increasing it.

But the bill, the farm bill, which has been passed by the, that will just come out of the Senate Agriculture Committee, is one that actually moves in the other direction.

It will move in turns rather than increasing the supply and getting the downstream moving in the other direction.

And that's why we're taking a harder look at that farm bill.

Well, this is my last chart.

It's as close as we have to an index of wages, but it's hourly earnings adjusted for various things.

And I think what you see here is that our recent explosion did not originate on the wayside in any case of wages in this whole inflation crescent in 1771.

And the rate of increase seems to be trending down, or at least fairly steady in this part of the period.

Well, I'm also sure that it didn't occur in the large manufacturing sectors outside of those.

Well, I think that's also true.

I think the wholesale price index figures show that in the more heavily fabricated sectors, such as machinery, transportation equipment, and so on, you don't get big increases, mainly in the areas that are dominated by raw material.

I think it's very important to say to the President

It's really apparent that the big top labor leadership has been responsible, and I think also the major manufacturers have been pretty responsible in their performance.

It's been the farm component and the international prices that have been the problem here.

Although in the last wholesale price index, the industrial prices showed a little bit of a disturbance.

that these raw material prices are now lodged in the cost pipeline, so to speak.

And so people who are fabricating are going to have to pay higher prices for their raw materials.

That adds to their costs, and they're gradually going to appear somehow or other in products.

And we see that ahead of us in the problem.

I forgot what I was going to say, but President Henry said that, so I was just going to reaffirm.

I think that, uh, I think you have a question when you talk about the industrial prices, which leads right to what the Secretary said, that these industrial prices come, come again in front of the White's customers.

You go manufacture goods and the raw materials which are on the world auction market and, uh,

The major part of those must be coming from what I call the auction prices in the world market because the price trends this far in the major manufacturers, as the $50 million and over, have been closely controlled.

no changes in them have been permitted under the rules, except that the cost increases have first been justifiably justified, and there has been a lag between the cost increases and the effectiveness in the prices.

I think one of the things the public really doesn't appreciate is the degree to which that element of the economy really has either been

and affected by competition, or affected by controls, or affected by something but any of it, we're quite responsible for it.

Our responsibility is doing pretty well at the bottom of the level of crime.

Probably the best measure we have is

that in the first quarter, the prices of domestic non-financial corporations, the prices of their product, per unit of product, rose at an annual rate of 4.4%, whereas the total GMP deflator, which is comparable to that, rose by 6 points at the annual rate of 6.6.

Agriculture rose at an annual rate of something like 35, so I'm going to get here.

Imports and exports rose at an annual rate of about 15, so that the

the domestic non-financial corporation crisis were down at the bottom of this list.

Of course, they do account for an awful lot of the total loss they do.

Well, that's the end of my story.

I had expected to say something about the outlook, but I covered that circle with respect to food, and that's as far as I'm able to say anything about it.

And with respect to the non-food, or the total economy,

I think everyone makes a forecast that the U.S. economy expects that we're going to have a diminishing rate of inflation, a reduced rate of inflation in the latter part of this year and next year, chiefly because we will not have the economy surging at the same,

last year and the first quarter of this year, also in part because we will get some of this international influence that's behind us, particularly the influence of the devaluation.

And also because, among other reasons, even if no change is made in the control system, the control system will bite increasingly as prices rise.

When we went into phase

There was a lot of unused room under the ceilings in phase two, and that has been exhausted by the price increases that have occurred, so that more and more casings companies will be able to their ceilings of one kind or another.

And we've already announced some steps to make sure that that's observed.

There are uncertainties about how big this slowdown will be and how soon it will come.

Your point is that the market forces, apart from any control system, the market forces toward the end of this year, going into the next year, will move toward a lessening of the inflationary pressures.

Correct.

Yes, well, we had in the first quarter of this year, coal demand, as mentioned by the GNP, rose at a rate of 15%.

We had no other quarter like that going back to the Korean War except the quarter after the GNP struck, and this was just a phenomenal sort of demand.

We certainly don't expect that in the 1970s.

Thank you.

And there's a lot of evidence that the economy is not rising as rapidly as it did then, because the housing starts down, the war starts down, and so on.

It's desirable, if we're going to stay long enough.

Not too desirable.

Well, not too much is desirable.

All this business about life.

See, that's our problem here.

On the one hand, we want to have the economy rising.

We want to have more jobs, et cetera.

And on the other hand, we want to keep the inflation in check.

And the two simply run contrary to each other.

That's our problem.

But the real question before we go to John is this.

We are in the midst of an extraordinary boom.

One of the fallouts of an extraordinary boom is a demand for inflation.

Now, with that extraordinary boom, the question is, how can we handle the inflation without destroying the boom?

That is the critical point that we have to address ourselves to, because I know from talking to some of you before around here, on the labor side, that the worst world is an inflation with a recession.

It isn't good to have an inflation with a boom.

That's not as bad as inflation with a recession.

And the question is,

How can we continue an upward surge in the economy, which needed unemployment, but at the same time control the inflationary forces?

That's what we've been wrestling with.

That's what you've been wrestling with.

That's what we need your advice on.

Now here's the answer to that.

Mr. President, I think you can say what

What I thought I might do is to present two broad alternatives that have been under discussion in various circles as to courses of action, courses of policy that might

taken at this time.

If I can interrupt you, I know that when we talked this morning, I said, you said you would do this.

Would you also, to the extent that you can, put the third thing in, and that is what the Congress is considering.

I think we've got to look at that, because that, well, it is not something that we are particularly enthusiastic about.

It is something we have to face.

We really have three choices here, not just two alternatives.

I trust you'll allow me an additional 20 seconds.

Now, the first alternative might be characterized as a modest, moderate program, and perhaps one should also say one without a good deal of sex appeal, without sex appeal in the broad way that it might be.

and it would have these elements in it.

First, it would provide for a very careful review of the reports of all the large companies which are this next week or two due in the cost of living council.

But the IRS would systematically review both those first quarterly reports and also the

uh pre-notification of price increases that were required in may and where those reports show prices beyond the standards they would be rolled back two we might go forward and expand the number of companies to pre-notify from the present 700 companies to 1500 2000 companies we could tighten up our pass-through requirements and costs

We could change our base for prices to January 11th, January 10th or 11th, in order to use up whatever remains of the leeway companies had that they had not previously used up.

We could take a further series of supply actions and scrap.

negative compensation, which we said we would do.

We might move in on a number of industrial prices which have been rising and use some strong controls there, even where they are within the existing rules.

And finally, on this important subject of international agricultural areas, we could introduce an export notification system.

which would require immediately the notification of all outstanding orders for, say, grains, and not for all agricultural products, but for the grains, soybeans grains, and their natural product.

And if that notification system showed, as it might, that exports were going to lead to higher prices next fall, we could then put into effect a licensing system to limit the amount of exports in those fields.

a moderate sort of program.

A second program, which is tough and which is designed to halt inflation for a period anyway, would have these main elements in it.

It would constitute an immediate freeze on all prices.

There could be the option of whether you included raw agriculture if you knew how to do it.

There would be the question of rents.

There would also be the question of wages.

Suppose for purposes of discussion we said freeze on all prices without these three that I have mentioned for a limited period.

Without raw agriculture, without rents, and without wages.

The second component would be the important question of what you do after the period, the freeze.

And here you might go back, if I can use the phrase, to a comprehensive mandatory system of control on wages and prices.

That is to say, in the future, after the freeze, increases could not be placed into effect on prices or on wages without approval of somebody.

The third element in this Tufts policy would be export controls on feed grains.

Instead of just putting into effect a notification system, one would move as fast as one could to a system of licensing exports in the feed grain area, soybeans, wheat, corn, and the like.

Now, for the third program to which the President referred,

The third alternative to that, as I understand it, which was adopted by members of Congress, the Democratic Caucus, which provided, if I recall it correctly, for a freeze of 90 days on wages, prices, consumer interest rates for agricultural products and rents.

Profits.

Yes.

Profits.

Yes.

Dividends.

Yes.

Dividends and consumer interest.

Consumer interest.

I'm sorry, I didn't have the text.

I know you've got the text, but those are its principal components, I'm sure.

Well, Mr. President, in addition to those three points.

What about the suggestion?

May I ask what suggestion is made as a follow-up in that respect?

that is the error in their resolution, I think, Mr. President, they say freeze for 90 days, as I understand it.

And during that period, the President talked about labor and agriculture and everybody.

And he could then institute a comprehensive program that was fair and equitable.

I don't think they give any thought to the choice at all.

They're now having second thoughts.

They're going to have a mandatory control.

This is the thing.

You can do something for 90 days or 120.

But you get mandatory controls after that.

You can say prices, wages, et cetera.

That's what they're looking at there.

We have discussed this around, and the question of a freeze of course is involved.

It's clear that the freeze is not the thing to focus on so much as what happens after the freeze.

Anyone can run a freeze.

And Accursal Freeze does, it is popular, and it carries a dynamic in it that I think pretty much leads... And it carries my time with which to develop the kind of approaches that you need, provided you know where you're going.

But in my view, I shouldn't be, I don't want to preamble to all, but in my view,

we should not consider anything here a freeze of any duration, unless we know where we're going afterwards, because that is the problem.

If you don't know where you're going afterwards, you have a freeze, and then you create an enormous uncertainty as to where it all is.

And frankly, you've got to, if we're thinking in terms of taking the Congressional option, which is George Meany's sense,

You put a 90-day freeze across the board and everything.

And at the end of that 90 days, you put a mandatory control.

You put in another 90 days.

That's right.

That's what most likely would happen.

What you're really saying is that you're making a basic decision to have a totally controlled economy.

That's what it is.

And nobody can say that it's, well, we're only going to freeze the other guy.

Everybody wants to freeze the other guy.

That isn't what we have worked.

I'm totally sure we can consult with all of you and see what we can do.

I'm trying to knock their firm, and maybe we'll have to do that when they send it down here.

I can just make one other comment, I think.

Sir?

I don't agree with the parent popular, the previous popular.

We ought to know more.

That's an outstanding suggestion, and I suggest the people seem to like it.

Popular in a vacuum.

In a vacuum.

But during the freeze in 1971,

It was, the president really had to practically rent it out, and people wanted that to stay.

They liked it.

And they remember it, of course, even better than it was.

They remember all the good things about it.

Even phase two now is looking on with great astonishment.

Let me just make this one additional comment.

John has kind of presented two lists of things.

And then the direction... We've got three.

And as we have discussed and, of course, as I expect we'll discuss around here, these lists can be intermingled.

For example, you could have a short freeze during which you review all these profit reports and so forth and establish whether or not the prices were in line with the phase three standards and if they weren't rolling back and so on.

In other words, you could say that's the purpose of the freeze is to get control of this thing and put into place

something, a review of where we are so that people don't have this feeling that somehow everything's going crazy.

And use it that way.

Or you can change, you can mix in the export control thing one way or another.

The point I'm making is that just because there are two lists doesn't mean it's just one or two.

be a part of any, of either program.

There is some way or other, some way of export, of getting the exports under control.

It's got to be a part of both programs because that looks down the road to food prices.

Coming over on the airplane last night, I thought to myself, well, people see me next to Croxmire.

When he got done telling me that John was his old professor at Harvard, I thought to myself,

I then pressed him pretty hard.

You're not older than he is.

I then pressed him pretty hard.

I don't know what his views were beyond the trees.

And I found that he hasn't got very well.

very clearly in mind what he wants to do.

Then I said, it looks to me like you're voting permanent controls.

Well, no, said he.

He said, I'm against permanent controls.

He said, I think that beyond the 90 days, you'd have something like phase two, and then you'd get rid of them.

So he at least is disclaiming any doctrinaire permanent control, which I don't quite believe, but that's what he said.

The information I have, you know, being unanimous with 33 members of the caucus there, the information I get is, Friday and today again, that they're looking at it much harder, and the doubts are coming, and what's happened.

We've said to the people that, I spoke to a couple, and said, well, what are you going to do in the 90 days?

Well, we're going to come up with, well, suppose you don't come up.

Well, if

That's actually a freeze to me in my book, a complete freeze.

While it has, of course, caused the war and everything, this has a certain attraction of people who got emotionally uptight about one thing above all else, and that's food prices.

That's the thing about this emotional side of that.

And it runs to everybody.

It runs to people who can well afford to pay the food prices.

They're still yelling their heads off.

They can afford to pay them, but they're still squawking about it.

Now, to me, one would mean it would be a step in the direction of absolute control system, and this is something that surely we don't want, and I'm quite sure that even these fellows over in the Hill don't want it.

Now, there's no sentiment that we can find in the House except Wilbur Mills.

He certainly went...

who went off on this tangent.

And as I say, even the fellows who were at this caucus are now having second thoughts.

And frankly, I get the impression they wish that they had none, really.

I mean, so I wouldn't be too worried about it at the moment.

But psychologically, it's a big thing in the minds of a lot of people in this country, George.

Psychologically, people want something done.

When I say people want something done, I think this is what the Congress was reflecting.

They want something done to show that you're going to act.

Now, the point that we have, what we all have got to consider here, we have to live with this.

You have to live with it.

I have to live with it, of course, to administer it.

George and Dr. Dunlop, who's our sort of the answer.

Nice guy.

The point is that it seems to me that we have to take a hard look at what comes after.

In other words, I think you've got to look at the possible, but you've got to look at it also in terms of how much it covers.

Now, that's an open question, Dr. Dunlop.

You said, right.

I mean, the Congress does cover everything.

All right.

You just limit the prices.

You do that.

And if it's lengthy, then management goes up the wall.

On the other hand, you've got to look at it in terms of a freeze.

Let's look at it.

And I shouldn't be talking this, but I'm trying to plunder on this.

And my friends who've talked to me have told

First, we've got to look at the culprits.

Wages at the present time are not the major culprit.

The major culprit, as we know, are food prices.

Wages could become that.

However, if food prices still continue to escalate, Frank Simmons and Leonard Woodcock couldn't

go to their membership with the deal unless you've got substantial, see that's increases in other words to take care of that increase, right?

That's right.

That's why you want to roll back food prices.

I know what your position is on food prices.

We can do that.

That's the conclusion, but nevertheless, the assortment means we could.

So much for that.

Let's hear other discussions.

One question I want to ask on this list.

One, you know, I can think of other things.

It could be done shortly.

It might be included in a broader list.

I wonder if there's nothing in here on the area of taxes.

Now, you talked about on the charts the problem of the demand being so much in existence.

There are areas of the tax structure that appear to me to be completely inappropriate for what's going on now.

Talking about the investment credit and accelerated depreciation, all of which add to an element on the time side that was put in place in order to promote expansion.

Certainly in other areas, one of the problems with interest rates, what's going on in the interest field is those guys are getting frozen out as the prime rate goes up.

And if you're going to pay those rates, you're going to get the supply credits going in the wrong direction.

So you're going to handicap housing.

If you see what's happening to housing in place, you cut it back to a new start, but that's inflating the price of housing in place.

And so that way, John, wasn't it true that your options for interest rates was a possibility to candidate for consumer interest rates?

How about credit allocation?

Well, I think George should talk about the tax issue.

Well, because I can't let him.

There's a big question and a sub-question.

The big overall question you're referring to, overall demand, is whether or not we should take some action beyond the current pledging picture.

that screws the economy down.

And if your view is that the economy is kind of exploding, that the first quarter rate of increase is going to continue, that certainly ought to be done.

On the other hand, if your view is that the economy has this explosion, but its rate of increase is subsiding somewhat,

And what we are really interested in getting is sort of a soft landing on a 4% rate of increase, which is the sustainable rate of increase.

And you're beginning to decelerate now.

You would hesitate to slam the brakes on more, because the result of that you'll feel, say, eight months from now when you might not want it.

So there's that.

element in the picture.

And I think our overall feeling is, and Herb may want to comment on this, that the economy is beginning to subside.

The retail sales are down some.

Housing starts are down some.

The plant equipment expenditure estimates, which have been going up each time they re-estimate them, aren't doing that anymore.

They're beginning to be a little less turbulent.

So our feeling is, and by the time you talk about retail sales, housing, and plant equipment expenditures, you've covered a hell of a lot of the economy.

That maybe this process of subsiding is going on well enough, and we shouldn't try to force it further, because we don't want to take a chance, as the President pointed out,

on having a tailspin take place.

But we don't want to have that flat rate of growth anymore, believe me.

So I'm going to go through that at 70, 71, no more.

We are very lucky to have a, we're very lucky to have a many-hour, we flat-out got this, in many cases because we've been filling up our ability to use our capacity now for some 24 months.

And I think one of our great concerns has to be that we look at what every,

series has ever shown how you go in steps, and we've been through one tremendous step in the last 24 to 30 months.

Keeping us from flattening out has been an extraordinary job, and then even though you find those wage trends looking as non-culprit candidates at the moment, they nevertheless tend to put one hell of a cost push pressure on the economy about that time.

That'll be our problem.

I think you could say, well, we must exert additional tax pressure.

Let's say that is your view.

Then what should we do?

Here, I think there is a powerful case for saying plant equipment has been rising very, very rapidly.

So maybe that's the bulletin.

And that is what lies behind Arthur Byrne's suggestion that the investment tax credit be made a variable and you could move it up and down and so on.

Are there all those suggestions like what the Germans have done?

He wants it to vary from 3% to 15%, right?

Who gets the 15% and who gets the 3%?

Depends on when you... At this point in time, reduce it to three so you would tend to reduce the planned equipment spending and later when you felt you needed more to increase it.

Whether analytically planned equipment spending is that sensitive to these changes I think would be a question.

But I think that goes to the point that Lane was making and there are other devices for doing that.

The Germans have just proposed, the Swedes have used something we've been studying a little, a plan where you, in effect, put a surcharge, sort of, on corporate profits, and you, in effect, have compulsory corporate savings.

And so you pay 5% or 10% or something of corporate profits, you put them into a fund that the Treasury holds them in,

accumulates, holds them in 5% interest or some percent of interest, and then, say, within five years or no later than five years of the discretion of the president, presumably at a time when you want to,

to stimulate things, you then pay the back of the corporations.

If you hear marketing, you sort of hold them in accounts like a bank account.

And it has some of the same aspects, so we've been working on that as a possibility.

But I would say our general feeling has been that we don't want to slam the brakes on further beyond what it can be done with a monetary policy.

I might say that the

compulsory savings thing, the economic results of that can be attained with monetary policy.

You don't have to go through this process to get that.

I would think, in many ways, restraint through the tax structure is a lot less regressive and harsh on most people than there's restraint through the higher industry.

Which is, I think, a bias, an apparent bias in favor of the other infant guy.

Who deducts his interest pay and has a very high percentage of it.

And winded with a lower effective interest rate than the lower infant guy.

Elaine, I think out of the housing area, it's unconsumer rates and un-mortgage rates.

There's some budgetary cost, particularly on the mortgage rates.

they can be, they have been pretty stable, and they can be stabilized, although we have a fairly substantial pleasure flow in order to do that.

So that's something that... What I'm saying, what I'm suggesting is the possibility that it's... You talk about areas of restraint without destroying economic growth.

I think it's quite possible that...

changes in the tax code, and there's a bunch of restraint and also raising revenue.

That could be done and make possible a reduction of interest rates, which would give a more healthy kind of economy.

Well, I'd like to disagree with you a little bit on your views on the appeal of the investment credit.

There's no way you can use that to fine tune the economy because the decisions that flow from changes in that are effective out of a couple of years.

I make them all the time, so I just tell you that if you reduce the credit, it isn't gonna affect this year, it's not gonna affect next year, really, it's the following year.

And I view it as a three-year lifetime, pretty much.

Now, on the other side of the fine,

our long-term problem is to improve our productivity in this country and i'm satisfied that if you if you discourage the investment of the kind of things that get credit through this plan that we got you have some influence on in the direction of reducing the productivity long term of this country i think there are a lot of devices that are better than the

wiggling up and down the investment tax credit in order to deal with the short-term problems of the economy.

I'm just sure you're dealing with something that's very long-term.

I agree with much of what you say.

I don't think you can fine-tune with the investment tax credit debt, where I believe it should be eliminated completely and never should have been put on it.

That's the problem.

It never comes off, and theoretically it should come off.

I agree with that.

Johnny Burns always said this.

I also agree that there are other areas that you can use much more effective.

All I'm saying is that this isn't something to use to meet our immediate prices.

Is there a sentiment for raising taxes, that is, for having a tighter budget, running a surplus, and so forth?

Is that a general feeling, that we should try to slow the economy down more than it seems to be?

If I may, Mr. President George.

First of all, I agree with what Mr. Carter said about the investment tax credit.

I think that any effect of changing that would be so remote that it would not have any immediate effect on the problem that we're confronted here.

And I think, too, that the average person on the outside is not familiar enough, the average citizen is not familiar enough with working in the investment tax credit to recognize whatever impact it might have even in a future day.

It seems to me that we're in this position, one from phase two to phase three, with the idea that phase three was going to be a transition to the restoration of a free economy.

And I think we should not lose sight of that objective.

And I think if we look at the results of what has happened, that so far, leaving agriculture out of it and the food crisis, the overall results have been pretty good.

It's been said that the application of phase three on the labor side has been responsible, and based on the figures and the numbers that we've been looking at, I certainly agree with that.

And I agree that that is not the problem at the moment.

Also, when we look at the record of those companies and those industries,

responsible behavior is present on that side.

We talked about corporation profits.

They have to be related to the overall economy of the country.

They are recovering from a very low pace.

And one of the important elements in the corporate profit structure so far this year, I think, has been utilization of capacity.

rather than an influence of prices upon that product showing.

So it seemed to me that Woodwood is kind of a picture.

So Woodwood would be much better off to start along here with the Phase III application, tighten up wherever it may be appropriate.

We have taken a couple of

active interactions in the press field.

They received momentary recognition in the press on the part of the puppet, but I think the average person on the outside again feels that not very much has been done in this area.

We've talked about this puppet in the closet.

Maybe we have to be a little bit more selective and get the club out and use it where it might be important.

It's actually been used quite often.

Well, it doesn't get to visibility, and I think this is part of the problem.

There are other areas, and I don't think any of us are particularly familiar with the details of the press applications, or there may be some violations, but if there are, people have to get the club up and use it.

But it seems to me that maybe we would be a lot better off to keep our mind on the overall objective

trying to straighten this thing out and getting back to a free economy as quickly as we can without attempting to impose new and different controls other than possibly if something could be worked out somewhere along the line in agriculture, this of course would have the greatest impact on anything that we could do.

So if something more should be done in this area, then maybe we should do it.

But beyond that, it seems to me it would be better served by staying as close to the principles of phase three as we can.

I agree very much with that.

You said it very well.

Yeah, they can do that.

This is, this is precisely what we're supposed to be facing now.

Phase three we're supposed to move.

The way that we have come proper is relative to the ordinary person here.

The only thing that's still working well is the question of wages.

And the sore point, and the emotional point, as agreed in this discussion, has been the food crisis.

And this, I think, is the real heart of the whole matter.

If you could control that area, then I don't think that you would be in the situation you're in with the rising of the climate of these issues.

And therefore, it seems to me, non-recursive.

But the matter of controls on food is the point of ours.

that you might well have been in a much better place today.

But I would look ahead a little bit and be a little more concerned, unless something is done, as we've talked about before, in some fashion.

Now you're adding gasoline to this item.

That's to the cost of food and stuff.

And if we're not careful about anywhere the consumer, the average citizen, turns, he's confronted with a runaway situation.

Well, at the same time, as the record and all these discussions have shown, and the record in fact does that,

that the wages have been probably the most stable thing in this entire picture.

They've been, I mean, in accordance with what we had hoped for.

Certainly, I think we've come within that framework.

I'm not an economist, and I need not tell you that, but again, I would suggest taking a look at the question freeze.

I wouldn't laugh at

I'm trying to talk about rolling back, but I guess it's impossible.

I say, well, because I'll tell you, unless you do something to gain a public's confidence or to reduce their cynicism on any question of control, then hell, you blow the whole thing.

Now, whether or not they agree to do that, I'm not sure.

But I would certainly give it a lot of good examination.

But I think that in the meantime, I've said this at our last meeting, Mr. President, I think you have the people who can handle the job if you can buy them the time.

I happen to believe in what I've heard expressed in our previous meetings.

The last meeting, Governor Woodcock, it's my feeling that you have taken some steps in the agricultural field to increase production.

I agree with the point made by one of the previous gentlemen here, that the access to food is an increase in productivity.

And it's an amazing thing.

You have a productivity commission on which I answer.

We've talked about productivity in so many areas and facets of it, but never really gone after it, I don't believe, in the fullest sense in relation to what I consider the most sensitive of all items.

That's a question of food.

But I do believe we have taken certain steps, the government has in this administration, and to bring up the control for some 40 minutes later, whatever it was, that's a question of food.

But I think that what you need now, with the work of Miguel, as he is,

through whatever circumstances held him.

At this point, at least, he's in line, in the sense of trying to bring about his economy.

I would make some concession to the individual, even though it might not be the wisest thing, something that would please him personally, try to build or reinvigorate his belief in these kinds of situations.

Because if you have this thing continue, with the wages being held at the level that they are being held, and I don't want to bore you, you all know the pattern of wage increases

I think, under the circumstances, that they're remarkably reasonable in every sense of the word.

But if you can't bring something to the table that will instantly give some impact, as far as the general public is concerned, I think this is the issue.

You can splash it, you can slice it, you can fit around it.

You can have all your great economists here and give all kinds of fancy approaches.

Now, I'm not, I wouldn't attempt to debate any of them because I don't know about them.

But I know one thing.

to succeed, including the country, including the government, including the labor movement.

You have to retain a degree of confidence in the people that are the nation.

That's the work that we represent, and those that we don't represent.

I repeat, they're caught in a bind in this sense.

Give her a brief consideration.

Do you suggest you freeze the farm level?

Right, sure.

Absolutely.

I think in retrospect, I don't think it would have made that much difference.

But in retrospect,

He's done something weird.

I haven't told him about that yet.

Well, this is a convention recommended to the president.

Yes, I know.

But no, I'm not sure that we couldn't have put a block into it.

Now, of course, the reasoning at that time, as I recall, was this would slow down the productivity of the big farms.

I'm not convinced of that.

I think particularly, I don't think we took far enough steps.

I think we still have reduced more money than is payable to the farmer.

I don't want to get into the discussion back in Kosher.

I'm going to be at another meeting in a few days for that purpose.

But I think that the more you can discourage payment to that farmer, the more productivity you're going to get.

Let me repeat, and I don't want to bore some of you, because for the first time in this country, opening up trade with the Soviet Union, and conceivably, we don't know, but conceivably, the Chinese Republic, you're going to have a great demand for food, one of the great reasons that the farmer has not produced in the maximum since he has not always had the market for his surplus.

But now there is a market, not only domestically, but internationally.

I do believe what has been said consistently, that you have making, you have in the making, the machinery that will cause that guy to produce.

If he's got a market to sell at a reasonably good price, and you are not paying him not to grow crops, then it's simple arithmetic.

He's going to grow crops.

But the problem is that we have to, again, I don't want to be repetitious, I've said this in previous sessions, we have to buy Mr. Schultz, Professor Dunlop, that necessary time.

And you can't buy too much more time if the worker keeps getting squeezed too hard on the wages as he has been compared to the rest of the economy.

And if the wood price still keeps going up, up, up.

All these things, taxes and everything else, mortgage rates, everything is terribly important.

But I think that you're at a point where it's an emotional issue as well as it is a very practical issue.

And I think you need to do something, and I felt this sometime,

George, I think you need to do something with some kind of an impact that will let the people know that you're for real, that you mean business.

And if you are very much aware of their immediate problem, that's a minimum wage increase and a maximum food cost.

All right.

I think possibly, as Mr. Rooks just said here, maybe we should put this thing right out on the table and look at it.

Going clear back to the date of the Stabilization Act, we all know what the Stabilization Act was suggesting.

As some other people said here, we have all recommendations.

However, to get the Stabilization Act in action, we've got to compromise.

A compromise is a suggestion to get it through the House,

and that we retain wage and price control.

All the rest of the thing was compromised out.

Whatever the reasoning was behind it, I don't know.

I have my own ideas.

But you was the guy.

We went through this situation.

We came into phase one.

We went through phase one.

We came to phase two, and we went through phase two.

on the basis of your recognition.

Now, if it was true with phase two, we wouldn't vote phase three with flexibility.

Now, during phase two, as Paul said, and we all agree, I think we, as far as labor is concerned, did our job.

Regardless of criticism, the activities, and whatnot, I think we maintained a pretty fair level of wisdom.

At the end of Phase II and during Phase II, it was so ably argued that we had a built-in policeman as far as wages were concerned.

I remember so well in Phase II, on your position, the tri-party system would work.

And it did work.

Because you didn't want a bureaucracy as we had in the old days.

But we didn't have a policeman on prices.

The industry in themselves didn't take the responsibility.

And it went on from there.

As far as productivity is concerned, tax credits and whatnot, production as far as this country is concerned went high and high and high.

The vote, fortunately we had a foreign market establishment.

where we had an interchange, which takes up a hell of a lot of opportunity of American industrialists in this country.

They take advantage of the tax credits and I don't pay them.

That's our game plan.

Now we come as far as common people in this country.

I know I can speak for Paul better than myself.

and other labor leaders that are presidents of international unions, we know what happens to our membership.

We talk to them.

We talk to our people.

You can send out questionnaires and find out what they're thinking.

There's no question.

Fortunately, Leonard, in his last negotiations, got away from the caps and cost of living and reinstituted full clefts.

example was Marmarito, but he didn't.

And he damn near got his head knocked off this time because he found himself in a very unsavory position.

Now the people, as far as this country is concerned, as Paul said, in my estimation, from what I can find out from our people, I know a little better than a million members, and I think they've got a pretty good barometer of them, regardless of what some people think.

I run that

Nobody by telephone has it either.

I can say this sincerely.

These are the kind of people that are very disturbed with the confidence that we put in this country today.

We have a whole series of things.

But the cost of living to where it's went today

And the other increase, as far as non-cost-to-living prices is concerned.

You're telling people to maintain those confidence that we instilled into them.

The reason why you put Phase 3 in, and you did say this, and I say you, I'm talking about the government, we said we had installed Phase 3 on a flexibility level.

Well, we did.

Flexibility didn't go to management or industry.

All you've got to do is examine your own records, and it's there.

You've got this American public sitting out there, very disenchanted with a lot of things that's going on in this country, and Christ only knows the press and a lot of so-called friends are not doing anything to try to keep the faith of the American people.

On top of that, we're where we're at today.

People coming out and talking about freezes.

I can't talk to my people about a freeze.

I don't know what Woodcock's gonna do with his people.

I can't talk to my people because my people look at me and say, say you, where were you in this freeze, Mr. Streetwater?

Why the hell didn't you freeze back there?

as far as the phase three was concerned, you raise these prices up to 12%, 14%, then you tell us you're going to put a freeze or agree to a freeze.

What about our position in that 5.5%?

And if you put a freeze in, we don't even get the 5.5%.

Now, this is not only, I'm sure, with my people, and I say my people, advise me, with people that I'm associating.

I'm sure this goes to the garden that's right out here.

It goes to the grocery store, the food store, clothing store.

It goes to the guy that buys the house.

He's faced with this situation.

And I think it's time.

And as far as the country is concerned, something dramatic must happen.

And you, and I say you, I say the government,

George says, here at the Democratic Caucus, advocates this and they advocate that.

And then as soon as the cloud comes over, then they start to reconsider their decision.

It's very sincere.

If we're coming to that point that we consider possibly cutting the food prices back to January 1st, then reinstate phase two on the 5.5%.

It's called a spade a spade.

Let's say you are.

Could you live with that at all?

I'll live with anything, but I'm free.

I can't tell my people.

You raise food prices, these other prices of the country, 12, 14%.

How are you going to free me out of there?

Let me ask this, though.

Could you live with 5.5%?

I mean, I'm sort of a, what we're talking about, I mean, that's really...

on the way for the moment because whatever we're gonna talk about, whatever we're gonna consider there is not something that is permanent, not something that is extended.

My point is, it's what comes afterwards.

That's the point we're talking about here.

There's a reinstating phase two.

That means you can live with five and a half year old food prices back.

That's what you're saying.

That's what I'm talking about.

Or give me the 12 or 14 percent, give labor the 12 or 14 percent, increases the cost again.

This is where we're at today, and I sincerely say this to you, that somewhere along the line, something's got to happen.

I was here for some action, that's it.

Yes, sir.

Well, Mr. Bregman, when you look at labor costs for non-financial corporations and what's been said here, I think it's obviously true for you.

You know, the labor cost increase in 72 over 71 is only 1.6%.

That's the lowest since 1965.

The average for the last 22 years was 2.57, so it's substantially lower than that.

In the first quarter of 73, it maintained that 1.6% rate of increase, whereas profits in the final quarter of 72 and the first quarter of 73, 13.7% increase, 12.5% increase.

Now, I would join Frank in hoping to have a rollback in the food crisis.

I just don't think it's possible.

I think we are going to think about putting freezing raw farm prices without a massive governmental machinery to try and implement it.

We're going to have black markets.

We're going to cut back the supply.

And our situation a year from today will be infinitely worse than it is today.

I would favor the first option that was laid, except that I would favor the licensing of agricultural exports until we've rebuilt our national brand ring to an acceptable figure.

What that figure is, I don't know.

I'm not expert enough.

But I think that would be a dramatic enough step to the American people to say we're putting the interests of the United States first, as against the interests of other countries, because here we're dealing to

at world market prices.

And I think that if that could be done, we'll try and have a little confidence.

I think basically it could work out.

And the whole thing has happened since the beginning of this year.

on the whole thing, but most of it is a food price problem, and that's a supply problem.

We can't roll the prices back.

I just don't know how it can possibly be done, much as I would like to see it happen.

I do think if we licensed agricultural exports, that would be dramatic enough to the country.

Said the administration is concerned about this, and I think that given some degree of luck with the weather, some decent crops,

By the end of this year, we'll be coming out of it.

And this is what I'm preaching to all the membership meetings, leadership meetings I go to.

This is the demand-supply situation in agriculture, and there's nothing anybody can do about it except encouraging the supply.

In a way, we always face that with criticism.

We're at phase two.

We look to the experts here at Sergeant George and

as far as labor was concerned.

We maintained the level of five and a half percent.

I remember George very well.

We talked about this in our first labor committee meeting.

We talked about this percent of increase.

We talked about the control of prices.

We maintained our position as far as labor was concerned.

We've still got some backlog of cases as we've cleared them, but they're being cleared on a basis.

Our friend Dunlop here, with his construction, maintained his position, and on the overall, maybe a little more than 5.5%, the construction program was very vital.

But the food prices got 412, 12 1⁄2.

And I don't know what the actual impact of the increase is right now, but I know it's in that area.

What the hell is the difference between we as laborers?

Maintain about 5 1⁄2, possibly 6, upwards just a bit.

The difference in our increases and the difference in foodstuff that our people buy every day.

Not only our people, but every person that goes to the food market.

Every person that goes to the clothing store.

I haven't as far as rolling back.

These are the facts.

They're facing the American public.

Yeah, well, frankly, you know, the cockpit in the Soviet Union and China and Australia and, oh, for most of it, a bunch of southern Europe.

And here.

Well, nevertheless, it was the desire of the American public.

Who said so?

I said so.

All right, I don't believe it.

All right, that's up to you.

I don't believe that you got your finger on the pulse of the American people, that they wanted these straight men.

Well, a lot of businessmen wanted them.

Well, a lot of people did.

I'm sure the American people were paying a lot more for their flour than their bread didn't want them.

But, nevertheless, the American people knew we had the surplus.

The American people didn't want to maintain the surplus.

The American people, as far as the American people's concerned, was paying a tax rate because of the restrictions as far as agriculture is concerned.

Mr. President, I associate myself with what I call the very statesman-like.

statement by linda woodcock that is if you're going to impose a some kind of export restrictions it makes it very clear that your long-term objective remains unchanged which is to encourage exports of american products but this is one of the few places where we have an economic advantage over the rest

And it's one of the places where we offset the energy imports.

So if we're going to do it, we ought to label it as a short-term expediency rather than change it.

Well, actually, just to interject something that will not help our present problem, when we talk productivity on the farm, that is really not the problem.

the productivity of the American farmer is unbelievable.

The problem is the damn old farm legislation and the farm block that constantly still insists on legislation, like this Senate bill, that instead of moving as we want to move toward all-out production, they want to hold her back.

Because they're afraid of the

of what's going to happen in the event that they move in the other direction.

But believe me, if we turn the American farmer, the so-called agricultural community loose in this country,

We can beat all of America and half the rest of the world.

We are really good.

That's one place we're good.

And I understand that's down the road.

And we do.

And the fact of the farm plot and what it can do when the Congress is there.

But I want you to know that I'm going to have to take some pretty strong lines on this because I feel very, very deeply about it.

And to the extent that any of you can support me,

At the time when we had to have these enormous parodies and subtleties and so forth and so on and so on, frankly, it's passed.

The situation's changed.

That was back in the 30s.

Now there are shortages in the world and in the United States.

But it isn't gonna answer our problem now.

But we're gonna have to fight a delay, actually, basically, so that they don't make it worse.

by a bad foreign government.

Don't you agree, Mr. President?

That's any bad legislation.

Any bad legislation.

You know, Mr. President, I might say, and this may get a little off the feet, I think the greatest thing you can do is make a report to the President of the United States to a joint session.

And put it out.

Let the newspapers take it and see what they do with it.

Then let's see the responsibilities they have upon the accomplished United States.

Mr. President, I think on the main point, the most foolish thing you could possibly do is put in a cross-the-board freeze.

Cross-the-board?

Yeah.

You mean like the Democrat Congress?

Yes.

I think the experience you're going through right now indicates how hard it is to get out the money controls.

And if you go back that route, what you're going to have to do is match a lot of the basic problems.

And they're going to come out sooner or later anyway, and I think going back that route again means, in effect, proper controls, system proper controls.

I think the thing, the direction to move in is very vigorous steps on those particular problem areas that can be pretty well identified.

which what you suggested here, I think, contains some steps in that direction.

I think there's some other basic problems.

One is there's some conflicting currents of policy that have been dominating this thing.

On the one hand, you're concerned with the balance of payments problem that's led to measures that

all of which are, as far as the inflation problem is concerned, are highly inflationary.

The valuations are highly inflationary sooner or later.

The export of products that are in shorts of buy in this country in relation to demand are certainly inflationary in promotion of them.

I think it needs a far more thorough and complicated, far-reaching approach than that, including looking to export capital.

The wrong structured incentives on producing products.

It needs some more aggressive promotion of the flag preference, I think, in an unabashed way.

in the area of food, but on top is the number one problem in the country, the domestic problem.

I think using that as a way to tackle the balance of payment problem has got to be secondary.

Secondary to the objective of increasing supply.

But I do think there's also a choice being made

in favor of very stringent monetary approaches in terms of these high interest rates is going to, I think, have a very adverse impact on the country, on most of the people in the country.

That's against the tax approach.

I mean, I don't mean blanket increase in taxes, but I mean, are you searching with the whole tax structure, the whole business of

but it has to really have incentives, many of which are counterproductive right now.

Let me say a word on the tax side, speaking pragmatically.

We've been talking about and considering a number of

The tax deal hard to burn, as the view is well known to all of you.

The investment tax credit variable from 3 to 15 is compulsory stated by corporation.

And again, some even suggest to reimpose a surcharge, et cetera, et cetera, et cetera, in addition to other reforms, as you know.

The problem is that there is no way

and any, we have Mel Laird here today, he's a sophisticated observer of the Congress.

There is no way that you could, at this point, make a request to the Congress to act on the tax front criminal, because the Congress, not just the Senate, which has

always been irresponsible on taxes, but the House now that has an open role on taxes, you know, that's changed.

And if you talk candidly with Wilbur Mills and Titus, you'll agree that the Congress is the first.

It would take months for them to act.

We've got to tax some tax proposals up there, some good ones.

months for them to act.

And second, when they did act, it would be in a regressive way in many other areas.

It would be a Christmas tree so loaded down that it would break.

Break the tree.

So loaded down with the goodies.

I like to...

If we were in a position to move administratively in the tax field, that would be one thing.

If we were in a position even to say that if we delivered certain requests to the Congress, then they would act in the tax field, act in that field and not do a lot of other things, then it would be so bad and intolerable to take that step and do another thing.

But at the present time, the Congress's Ways and Means Committee is considered to be trade union.

which we need for other reasons.

But beyond that, if they were to set that aside and start moving the tax field, I do not believe there is a chance that you could get action pursued or responsible action ever at this time.

But the type of things that are floating around with the Congress in charge of

And I would expect that if there's any tax action, it's going to be comprehensive whether it's responsible or irresponsible or what.

It's going to cover lots of things.

So it would have to go through the House, hearings, the Senate, through the Senate, and so on.

And a comprehensive tax bill is a

is a big order.

So I think in terms of just time, if there's some notion of doing something that's going to have an impact in the next six months, that is not going to happen.

Well, there are a couple in our tax package with a number of things, but there are a couple added to that great popular appeal on this property tax release for older people.

It's very sensitive.

And another one is the amendment that I have made, and that is a tax credit for those who send their children to private schools.

And that both of those will go through,

But if you move into this area, if you open up this box on the text field, I just say that first, in terms of what you speak of, of doing something, of saying something, and doing something that has meaning now, most individuals look at it.

And most of those in the Congress would say, well, ho, ho, ho, maybe this will happen in January, or maybe in November, or maybe October.

I'm not meaning to suggest that.

I don't want to rule it out.

But I think there is a practical problem.

And it's very difficult with the Congress.

And frankly, I've talked to Russell long about it.

He's running the Senate side.

And Russell has a variety of interest in the tax

himself as does Wilmer, but he totally agrees that there's a time factor and a responsibility factor that comes around here that is quite difficult.

I'm not ruling these out, understand, but I just say that in terms of it being the answer, or a major part of the answer, we would not be really loving it if the American people were to say so, knowing what I know about the behavior of what the Comprehensive Committee has received.

Yes, sir.

I've just been listening to various remarks.

I listen to Jim Roach very attentively.

I listen to Paul, and to Leonard, and thank you, Simmons.

The way I look at this business, we've got a booming economy.

The GNP is up and the equational income is up and everything else.

And looking at phase three, I say to myself, well, phase three is a failure.

I've said it was a failure.

But actually,

I didn't mean it was a complete failure.

From my point of view, it was a failure for one reason.

Food prices.

And this is the emotional thing.

Now, to freeze everything now, to me, would be an irresponsible action.

Because what you would be doing, you would be setting the stage when you have a complete freeze, you would be setting the stage for a complete controlling.

That would be the end.

That way you would wind up sooner or later with everything completely under control.

Now, as far as the food prices rolling them back, well, I'd like to see them roll back.

I don't know how you do it.

I don't know of anybody else.

So what I'd like, I'd like to see, I'd like to see an effort made to hit phase three in the one spot where it has failed, and that's food prices.

All this, all this business, these, these fellas over, over the hill, you know, they, they said hit, hit the rate, rate for a freeze, and it sounded good.

And I guess it sounds good to a lot of people in the country, but when they take a second look at it, it don't sound good, nor does it look good.

I think that we ought to try to make this thing work.

And the place it has not worked, and the place where everybody is emotionally uptight is on food prices.

On the phase three, as I see it, we've got to save the amount of flexibility.

We were hoping that this would be the step back into a free economy.

And if we can hold the food prices even where they are, you might have to ease up on the wage business in order to make up for the difference.

But I certainly am not ready to jump what we got, even though I'm just as uptight on the food price as anyone.

I'm not ready to jump what we got without knowing what the hell we're gonna get, and if we get a complete freeze.

And when you get these politicians turning economists,

The only thing worse is to see Congress and then vote.

And this was a political action.

I mean, this was a political action.

I mean, it's all right.

I guess we're kidding ourselves on it.

This was a political action.

Let me tell you something.

If those same 33 members of the Senate had a bill before them now, I'll bet you half of them would come in with intentions.

Yeah.

And the first group of exemptions would be where?

The same crowd.

I've seen this.

So I think we ought to stay away from that business and let's hit phase three where it's failed.

And that's on the floor.

I'm not saying how you do it, but there's been a lot of talk and suggestions how you do it.

Let me ask a fundamental question, George, in your statement and other phrases.

As to where we come out in the end, what we do now, of course, I'll have to decide.

I'm going to take into account what you've all said, and I'm impressed by what Paul says, and what the rest of you say about what we do at the place, where we come out in the end.

I understand that there is no, it seems to be no support in this room for a...

a controlled economy on a permanent basis, correct?

Is that correct?

Is there any support for that problem?

Very basically, you know, on a permanent basis.

You only want to control the big guys.

You, you.

The little guy, you know, he wants to control you too, you big guy.

to do whatever we do now to deal with this present temper, present, very, very, very tough problem, which it is tough.

I think the two of you have stated it quite properly.

You know, I don't know.

The rest of the time, it's a great concern.

It's political and it's...

Maybe some other factors as well.

But to me, with the fact, your feeling is that our ultimate objective must be to move toward, well, eventually we will.

That's correct.

Thank you for that.

All of you.

Well the monetary, of course, is there.

I don't say that in any disrespectful way.

It's very sensitive about the fact that we didn't do it.

On the budget side, we not only are going to stick to it,

We're going to fight right down the line for it.

However, it would be unrealistic to assume, if I may just put it on a secondary note, or at least not secondary, but at least on the left, what I just said on the left side, there will be considerable pressures for very significant increases in the budget for domestic care, veterans, for example,

is going to be a very tough one for us.

The farm bill is going to add to the $700 million that comes down here.

May, in the field of ATW, the educators are in there for a huge, huge slice.

The University of California needs more subsidies than the richest people in the country, except for Harvey and Richard Cohen.

Put your other hat on now.

Well, they're going to make it all up by cutting the defense budget.

No budget is sacrosanct.

I can assure you that in time, we're going to meet with the Russians for the purpose of getting a mutual limitation on nuclear weapons.

And we're going to meet this fall with the Europeans, both the

So the communist guy in Western Turkey, for a mutual reduction of forces in Europe, if before we go into those meetings, we have a substantial unilateral cut in our military budget, you can forget it.

There'll be no mutual reduction.

They'll say, why should we do this?

You've got to, you, particularly the labor and management leaders, know that if any kind of a negotiation is true, if your deal is true, if the policy is more, if anything, but not even more, it's just a second imagination saying, oh, it's not fine.

But if any negotiation, you can't get something else, you've got to have something to give.

Now, we think, but I should point out on the defense budget, and I shouldn't, I don't intend to judge, that many of you were changed.

The defense budget in terms of real dollars since I came to the office and occupied this place has been reduced by one-third.

The point is that we are now down to an amount that we think is an amount that we have to have in order to be a credible leader of

the free world, and the only, the only nation that has the power to frankly deal with the Russians.

Now, the moment that we get down unilaterally, below them, you have messengers to Russia, and I have, and these are very, very evil, and very worthy, and a very tough guy.

And I would use the place to identify their votes.

When President Eisenhower was here, and President Kennedy, frankly, in the early years of the Johnson administration, the American advantage over the Russians was enormous.

At the time of the Cuban Missile Crisis, we were looking down their throats.

It was 15 to 1.

No way they could challenge that.

No way.

And that's changed now.

I've seen it.

Virtually.

We're ahead for a reason that is very important and has to do with many of the members of your unions and for this industry to represent.

We're ahead because technically we're better.

In other words, numbers-wise, throw in there ahead.

Numbers-wise, we're practically even on speaking nuclear weapons.

But what we have

enormous advantage, a great advantage in terms of accuracy and other things over a period of time.

And in terms of the budget, we will hold the line.

We're going to try to be as fair and generous as we can to the people in need, and all that sort of thing, and the schools and so forth.

And we've got a good education.

This is not an austerity question.

Give $268 billion to one bill.

On the defense side, I've got to fight it.

are any cuts that will put the United States in a position where it cannot exert a leadership that has been so effective over the past year.

And frankly, as Brezhnev himself admitted or stated two weeks ago, trusted himself, thought the world at this time closer to, shall we say, an era of

peace and the broadest sense of humanity.

Now let's be honest, evolutionists, we haven't changed.

Children's lives haven't changed.

We've still got terrible problems in the mid-east.

Very, very difficult ones that can pop any time.

We're worried about it all the time.

The world will always be dangerous as long as men live on it.

And even more dangerous because women live on it.

But the point that I make is that at this particular time,

This is the year when we can make another breakthrough toward reducing the level of danger.

That's the level of the monster.

And in order to do that, we've got to have the bargaining chips.

That's really why I had to fight the defense budget.

Is it because I'm a hawk, which I guess perhaps I am, or an anti-communist, which I guess I am.

But it's because, basically, I want to reduce violence.

I want to, basically, it's because I really want a peaceful world.

And in order to do it, I know that the, you know, just to wind it up, some of our mutual friends, and you know the Congress, George, and Paul, and the rest of them, some of you in the business I know,

Some of our mutual friends up in the Congress say, isn't disarmament, if that were your goal, wouldn't that be great?

That would reduce the danger of war.

That is maloney.

Disarmament, if it's on our side and not on their side, increases the danger of war.

The United States will never use its power to destroy freedom or destroy the peace.

We've demonstrated that in four wars in this country this century.

We've always fought to defend it, never to break the peace.

never to take away from you.

We can't say that about our friends on the other side.

Now, that's the kind of a thing we live in.

So, I say that.

The other part I'd like to make, getting back to the more fundamental things that we've discussed here, is that it's been a very helpful discussion.

I'm extremely pleased to hear what you say about the development goal, which I feel very strongly about, too.

I think what we are considering now, what we haven't considered is how we grapple with the food price and how we grapple with this confidence factor and how we grapple with this ecology.

In a way, that does not fasten on this economy, a straitjacket that you could never cut off.

It's so tough, you know, you can see from these options that have been presented.

You run down this and that and the other thing, and virtually everything is suggested.

The most extreme one, the one that our Senate brings, and I'm glad to hear that maybe some of them are going to back off of it, but before it would be an utter disaster.

It would not cure the inflation.

It would bring black markets.

It would bring ration.

It would bring a recession.

That's exactly what that kind of action would begin like.

wrong for business, it would be particularly wrong for labor, because after all the freeze and this climate, you're negotiating, and when you're going to negotiate, it's just unfair.

You don't cross the border permanently.

Now, on the other hand, we are faced with a condition here that goes far beyond any theories, far beyond any pure economics, which are

I would prefer, I would prefer that if we didn't have a collar and the president was supposed to come out and then you just put it out there and that's it.

The situation is rather difficult in this whole field of frankly catching, of getting across to the country first that we are doing something.

Then finally and secondly, seeing that we take the additional actions that are needed to deal with the food pricing in a responsible way, we are doing a lot of thinking on it.

The trouble we have found, we talked at great length this morning about recently, or controlling raw agricultural

products at the producer level is frankly that it just probably can't be done.

I mean, you know, it's these farmers that are doing a lot.

And I agree, if you just give them their head, they'll grow up.

But if you start at that level and put it at one level and then move it to others and so forth and so on,

The prices of, we think of the prices of automobiles and steel and other things, and they're very stable, as we all know.

My goodness, you pick up the morning paper and you see there's a new price for soybeans every day, and a new price for hogs every day, and a new price for cattle every day, and a new price for broilers every day, et cetera, et cetera, et cetera.

So I would like to just say that we appreciate all the work you've done previously.

I could try to think on this again the night of tomorrow.

Maybe before the week is out, we'll try to do what we think is right.

But I can assure you all that the goal that I have is yours.

And that is, the ultimate goal is a free company.

On the other hand, we have to have in mind the fact that we will have to do some things now

to regain this confidence that is so important so that people will be able to move toward a free economy.

And that they will accept it.

Whether or not the American people today really want a free economy, I'm speaking on your behalf.

You're all statistics.

It's basic.

I'm not trying to butter you up.

You've all been in this business.

You've understood the terms and so forth.

The average American

Frankly, just want things taken care of.

And he has been, frankly, led by the hand so much over the last 10 to 15 years.

The farmer's been led by the hand for 40 years.

He's been led by the hand so much that it's very, very difficult for him to let go of it.

That's the problem with God here.

He sort of likes, maybe he says, I'm for freedom and harassment.

But in a sense, maybe he kind of likes control, as you see.

Now, we have to run against that in psychology.

Because we know what is right.

And we'll try to find an answer that will be as close as the reviews expressed here.

where we are considering the freeze option, we are considering the other option, and we're considering the next other storage as pointed out.

And so that way, John, you made a note of that somewhere interesting.

That was in an earlier, one of my earlier papers.

George, I'm sure you know.

I mean, it accepts on modification on the executive compensation.

Yes.

that much effect on the cost of living.

But heck, it is a pretty rare, new publisher, new publisher's not going to negotiate your labor contract.

They see these huge jumps in executive compensation at this time.

Well, for example, here you look.

I had the case early this year, you know.

Every year they had this sort of commission that was supposed to recommend changes in executive compensation.

They brought in the figures to me in December.

That would have meant that the members of Congress would have been raised from $42,000 to $60,000 a year.

And that would have also meant that the people in the second levels would be, and it should be done at some time.

But I said, no, not now, because that would have just whacked.

You can't raise members of Congress and members of the administration from 42 to 60 without having a great number of people.

No, no, the argument there is that they really, that they just catch enough.

Thank you very much.

Now back to the drawing board.

Bring me the answer by tomorrow.

What do we need tomorrow?

Can you do that?

Yes, sir.

I want to tell you, that's your section.

Oh, uh...

All right.

Take care now.

Take it easy.

Good to see you.

Didn't get the best publicity, but we made it.

We didn't get much.

Yeah, we didn't get the best publicity on the dinner, but we made it.

Oh, I thought we did.

We got the story on paper about your partner.

Yeah.

I know your agreement is more complicated than that, but we just hope that our agreement causes as much trouble.

Good luck.

I think we are really supposed to use the area on a daily basis.

I just want to re-understand labor people's language.

I'm just a guy on the street in Harlem.

As a matter of fact, as a matter of fact, phase three is exactly the same with regard to food as phase two.

That's right.

No change, whatever.

You've got some supper.

That's right.

No change, whatever.

the whole thing about controls generally controls can do fairly well with that market

with a large finger press down there.