Conversation 514-008

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On this Peterson's congressional briefing, the Allen Amendment is going to be voted at 440, which poses a problem.

They want to make a shift.

The recommendation is that they move the 438 to 515 and cancel the reception of the Sephala.

And that you simply open it at 515 and let Peterson carry it forward to conclusion.

And he would conclude.

Close to 6.30 as you can.

The Queen's Garden Party, the British Embassy is tonight, and they've all been invited to that, so they'd be wanting to go.

The alternative is to shift the date, but this is a good way to squeeze it, and if we're better off, at least we have.

Maybe I'll just open and stay.

All right, open and stay.

But I'll tell them that I have promised them, and because I've been invited to the embassy, I have promised them.

to turn promptly at 6.30.

British Embassy is at 6 o'clock moving in.

If I don't get it, he doesn't get it all the time.

Yeah, why bother?

The other thing we just learned is that President Johnson is coming into Washington today to go to a dinner tonight honoring Jake Pickles.

Now, the night here and then going to New York tomorrow, I don't need to get a Citizens Award for questions.

What do you want to ask for breakfast?

This is only, you know, nobody's recommended it.

Where is he staying?

He's staying in Madison.

Do we keep the Madison suite?

They're, you know, decorators that get you around the damn place.

Or just not do anything.

And he had, you know, he has a note about this in the church or anything.

I don't think we've done enough of that for people of the Revenant.

In other words, I think it's over, do I get a bit far?

I've been down there.

Yeah, well, that's it.

You just did respond pretty well.

He's very grateful.

He really appreciated that, as you've seen from his letters.

In church, you're a superb doctor.

Did you see that one thank you letter?

from him where he just came in.

I'd like to get the letter out here.

You may not have seen it, but he concludes by how much it meant to him for you to be there.

And he said he hopes that perhaps someday you'll be able to throw him around the Nixon Library.

They really have.

And each one of us, what the hell it is, because you can't do it alone.

So I'll be making the next one.

I was going to ask you one thing.

With regard to the press conference, you had the

I don't know if we should be approving this approval.

That state was penalty 31.

Is that approximately what the others are?

Or is that a little lower?

Is that, that's a fair, excellent rating, isn't it?

Someone favorable?

No, it's not fair.

It's fairly favorable, somewhat favorable, somewhat unfavorable, very unfavorable.

Now what would you attribute that to?

I suppose just in general.

Essentially, there's five or six points lower than the evidence.

Also, another point, and it's very obvious, is the lag in asking for questions.

That's right.

We didn't, we didn't ask it.

The others we asked right afterwards.

You asked right afterwards, I think, to get a higher rating.

I don't think you should doubt that.

Well, we never did.

This is a little softer.

It's not budging.

That is a very meaningful question to both people.

There you go.

because it, maybe we shouldn't bother asking.

Oh, that's, they suggested that we should, why don't we drop it off at the end of this?

I wonder if it does mean much, just to, because I don't know what you're going to say.

If I had to put out, I was going to suggest that you put out, I think that many researchers ought to put out publicly their marijuana.

I just like to build up a little public sympathy.

What do you think?

What's your next slogan?

Just that by itself.

We've already had our demonstrations, so that's that.

I wouldn't put that on.

I'd put out the marijuana.

Well, see, that's the problem.

They don't put it in terms of the president.

Oh, you have to revisit the president.

That's true.

It's a good idea to put out an OVX for the president.

I don't want that.

Oh, I see.

Then that doesn't prove the fact that...

I'm trying to get it so that we can have a... We can ask a straight question.

You got faith in globalization in Maryland?

That's right.

Put that in the next question.

Generally speaking, I feel that we're doing that.

Were you able to pass on to the scallop industry the business on the lack of awareness of salt?

I told him I had to kill the scallop.

Scallop is the important one here.

So he was very surprised.

I think I'm going to need to talk to Scali about it a little bit.

Hello, how are you?

I'm going to need to get her over here so we can get any closer for the picture.

Well, we thought that since we've had everybody else's views on the economy, as George knows, I often mark him by his name, he says, what does Friedman think?

So he said, well, you're going to be a talent, and I thought you should give us some of your views.

If you get it by sight, as you can imagine, would you prefer tea or coffee?

Or something cold?

We have everything, if you like, Coke, you want some tea?

Hot tea.

Hot tea, yes.

I like hot tea, too.

The problem that you have

is that our economy is that it will become increasingly heavy in the next few months.

It's a tendency to sway violently from one end of the pendulum to the other, where one day everything is great and the other day it's gone to hell.

And then to do things because of those attitudes, either not to do things or to do things.

In March, there seemed to be a rather considerable

They're a wave of optimism.

Everybody likes to have a bunch of cattle.

And then in April and May, perhaps as a result of the international monetary thing, which shouldn't have had that much of an effect on its average, people would have stayed there.

And all the people in our districts, they say, well, maybe we've got to change our policies.

The Congress is reacting by passing a huge public works rule

And others are suggesting that, of course, the businessmen, their usual stupidity or their wage and price controls.

But when you ask, what do you mean if you're giving price, oh, no, no, not profits, just wage controls, right?

Well, the first one said wage, price, board, income policy, as he puts it.

And the real question is, as you sit out there in the ivory towers of the University of Chicago and look over at these lecture halls,

change the plan or whether ups and downs and zigs and zags and so forth, we should stay on our course.

That's what George calls our steady as you go.

But let me try to put it in a broader context by saying first that, of course, it would be interesting in your own evaluation where we are second in terms of what we do.

We have to realize, as I try to emphasize to

What would happen if we weren't here?

You know, what any money else would do to you?

Well, that's not what we're talking about.

This is how you're going to get back to Congress and so forth.

But that's what I'm saying.

Basically, I think perhaps we're really interested in the facts, but also we have to realize, I remember the letter you wrote several months ago, almost a year ago,

where you said, don't throw away 1972 by trying to do something about 70.

And of course, we didn't do a hell of a lot about 70.

Now, we have to realize that while the sun wants to be real brave and save the dollar and stop inflation and so forth, be a real statesman.

If we fail, if we fail in terms of the voters in 72, forget the dollar and forget the free American economy gets finished.

That's my political judgment.

That I'm an expert on.

I know what these other guys would do.

Hubert would do it.

Muskie would do it.

Teddy would, because their constituencies are all on the left.

Steven Stoop would, Jackson, because, well, he's on the right.

foreign policy, his constituency is slowly leaving.

So that's where we are.

So you really, what we're really talking about now is sort of a moment of truth with regard to what decisions, what changes and decisions of any should be made in order to have the economy look reasonably good.

We'll recognize we've got to continue to have some inflation quite a bit, and we're going to continue to have a modified foreign policy, but we've got to have a modified policy.

certainly better in one field or the other, particularly the unemployment field by next year.

So there you are.

It's actually a problem for the day.

Well, Mr. President, as of three months ago, I would have answered it more optimistically than I will today.

And that's not because of the administration's policy, but because of the number one flaw on the horizon, as I say.

If you put that to one side, so far as the economy at home is concerned, there's

Now, do you want me to interrupt before you leave, Arthur?

By the aberrations, you mean the ups and downs?

Yes, the ups.

You have had an incredible experience.

It's an unprecedented experience.

Thank you.

We'll raise it back at the game.

were in danger of repeating the mistakes they made in 1967 and 68, when in trying to hold down interest rates, they actually raised them.

And so I think you mustn't suppose that there's any real possibility of not having a rise in interest rates in the next six months.

Certainly on the short term, the short rates, they're definitely going to go up.

The long rates, there's a little bit more hope that they will be moderate.

but the prognosis on interest rates is not good.

On the economy as a whole, the prognosis is very good.

Why?

Because you've got an awful lot of steam in the boiler and it's pushing to get out.

When you pour money in at the top of the system, it's got to come out somewhere.

But it takes some time for it to work its way through.

And you will recall that...

If I may take you back quite a ways, in the fall of 69, lots of people were saying, well, look, we've slowed down the money supply.

Prices are rising like mad.

We haven't done enough.

We've got to do more.

And some of us were saying, hold your horses.

You've done, if anything, too much.

It'll come out of the recession in 70.

That's what happened.

In the same way, beginning in early 70, you started to afford more fueling.

And it was clear by the end of 1970, by December of last year, when I talked to you the last time,

It was clear then that the recession was going to be over and an expansion was in process.

As a result, what had already been done.

That's working its way through.

You think an expansion is in process?

Oh, yes.

I don't think there's any doubt.

You don't think it's just a recovery from GM?

No.

A large part of it, the size of the gain in the first half is undoubtedly in front of a recovery from GM.

But even if you try to allow for that, you take into account the average cost of it.

I think if you ask a group of people foolish questions, there's only one kind of answer you get.

Go ahead.

If I look at the statistics, the records of what people are doing,

In every area, almost without exception, you have a pretty clear sign that the recession came to an end about November of last year.

This tried to, in fact, conceal the fact that the recession was coming to an end and the turn-up was coming.

The first quarter was a much greater rise because of the reaction to the GM strike than you would have had, but even if you could get over that, you were pretty good.

The third and fourth quarter will again be confused by the

anticipation for the steel business, but taking the two together, they will be good for it.

If it weren't for the money problem, I would say that your forecast made it that good.

That would be an excellent forecast, and there's no reason to back up on it if we can get down out of this monetary explosion without causing too much damage in the process.

Now, one point about this.

with respect to interest rates.

Interest rates are in large part a consequence of what happens and not a cause.

If people are engaging in a lot of housing construction, that tends to drive interest rates up.

If the government is borrowing a lot, as we shall be doing, that tends to drive interest rates up.

If, on the other hand, the demand is weak, as, for example, there are the recent reports about land and equipment expenditures being weak, that's weak.

From this point of view, I regard it as a good thing, because it takes some of the pressure off of the interest rates.

And I think that it is, from the long-run point of view, a serious mistake to think that we can manipulate the interest rates as a cause of what's going to happen, rather than accept what happens to them as a consequence of the demands on the part of housing, industry for investment, and the government for financing.

It's a very bad thing to do all around.

We've done it again.

The problem is that most mistakes in economic policy in the last 50 years or so, studying it, I believe, reflect the failure to allow for what's already in the works and acting on the basis of today instead of on what's going to be the case tomorrow.

The Fed has had this tendency to swim from one side to the other, and so has the government.

Because right now conditions are bad, and you think you have to shove stuff in, but by the time that passes the Fed, you're already on the other side.

And what it does is to give you two rapid, two vigorous expansions, and so you are then driven to go in the other direction.

Now I think the problem now is that there's too much steam in the boiler, not too little.

And the great danger, yes,

The great danger is that you're going to have a resumption.

Unfortunately, let me go back, let me look at the inflation side.

It's very, very well in the cost of living.

But that's partly spurious.

But even if we allow for it, it's spurious because of the way they handle housing and everything.

But even if we allow for that, if we look at all the price increases, there clearly has been a definite taper off in the market.

It's come down from a peak of somewhere around 67 to 1.

It makes four, four and a half.

The wholesale prices, the cost of living, the cost of living.

That's exactly what you'd expect if indeed there's too much state in the water rather than too much.

I don't think about politics, but it does seem to me that nothing could be more damaging to you in 1972.

I agree.

If the price rise in 1972 is back up to 7%, I think, in general, unemployment is much more damaging politically than inflation.

Yeah, it is.

When in particular cases...

Yes, people want it.

When inflation, they fish it out, but they...

But in unemployment, it scares them, and they react in fright.

But in the particular case of your administration, and yourself, I think it's even...

I mean, cause...

But one other thing that ought to be taken into account in the amount of crimes in yellow, and that is, who is doing the crime in yellow?

It's mostly the Democratic economists and politicians.

Do they want

Do they want it in order to improve your chances of getting elected?

They want it to create...

Someone may want us to do the wrong thing.

I think you're not giving them enough credit.

They want it.

They want it to create an inflation in 1972, which will be...

Here's the mistake we made.

You should go make the same mistake.

Whether it's waste, price, or worth, or too much, saving the blood or whatever it is,

Well, I was fascinated, Mr. President.

You're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington, but you're not so interested in what's in Washington

I did a lot.

You said you were fascinated by the environment.

I was fascinated by my own experience.

In 1969, shortly after your election, when we had one of these meetings over at the Fed, like we're going to have tomorrow, Samson, who we mentioned before, had to be the hawk so far as policy was concerned.

He was saying, well, now the way to stop this inflation is really to step on it.

Well, if you create a lot of unemployment, you create a lot of unemployment.

But that's the only way to solve it.

Now, he never would have said that if Mr. Humphrey had been elected.

And now, my interpretation after the event is that, to begin with, the ideal thing for the Democrats would be for you to create a big recession that would really break the inflationary spiral so they could make you unpopular enough so they could come in and then they'd be in a wonderful position where inflation would have been done.

And now, a year passed, and they discovered that that wasn't going to work.

that you weren't going to fall for it, and our policy wouldn't have been produced.

And now the question is, what's the second best policy?

The second best is to produce severe inflation of such a kind as to say we went through this for nothing.

Now, I really don't want to put up with this.

I understand.

I could be right.

But let me come back to your feeling about the economy.

Take housing.

How do we keep housing?

I mean, you say the interest rates, you've just got to let them go up.

But we just can't hit the housing boom.

That's about the one thing that creates quick jobs.

But part of the reason why interest rates are under pressure is because of the housing boom, because the housing boom is so large.

In general, there have been two ways in which people have analyzed economic prospects.

is to take each area separately, like housing, climate bills, investment, see what you would expect in each one, and add them up and get a total.

And another way is to go from the top down and say, you put in a certain amount of money, you put in certain fiscal pressure, that's going to produce a grand total.

And how would it be divided up among the various parts?

And over the past 10 years or more, you've had a lot of work done on both of these approaches.

And there's no doubt that the approach which starts from the top and goes down has just outperformed, by a very large margin, the approach which goes from the pieces and pulling them up.

And that's why I'm inclined to look at it from the top down and not from the bottom up and to say, well, if the housing boom were to taper off a little, that would reduce the pressure on it.

That would make interest rates lower than they otherwise would be, and it would encourage business plan equipment.

It would encourage inventory.

It might encourage consumers to buy other durable goods.

So that I think the problem is not how do you keep the housing boom going, but how do you get the right amount of overall pressure so that it will come out in one or another of these places.

The trouble with trying to keep the interest rates down

by policy is if there's only one way to do it, in the short run, and that's by pouring out money.

It'll only work for about six months.

And then it starts to raise the interest rates.

The problem, the reason interest rates are such a tricky policy tool is because what you do in the short run is lower regularism in the long run.

If you want to lower them in the long run, you have to do something in the short run that would have the opposite effect.

For example, if we look now, not at 1971, but at 1972, the pressure there is to keep interest rates down for the rest of this year, the higher they will be in 72.

If I may take you back, what happened in 1967 and 68?

The Fed increased the money supply rapidly in 67 to try to hold down interest rates, and then interest rates shot up in 68.

Sure, I didn't agree with this.

Do you get it?

Well, I think maybe we have to subsidize the interest rates.

Because you can't get legislation.

Well, we have legislation through that gives us a chance to do that.

And we basically kind of inactivated some of it in the budget because the interest rates have gotten below, actually, the level at which the subsidy... That would be the better way to handle it.

You could do that if you wanted to.

I think the point Bill makes is the same one that

that I was making at the time of the argument over the GNP and what was going to happen to it, namely that the people who try to estimate the economic rise by examining all the pieces and trying to figure out how much each piece was going to go up have consistently underestimated the strength of the economy.

And you sort of have to let the things fall out the way you want.

Housing does have...

I think has a natural starring role because there is such a natural demand for it.

From our standpoint, looking at the options from it is very attractive because if you have said many times once you get the house done, you have to put some stuff in it.

Let me ask you one other thing on that before we consider that because this is in order to keep the housing being net at this point.

It's very important to see what we can do.

I mentioned it to John earlier.

Anyway, whatever the case is, why can't we consider the other role?

I mean, I don't know.

We are here.

You see what I mean?

Rather than trying to take the short run, I can say, you know, it's fine if you go the short run way.

We may keep getting those rates down for six months and then raise them when we want them later.

On the other hand, I think we're at a rather critical time in terms of confidence, and that's what our interview is telling us tonight.

The problem is we don't have anything else but confidence.

We've got to reestablish confidence.

And I say the way to reestablish is to have a wage price board.

And I don't know, I guess somebody makes a speech.

But nevertheless, I do not agree with that.

In my place, I go by some confidences.

Oh, but they haven't talked in the world about how things are going to make people less confident.

They say, well, those clowns know things that people are going to react to, you know, other forces, and that's what they're going to take care of.

But on this particular point, is that not the lesson of the two evils, recognizing many are opposed to the subsidy altogether?

The lesson of the two evils is to let the interest rates move up

And then, when you're such a leader, you keep the housing thing going.

Certainly, to the extent that that blends itself to more confidence in a reasonable monetary policy, that's a good result in itself.

I think the thing that terrifies me about the Federal Reserve

is erratic, that they'll get so struck by Milton's advice, or other people's advice, that they'll decide that the thing that they have to do is to get this big cut-off, unwise, you know, we've talked unwise rise, they better just cut it all off, and it was great.

Arthur is tended to be, since he was not this way before, extremely erratic.

Hell, he was a total...

a total optimist a few months ago, and now he's a total pessimist.

Really?

Well, because he's been over to Europe.

Oh, it's Europe, isn't it?

Well, they're like the stock market people.

And I have plenty of the word that we should pay attention because it's why 11% of the GNP wags the tail of 89%, which we represent, we and our friends.

That's a hell of a note, these international...

That's what they are.

You know, vampires sucking the blood out of every transaction.

They want instability.

They make money, fortunes.

But the monetary crisis, the international crisis, was the best thing that could happen.

It was a fine thing.

I love the feds.

We need another one.

If we could only stimulate another one over, then yeah, everything will be in fine shape.

Because it means that we can sell more abroad.

Yes, and because it eliminates, if they'll only float their rents, it eliminates this problem of these large capital movements going from one place to another.

They only move because they have a sure thing, as long as rates are fixed.

Let rates vary.

And then it costs them something to speculate.

So on the other hand, there's a big policy debate going on about flexible exchange rates.

Flexible exchange rates have been on the losing end of all the banks.

Treasury people all want fixed exchange rates.

It's a blessing that we have to send a promise over their dead bodies.

Oh, sure.

They said the market was going to be a bigger place.

President, I'd be interested in your comments on the capital control program.

I noticed one of your sheets that I got, you put a question mark, sorry.

Let me go back to what I did on the housing problem.

I think there's a danger in these areas that there isn't an economy as a whole.

of listening too much to the people around the back of the house.

The housing boom was off.

I don't believe you're going to nip it in the bud by a cap upon your eyes.

Do you think it is on?

I think it is on.

Off?

Off.

The housing boom was off and running.

Oh!

Not that it's still going.

Quite the opposite.

One of the things that we've learned from the past, I think, is that once you get one of these movements going, they keep going.

They don't suddenly cut off.

You've got a housing boom started.

You're going to have a housing boom.

It isn't going to take a drastic measure, I believe, to keep it going.

Now, as an aside, the most effective measure you could take to keep the housing boom going is unfortunately 21.

And that would be to eliminate Davis-Bacon.

That would help more to keep the housing boom going than the subsidy on interest rates.

Because the cost of the labor involved is far more important

and the cost of the interest rate and the interest cost.

I realize that's all I have to say.

You don't write that.

I know, I'm going on terror.

Well, you've been very brave for three times.

Oh, you were very brave to cut that data straight, and I wish you had kept it off instead of going into these dark construction boards.

We've made some progress there, though.

You ought to talk to Jim Hodgson.

You know, they have made some.

Instead of 16%, at least the debt settlements are down 12-baths on them.

Well, it's some of the more recent settlements that have been in the six to seven.

Six to seven recent ones.

Well, that's... And incidentally, I think the point of...

Mainly by the market place, but anyway, it's... Well, that's all right for the show.

Yeah, three to four years.

But coming on, the economy, generally, you're that one people you say of the federal.

But I don't... Don't get Archer too... Don't... Let me put it this way, though.

He... Archer has got to have more basic...

You know, he's a very intelligent man, and he's an enormous improvement over his predecessors like him.

Because I think he knows a hell of a lot of hell about it.

And he's a great friend of mine and all of ours.

But the thing is that Artie was over there buffeted by these banners.

And they're the dumbest bunch of bastards there are.

The most selfish people.

You know that.

That's true.

Spot market crowd.

I know them all.

And they are, everybody says they're our political supporters.

Balls.

They support whoever's in.

But that's the way it is.

I don't care about it.

My main point is, don't get Archer into a position where he reacts too much to what you say.

Tell him to cool it.

You see, you don't sit in these quad react meetings.

Boy, they're hairy sayings, right?

Well, some of the discussion is hair-raising.

That's what we should do, by the way.

See, you see what I mean?

What I meant is, if you could tell Archer that the main thing is,

to have stability at the Fed and so forth, but don't have him come in and say, well, now, because if you influence him, because he will play to his own privileges, from what he's heard from Hayes and some of the other jackasses on there, he might crash it right now.

We must do that.

That would be a mistake, too.

Or would it?

Well, you don't think so, do you?

No, I don't want a flat money supply for you.

Why can't we?

Let's take a deep breath and say, let us get by a reasonable and sustainable study, growth path, and stay there.

But that depends on, the problem is, That's what we're stirring.

Yes.

That's what I've been for all along.

They were on it until January.

That's what's so annoying.

There's no reason in God's name why they have to go off.

But, once you've made a decision,

It's seldom possible to correct it without some cost.

The Fed has made a mistake.

And now, I think it would be a mistake to go too far back in the other direction, but you've got to go farther back, I think, for a second figure, than was the necessary before.

Let me give you the numbers.

If you were to go back on a 6% growth path of money from December of last year to December of this year, you have to go at 2% from now to the end of the year.

That's because of how rapidly they've been going in the past four months.

Now, I don't believe that that's desirable.

I think we've got to fight some of the inflationary implications of what you've done.

But I think you cannot go back on the 6% you were proud of now, at this stage.

I think you've got to come back some way or the other.

They had a gigantic decline in money supply.

that probably has something to do with some of these attitudes that you saw.

But so far as the attitudes of people are concerned, the worst problem at the moment in the financial community is that there's a universal expectation that inflation is not going to result.

You will find that all the time.

I'm sorry.

The capital control business

They serve no function for us.

They are harmful to us.

But in addition, they are a reason for the strength of the euro dollar market, which has been bothering everybody.

We, this U.S.,

did more than anybody else to create the dollar market.

And we did it by making New York a bad place in which to finance internationally because of regulation, of a ceiling on interest rates that could be paid on bank time deposits, and because of the controls on lending by banks and investment by American enterprises.

And the way for American and other multinational enterprises to get out of those controls is to do their operations through lending.

So an additional reason at the moment why I believe it would be highly desirable to get rid of capital controls is because that would tend to dampen off the appeal of the Eurodollar market and would therefore be offset to some extent by declining that market.

Those controls are counterproductive.

They do us no good anyway.

And I really think it's a shame we didn't get rid of them the day you came in after the sport.

Of course, he was in favor of getting rid of the Fed.

He was in favor of getting rid of the Fed.

Well, he talked about it.

Oh, yes.

And you don't consider, our friends in the business community wouldn't consider that to be inflationary, would they?

The capital control.

Yeah.

They would be concerned about it unless it were addressed properly, about its effect on the balance of payments.

But they would not consider that inflationary.

No.

But on the whole, let me go back to my name.

I don't want to over-emphasize the problem.

On the whole, our situation is marked.

That's why it's so darn annoying to have it spoiled by this money operation.

As of January and February, I would say you couldn't ask for anything more.

We're on an upward path with the economy.

At a slow enough rate, so it won't start the inflation up again.

But at a fast enough rate, so you don't have the unemployment coming down sharply in 72%.

And that's why I say, the only flaw I see in your prediction, in your forecast, is this momentary one.

And then the other danger is the danger of listening to all these voices of gloating doom, and getting diverted from what I think is an admirable past, which steadily follows it, and not wandering too far in either direction.

Wouldn't change the policy.

I certainly would not change it.

You wouldn't go for a tax...

So you'd get some tax relief, what others say.

Of course, have the big spending programs.

And the third thing is to have some controls, and that's about it.

And the foreign people say they have a speech.

I don't think any of them are worth a damn.

Well, I think one of the strategies is to run things up in a super-inflationary way, and then put controls on it.

And then you'd have the problem, both of the inflation and all of the analysis, and problems that go with trying to enforce a big set of controls next year.

That's another trap that seems to be...

In general, I must say, in general, there's a lot of people mad.

Oh, they're going to work.

They aren't going to work.

They never have.

But I've always been in favor of tax deduction under any and all circumstances for any reason.

This is the only way to get the size of government spending.

But I could and cannot say from a cyclical point of view, there's no justification for tax deduction now.

The deficit as it is is going to be too large, not too small.

You don't need it.

You've got the steam in the boil.

The economy is on the way up, and the problem is not that I go too fast.

Because in the first place, as soon as business picks up, they'll change their mind.

In the second place, at the moment, I'm delighted I haven't cut back on trying to take some of the pressure off the industry.

The time you want them better, the way business will pick up, is sooner or later.

That could give the economy a hell of a lot of good.

If they really start understanding it, I think there's a lot of money out there.

They can save you at an abnormally high rate, and they might find one.

The most bullish statistics of all are the statistics on what's been happening to retail sales.

And even these surveys at Consumer Center, which I give very little weight to, if anything, they've been showing...

So I think you have to...

The great thing you've been able to do, Mr. President, is to take a long view

and not let yourself get buffeted back and forth from week to week.

And I think that's the right thing to do.

And at the moment, just hang on to it.

Is there any way that artists can satisfy this wage price they have?

You know, they talk about their own job and all the rest.

I've had only one suggestion in my life, and that is for things like the steel industry.

Yeah.

And that is that the correct answer to the argument authors and others make in our escalator clauses is that when the steel people negotiate, they will make money-wage contracts that embed in them a higher degree of inflation than we will actually have.

And therefore, after the event, they will turn out to be too high.

And this requires a different government.

This requires the real wage rates to be high.

We're forcing the wage prices.

Now, the answer to that, logically, is to separate the real bargaining from the nominal wage bargaining.

To say to the steel people, okay, you have an escalator clause.

Make your contract in real terms.

Then if prices go up by 2%, we'll be ready to only buy terms.

If I may go back, the General Motors contract, which was widely castigated as inflationary, was not, in my opinion, inflationary in the slightest.

Most of that increase arose

because the prior contract did not have an escalator clause in it.

The great bulk of the first year group increase in the GM contract is making up for the fact that in the past two years they've been underpaying the workers.

And they actually have, what is it, a 2.5% productivity increase, a 3% productivity increase, but then they have full escalator clause protection.

And I think that's a very good model, and in a way it solves the kind of problem

Arthur is speaking of.

It doesn't have a dramatic impact on the way to the price board, and it wouldn't solve it on that term.

We've been suggesting that more or less for the steel people, but the people need to do it quite quietly because the union is won, and companies have historically resisted it.

And that means that in the firing, the companies can get something for it.

So we mustn't give it away hot, but that's the way to do it.

Right.

Well, I thank you, Mr.

Senator Bill O'George.

Oh, no.

I don't know.

I haven't done it.

We have a little game I'm going to show you.

This is the idea of giving these to people with an admonition.

This is the first person to pay for it.

Yeah, right.

It's small because I don't believe in a hell of a lot of paper around there.

The paper in your desk can't be held up in that way.

You can get rid of the paper.

Oh, that's not a good idea.

My desk is always full of good paper.

The one I love is copy that picture they took here.

Oh, yeah, let's mention that.

Yeah.

George, would you mention that?

Well, they do it anyway.

Go, go, go.

The copy of the picture that our partner took, I want to bring it out.

Great, Mr. Street.

I will be ready in three or four days.

I miss him.

He's very sensitive.

I love him.

He's my boss.

He's a sensitive man.

I can see.

I understand.

I'll let Arthur go too far.

I believe that I didn't have much control over him.

You have.

You mark your name.

There's a chance that I'll hit the man at a certain time.

You see, you're very persuasive.

In fact, the moment you go in, you speak confidently.

If Arthur's leading in a certain direction, he says, I better go.

He hasn't yet.

It depends if you're heading in the other direction.

He's a very intelligent man.

He would move them.

But when a man's already leaning in a way and persuasive, that's an enormous effect.

Now, Arthur's a tough one to persuade.

I don't know how he wins.

I don't understand.

You work with our experts.

We're all in the bank together.

Holy shit!

Thank you.