Conversation 546-002

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The reason I'm bothering you here is that I think the balance of the unit situation, as I project it out for this year, is looking bad.

But I think we have a problem.

No, Bucky and John and I talk constantly, and we've got weird relations.

No, I didn't do this.

I didn't expect this.

You're trying to think of some spiraling a little bit, to think a little more boldly, perhaps, and perhaps a little more secretly than you usually talk about.

You talked about crack.

Yeah.

I know.

It's a great question.

The devaluation way.

Well, you know, we've had our first trade once in years or two straight months.

And it's going to be flat down.

And the worst situation, we've had many years on trade.

A lot of the guys in the Hill are going to use that to do things they'd like to do anyway.

I was up there seeing Hugh Scott and Schweitzer.

The trade deficit would be very serious problems.

Our so-called basic deficit, you know, which includes everything but the short-term flows, could be in the $5.5 to $6 billion range, which would be the worst number by $2 billion or so that we've ever had.

So I think we ought to get ready for the possibility that if we don't do something, we'll look, we'll be very much on the defensive, and the country's going to hell, and that sort of thing.

Now, what do you do about it?

Well, the conventional economic economist views, and frankly, I think, think a lot more about economics than they do politics.

You told me last time I should be careful with this.

Thank you for proving that to me.

They don't seem to think either of domestic politics or power politics in a worldwide sense, but it's, you know, it's in an economic framework, and this, I think, gets us into some difficulties.

Now, if you'll ask a typical economist, what do we do about this problem, they'll say two things to you.

First, control inflation, and then you'll be okay.

My response to that is that

There's some unpleasant facts going around, but one of them is that the last 18 months, we've done better than the rest of the world.

Our balance of trade's gotten worse.

We have energy requirements that are costing a ton.

We have structural things going on, where some of this enterprise is that other countries are doing things they didn't do five years ago.

But even in the economic development, we can rely on inflation.

My political judgment is that if you stand up and say,

We're going to rely on our fighting against inflation to tackle the balanced payment problem.

There's so much uncertainty about this, whether it'll work or not work, but you'll end up looking hard to solve.

So that's a non-answer in my opinion.

It may be true over the long run, but I remember King said over the long run we're all dead, and I have the impression it's got that aspect to it.

Now, the second thing you say is, well, suppose you're right.

Suppose it does get very serious.

Then if they don't want the dollars, and you've heard this before, all they have to do is adjust their exchange rates, and then everything will work out all right.

Well, the difficulty I have with that formulation is that long before other countries adjust their exchange rates, I think it is reasonable to predict a lot of political effects that will take place before that.

Now, what am I talking about?

at home with this same election year with labor unions full head of steam, unemployment over 6%.

This becomes a wonderful reason for a quota bill.

And sometime we can talk a little bit about the quota bill.

But the big concern I have about quotas versus other approaches is that they'll tend to freeze our industry into industries of the past.

And while Japan and the others are putting their dough into the future industries, we're sticking with the past.

Secondly, and I don't think we've heard the last of Mr. Mansfield and friends, and if we have the worst balance of payments problem in years, I could expect defense cuts, withdrawing troops, aid, you know, the whole foreign policy generic thing could start getting in the way, and I don't know if I understood what we should be making.

foreign policy issues for balance of payments reasons.

This doesn't seem to me to be appropriate.

And it leaves you weak politically, both at home and abroad, if you've got a terrible financial situation.

Now, some of the other approaches we've talked about have a long range aspect to them.

We talk about research and development.

We talk about plant equipment.

These are all very important, but they're not going to make themselves felt for three years, five years, eight years.

We talk about adjustment assistance, which I think is a very appropriate policy, I guess.

But that's long-term, and it sounds defensive.

It's not gutsy, as we used to say in the merchandising business.

We talk about studying where our economy is going to be in five years, and the concerns about being a service economy or being for the economy.

That's long-term.

And again, it sounds wishy-washy.

And what concerns me, therefore, about that business

Because we've got high unemployment now.

We've got enough criticism of having, you know, non-answers in the economy.

And people are going to go around saying, you don't care about jobs.

And you've had three of the foreign policy successors.

They want to attack you anyway in the economic policy.

And I'm afraid that if we let this happen without doing something fairly bold, we're going to end up with a big sign.

Whittle away at you, you know, and turn on your program.

Okay, what are some bolder alternatives, Walter?

Paul and I spent quite a lot of time together on this, and I told him these other questions, just leave me, I'll be filled.

I said, well, a major devaluation is the one that Paul was talking about, and I met with him again today.

Yeah, that's what he talked about.

Now, I think we have to really, at least that one has the virtue, if you did it big enough, of being bold.

The difficult with it is that I think when we finally get down to the politics of this,

That's a tough decision to make, I think, to end up doing something that looks like you're admitting publicly that we've got very serious problems in the world and economically.

Particularly when we get all done looking at it, you may not be sure whether the countries are going to follow them or not.

And to take that kind of a political risk with a conjectural economic situation is something that I think we ought to look at because it would help with the problem.

But my guess is that we'll decide not to do it.

So I've been looking elsewhere at what we might do.

And the second approach, which we could do on a temporary basis, we think, and we'll probably require legislation, though we're not sure of that, is a kind of an offbeat approach that the Europeans used, as you may have heard, where they put a heavy import tax on and then an export rebate.

And they used that, as you know, as part of their value-added system.

Now, the economists tell me that as far as trade is concerned, it has many of the effects of the evaluation.

In the sense that you're cutting, you're just raising, you're making your products less expensive and their products more expensive.

But politically, in this kind of a climate, it feels a lot better to me.

It feels like we can merchandise this as a certain amount of protection for our industries, a certain amount of export, you know, picking up.

And instead of getting a devaluation, we're going to healthy.

I think we could package this, if you follow me, in a way that would make it a little bit more like it.

We're concerned about jobs.

We are going to increase exports.

And it's a temporary thing, which we think under the balance of payments rules of GAAP we could do.

And Lord knows people have been telling us we have a balance of payments problem.

Britain has done this once, and France has done it, so it's nothing, so it's not all that Jewish.

So, that's an approach that, to me, I want you to know, I think we've got to keep this very secret, or it would just, my God, if American business saw what you're thinking about this, they'd import stuff, because it'd be a lot cheaper.

It's very much like that.

Well, it is.

It requires some inflation.

Well, we might be able to get it.

Now, coming out of our print mills, as you perhaps know, aside from his personal attacks here on you and everything you're doing and the wage thing, we mentioned this shoe deal.

He was running around town telling everybody that he made the deal and turned the details over to us.

So we decided in the staff somebody had to take him on.

So I'm not there.

He really overreacted.

I mean, later he called, but

virtually cited to get it quite understood that way.

But this fellow's running for high office here in what I'm saying.

He doesn't mind her.

He wants the trade area as a place he can grab hold of.

And I saw a brief reference that he was thinking about something like the border tax.

And my point here is that he can run away and take this issue away from us if you're not careful.

And while we waited around waiting for indicators, he could say, this president doesn't care about jobs.

I have to take over.

So Wilbur in the middle of this is another reason I hopped for a little bit of boldness.

Now there's some questions here that we must look at.

How serious is the balance of payments problem?

And also, how serious is it that the house long-ranged?

Yeah, that's right.

What is the prognosis of it?

Absolutely.

And how much of it is short-term and how much is long-term?

We're looking at oil and things of that sort, too.

What are the likely foreign effects?

I mean, what will they do?

I think they're less likely to respond to this because they have something rather similar to it than they are on the devaluation.

But that's something we ought to all look at.

Do you need legislation?

How do you keep this thing from getting out of control so they add quotas to this, which I suppose is almost impossible if they're in that kind of a mood?

What do you put with it that gives it a positive tone?

I'd hate to see you just do this alone.

I'd like to package this with something else.

And then we've got Japan.

We're consensually, we shouldn't be doing the same thing, in my opinion, for Japan than we do for others because that situation is far more out of whack than any other.

So we probably want to add something to this package.

But not in the Japan.

We would put it differently.

We have to be careful.

Absolutely.

But let me give you an idea of the kind of thing we might talk about.

We might ask for you that have authority, where, for any country where there is major disequilibrium, don't mention Japan at all, in the balance of trade and the balance of payments, that you should have some negotiating authority to help solve that problem.

You don't need to mention Japan.

We've got some problems with a couple other countries.

But all I'm trying to suggest is that

At some point, I think we're going to need a negotiation with the Japanese.

Every expert I've talked to says that problem is much worse.

You know, they're now going at a deficit with us of $2 to $3 billion.

The trade surplus in June is $600 million a month.

They're adding in at a rate that's just unbelievable.

Now, I want to talk about secrecy and how we handle something like this, and I wouldn't want to do this without your concurrence.

What worries me about running something like this through the system is that there'd be a half dozen reporters in two weeks knowing we're doing this.

And if we wanted to run this boldly one day, that you had, you know, taken initiative, I'm just afraid we'd lose control of it.

So my proposal would be, with your approval only, that we try to handle this on a top secret basis, and we get

John Connolly, whom I've talked with about this, and I think he's talked about this, and John finds this quite intriguing, but I wish, because he, when I talked to him this last Thursday or Friday, because he waited, and I told him to talk to you, and so apparently he said he did what he said, or had, I don't know, waited.

But my last exposure to Connolly on this issue was after he had talked to McCracken and Schultz,

And both of them said they would go for an evaluation.

And I've talked to them since then, and I said, you know, John says to me, I told him exactly what I told you.

I said, I think we have to go through.

But my gut tells me that when the crunch is finally on, we have to tell the president that probably we don't know what the other countries are going to do.

The political risks.

of saying the country's gone to hell.

Yeah, I mean, I'm the doctor, I took the college exam.

Ergo, the economy's gone to hell.

I said, maybe he'll decide to do it, but I think the politics of it are not too good.

And John hadn't thought about this, and he was intrigued with this.

He said, let's go to it.

Now, what I'd like to suggest is that we take, with John Connolly's knowledge, he gave us one man on a top-secret basis, because it's terribly important that John be with us on this.

Volker or Petty or there's two or three guys that we take one guy from George Shultz's operation and I think we can get along with that for now.

Just, you know, just a handful of people.

Maybe he's working on his devaluation and maybe we have to bring him in.

But the complex of this thing, generally, not quite.

Yeah, I would not get to it.

You want to keep this secret, let me say, you don't get it.

You don't get it buggered around right now, even.

I mean, I can say that if we are thinking of this sort of thing, I hope that, you know, the trouble with that council, which likes, you know, staff visits, you know, they just always have a parachute of a week.

I almost, you might have been concerned.

Well, if you take the man, if you take the man, you could...

The way I see it is to me, the way you get to the secrecy side, which I wouldn't be able to handle.

If we had you and Schultz, and Crackett, and Conway, those of the four, I would not under any circumstances support Burns.

That would be out of the timeline.

Because Burns is a

Yeah.

Ernst gets up there and mumbles around, everything's a failure.

It's kind of just, it has to do with, you know, like Ernst said, it's an enormous effect because they think, we've got to find other ways to control that.

I think those are the, I think it's before the get-together, who might be with me and decide, this is what we want to do.

Then start on a top-secret basis.

And by top-secret, we use an advice that

a worship group of them.

But not beyond that.

And it would be worshiping very much.

And then maybe the daily announcement.

I don't want to have a council meeting very soon anyway.

If you want to go through the cosmetics and then announce it.

But I'm always going to get out of business with that.

But not congressional constipation.

I don't think.

You can't have constipation without leaking.

You have to just...

So, half hour before you say this, we're going to ask for their support.

Is that a chance?

Right.

What's happening then?

Well, this is required.

We think it's required legislation.

We're having a lawyer look at it.

Though, there's a one in three or four chance it wouldn't.

I'd love to find something you could do.

I just don't know if you're going to know something.

Yeah.

I couldn't agree more.

It's just because they were going to do this thing.

I don't want to oversell this, but what I'm trying to convey to you is the sense that

My gut tells me this thing is deteriorating, and it's deteriorating the rate where I'm afraid you're going to wake up in December or November, and where all the economists are telling you to fight inflation, all the politics and labor unions and Muskie and friends are going to be looking at you saying that guy doesn't care about jobs and people and our economy, and all these women around the world, those in China, just suddenly cannot be in that position, basically.

If I were to ask you, this is what I'm trying to get at.

And I can almost make a negative out of the first thing.

The way you've been running around, you know, with China and all these other things, what's happening at home and so on.

This would have to be done before that.

Back home, let me do your age, because...

I think just as a matter of fact, there's much to be said, even though you don't get congressional

approval, by the way, and much to be said for advocating.

I think what you really have to find out is what, I would hope that it was something we did administratively that would stage the problem.

Now the congressional election has asked for some congressional legislation to do more.

Now, one part of this that my discussion has been trying to do is start

You know, we're in a crazy world, if you stop to think about it.

We're the only country that can debate.

And, you know, you like to take the long view here, but the way the rest of this world is moving, and Korea, and Taiwan, and Singapore, and so forth, this isn't the last time this problem's going to come up.

And I've been trying to figure out why can't we do that?

I mean, if you wanted to.

Paul tells me, and he's absolutely right, I checked it out, that under the Bretton Woods thing, the president does not have the authority in this country without legislative authority to do that.

Now, it may be that it's part of a package at some point.

We would want that authority.

The difficulty with this is, so it doesn't sound like you're going to do it, you know, soon, but some presidents in the United States should have the authority.

There's long-terms for you not to be able to do that.

You're going to have to take all the crap that we have to take on the subject year after year.

And you're going to have to mark where we're going to be coming from.

I mean, nobody abroad.

You're going to dispense, and all of a sudden, your long-term strategies get thrown at you all the time.

And the truth of the matter is that if they have this problem, they'd be bad.

And they can be in distraction, but it's bad for them.

Okay, so without saying I'm sure I'm right, I guess what I'm asking for is authority to do a top-secret thing on a bold approach to this problem, looking toward an August announcement, if it all works out well, with Conway, Schultz, and all that in the cranking, and then just keep everybody else out of this thing.

Yeah, yeah.

I think this is a good idea.

I'm going to see the company tomorrow, and I'm going to see what we can do.

Do you think major would be a good idea if we had a bridge line, or I don't know, as a meeting?

Should the meeting be held with the first instance?

Should I call together the four of you first, and then we will decide in advance over what program we need to come up with and have this come up?

Is that the best way to do it?

After we decide to do it?

Well, I'd like to get it.

No, I think it's better this way.

How do we work it out?

You just go and tell them, right?

I just tell them, Paul, I've talked to you.

John and I have reviewed this.

Oh, he'd have no trouble.

He said, look, the political, the devaluation, the political side.

He said, this sounds like something we could say.

The other countries are doing something like it.

Let me suggest this.

The key man in this play is Colin.

As he understands politics, he's also the treasurer, and I think what ought to happen is that when I get here tomorrow, you come in.

I've got something to go over.

You come in, and let's just bless it right there, and you take it and do it.

I'll say something.

All right, that's great.

Now, uh...

But you're convinced that he's pretty well sold on it?

Oh, I think so.

And he was very amenable to it.

I mean, this was a new idea to him, you understand?

Yeah, yeah.

Well, it's a lot better, the devaluation thing.

The devaluation thing.

I'd be prepared to answer that.

It's required, definitely.

But the great difficulties, which he recognized at the time, the rest is that Schultz is a devaluation person.

free market.

The difficulty with that is, though, it really isn't a free market in this world.

And then the Japanese and the Germans and the rest of the whole line of work screw it up.

What do they do?

They might go on with this.

They say, we'll just change the rates with you and then we'll take over.

I don't know.

It's this, this also is, you talk about devaluation, it's awfully hard to connect back to jobs.

I think this does exist, you see, particularly if we get, how do you describe it again?

Well, this would be on a program that didn't want to live.

This would be a temporary program with a gap provision.

And it's an import and surcharge and an export and rebate.

And the way you tie it to jobs,

would be to say that this will slow down imports, but across the board instead of in particular industries.

And then the other way you tie it to jobs is through the export rebate.

Instead of we're helping exports, and exports is jobs.

As you can do this, you don't have to have both parts of this.

I'm just looking for something a little new, and I like the export side, because I found when I talk exports, most people say, yeah, that's what I want to do.

And then they get their export industries into the stack early.

And a lot of American companies, they're multinational.

Well, it has to be, something has to be done, doesn't it?

I know it's the profit, but you know, it's not what is created by people.

We've done this, and all of it has been great.

Ever since about 1961 or two, isn't it?

Isn't it the end turn this way, this field?

Well, we've been covering a lot of our international manipulations, but now we're just face to face with it, and we just find it fun.

Well, the other nations have grown enough, I guess that's what's happened, isn't it?

They're far more independent.

There have been a lot of times I couldn't get back, so we face a different situation.

Now, second, I'm just going to put you on this.

I'm not going to read this, but I will do it if it shows you.

All right.

Get in position so that we don't have the constant pleasure to work with the politicians.

Oh, God, yeah, there's no way I can answer that.

Oh, yeah, that's good.

I haven't heard any of his students, but I think he went back.

He went back.

He's at it again.

I'm sure he's been hearing a lot of stuff about Chenoweth.

He's definitely found one thing.

The reason I ask is that Chenoweth is the ambassador over there.

It's a textual thing.

Of course, it might be difficult to put it in there.

On the other hand, I very much think he's the best man for the job.

I think you've got a business man going over there.

You've got a selling job with David, but I have a feeling that if you were to sell a job here and tell him, you know, something like this is terribly important.

He will do it.

So can we, I don't know how we can handle the textual thing.

How do you see it coming out of you?

Who knows?

The Japanese say they want to solve the problem because between Conley and Mayhem, you're scared.

They now have the message.

I'm now satisfied.

By the time the boat was getting up and they understand that you were talking to them about how they had fun, both you and Kyle, you know, I wasn't talking to them, but you get public statements.

And they understand that John and I are perfectly orchestrated.

It's great to say that again.

I guess it's understandable.

They had to be concerned about our relations with foreign countries, but we had to be concerned about how we survived in this country.

We're a third of their export ship, and that's something we have to take into account.

What's your view, Mr. Duffy, about that matter we talked about that is under consideration?

Do you think we ought to have planning to go over the standard?

I just don't know.

I don't know that you could do it on good.

It would be valuable here.

Well, you've signed the Everleigh thing, haven't you?

Sure.

Well, Everleigh...

John's very faithful to Everly.

Everly, oh, he's a hell of a guy.

I think Everly, you know, you tell them, you know, oh, he's a, oh, he's a, oh, he's a, oh, he's a.

So Everly's out there.

I talked to him just before I came over here.

Now, Everly is a guy that John likes and that I like.

I'm a jock.

And we can use him for some of these negotiations, you see, because that's what that job is done for.

I don't know if you remember the history of that.

Chris Berger and the General.

And it was set up because the Congress didn't, you don't suspect, you didn't get part of it.

I'm surprised you took it.

Why do you take it?

Everyone.

He's very successful.

Well, they told me at four nights, because basically he is so successful, he'd like to do something else.

I mean, that's good.

That's good.

He's headed a CDD committee on the community, European community.

He's got an interest in the trade community.

I think it's kind of so.

Real star, I think.

Real star.

Now, without, without, I think we've got to think of a third of it.

Just have the back of our mind substitute for comedy.

If I will not take green over there, we'll not do what we've got to do.

You mean for Kennedy?

Sorry.

Yeah.

That would be an experience.

On the problem with, with State,

Well, it is a problem.

I've talked to you about it a couple of times.

The problem we have is that every day at the time we get in one of these discussions, the state guys come up with white inflation and the Japanese relationship is excellent and, you know, we shouldn't juggle it.

And it's very difficult here in policy.

They put it back on our economy, right?

I don't know what's happening with us abroad.

It's quite crude as it's known.

I think the Japanese have been very difficult in their country.

If I didn't disappoint, I could prove that to you 50 times over.

But you see, it's hard for John and me to be going down one track, and then to be hearing this hard call, and then we got no process.

Oh, you understand John.

Oh, boy.

I think everyone's going to be fine.

It's hard to call when you're in a row, because you're pitching yourself.

Yeah.

They've got a lot of figures, and

But longer term, if the state were, you know, they're just thousands of negotiations, those guys do all year long.

And longer term, we ought to have a guy that's coherent with us, you know, I mean, where we're not looking at the problem through the other end of the stick all the time.

Peter, you know, I think, from my standpoint, we worked very well together.

Oh, yeah, he taught us a lot, you know.

Uh, yeah, I have a question right here.

You should see it.

But you see, you've got a lineup over there now, if I may say so, that's what gives us the problem.

You've got Bill Rogers, whom we've already discussed, and this is too involved in this kind of thing.

You've got...

Jack Irwin, who doesn't strike me as the kind of symbol you're looking for, I guess, and Alex Johnson is much more on the political side.

And Matt, who's a very intelligent fellow, just isn't very vigorous of what kind.

So we've got a lineup of four fellows over there, I'm afraid, on whom really, you know, fill this void.

This is a job, you know, that an under two man could do if he were that, you know.

I mean, if he was, of course he is.

He said he'd tell me he would do it if there were one of the undersecretaries.

That just isn't old enough.

They talked about a re-organization thing.

I mean, yeah, I've been in them too, but you see, that takes up as much of the action.

I think that more people like it, really, that's a possibility on the Japanese side.

As a matter of fact, if we don't get money over there, then you need money.

Good idea.

Just drop over here.

Got it.

At that age, 40 to 50.

50 to 55, maybe.

But you think how great it would be if the four of us would sit in the same room at the same time instead of arguing about the basic premises, we could say, you know, we're together now, let's move.

All right, sir.

You go to work immediately on this on a colder occasion.

I'll get him in here and we'll talk about this thing.

But he sees the dangers of the devaluation deal.

Yeah.

So to be fair about it, John and I are not experts, you know.

I'd like to see Paul lay it out so we can look at it.

I'm just afraid that if I were president, somebody said to me, I don't know about the economic effects.

Don't you agree the political effects are not good?

Well, they are in need.

They are in need.

somewhat more sophisticated than the average person.

I mean, I can see how the average business guy, I'm afraid, you know, who isn't very sophisticated, you know, he's often going to run in a company, you know, he just might flip.

That's what I'm afraid of.

And your opponents, I think, say it's a mission of defeat for the economy, our economic policies fail, and so forth and so on.

Thank you.

All right, sir.

Thank you.

Well, I'm not sure if you can see back there.

You see, there's probably a mark on the key.

Okay.

But you'll be around all day.

Yes, sir.

Now, it's an important record of decency for covenants in advance of a man's body.

Thank you.

so