Conversation 900-028

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So we now come back to a question of what actions can we take?

I mean, when I say help a great deal, but what would you have in mind, Arthur?

Do you have any thoughts of specific actions?

I don't want to say a word about the state of mind of the country.

I think American people feel increasingly that their lives, their fortunes, their opportunities, their prosperity depend on government action.

That's my generalization of what I want to say.

Well, I'm just trying to describe.

It's true.

It's a shame.

My generalization over to you is that people also fear less confidence in the ability of the government to do its job.

And I think this is a cause of much of the frustration and unhappiness that now exists.

Hell, this country is doing so well.

People ought to be happy.

They ought to be enjoying themselves.

But they're not.

Now, I think, Mr. President, if you rest content with the victory that you've just achieved in the Congress, the Economic Stabilization Act, you will be feeling the sense of frustration that exists because people will be bombarded by these price statistics and all the rhetoric about inflation and a do-nothing government.

and a government that can't manage the economy and so forth and so on.

And therefore, I'm a hero.

But in the next round, you may lose out politically, and the Congress may truly go mad.

Now, I think that some new departure in policy is desirable.

And what I would do, I think, is to modify Faye's theory.

to require not to modify Phase 3.

I don't want to go back to Phase 2.

We control too much under Phase 2.

And certainly I don't want to go back to rent controls.

We don't want to control the small firms.

But I think I would re-establish street notification.

And, uh, and give the Coastal Living Council the power to hold up specific increases.

in wages and prices until the cost of building a council is satisfied and appropriate rules of behavior are being met.

Now, that would show up in the witness on your part, leadership on your part, in recognition of what is currently in mind over here.

And I just don't think you can sit still.

Now, I'd love to see you sit still, Mr. President.

So we are here.

But we can't.

I know you're here, but you've got to show awareness of the problem, or there are some, are there?

I think in a field like this, the choice is between leading and following.

And if you lead, you can lead wisely.

And if you follow, you can follow madmen who've got to control you.

And for a while it looked as if the Congress had gone mad.

What about for your education, sir, George?

I think that it's a, that's something that we can do.

something administrative headaches, I would say, or a administrative problem for firms.

But I'm inclined to agree with Arthur to the degree that I think most assume we get an extension of the Economic Stabilization Act, which is satisfactory, and it looks like we may have...

Barely satisfactory.

Then I think that Phase 3 has...

has not been put forward right somehow.

We spent the first part of phase three explaining what it was.

Then, which we had to do, that was all right.

Then we had these bad food price statistics, which

through a spanner across a really very good labor management statement that came along.

Then we had all of this work in Congress, and every day the papers are concentrating all the action that's there.

What is Congress going to vote today?

Rollbacks and so on.

And so, no matter what we did, the Cost of Living Council no one paid attention.

Well,

Once we have the Congress acting behind us, then it seems to me we're in a good position to summarize all these different things that have been done and put a stronger administrative stance onto Phase 3 than we now have.

For example, we are now going through a process of semi-hearings with a wide range of industries designed to get at what it is that's causing these prices to rise.

And nobody knows it.

That is because we haven't issued releases and total reporters and so forth.

It's just that you can't get anybody to pay attention.

And so I think that we need to point out these things that are going on.

It's an ongoing administrative process.

It's there.

Make it more visible.

And it may be that pre-notification is a useful element in helping bring that about.

Although I think that the

we have the ironic situation always that it is the big administered price units that pre-notification and weighted price controls or whatever tend to address themselves to but those are not that's not where the problem is the problem is still in the areas where we have more food and health and so on

You see, you now have... Let me just talk.

Can I take a minute to address problems I see?

What we have fundamentally, as I see it, is first a long-run continuing inflationary trend.

We have superimposed on that price advances that normally occur during the upward phase of the business cycle.

These are being accentuated by the fact that the upward phase of the business cycle is now worldwide, so there's a scramble for raw material and raw material prices that are rising all around.

And on top of that, we have a devaluation which is giving further fill to prices.

Now,

The majority was saying, you're in industrial crisis.

The price is charged by the large companies.

They behave relatively well, but

They're rising too, George.

And what has been happening to raw material prices a few months later will be reflected in reduced degree, will be reflected in the prices of finished industrial products.

And who knows what is going to happen to the waste here?

Now, our predictions have not been good, Mr. President.

Let's just recognize that.

And I'm not blaming anyone.

My predictions have been no better than the next folks.

We just don't know how to do it well enough.

And therefore...

I think you have to be in the position of leading this country rather than lead this country in the frustrated, unhappy mood that it is now.

And this could have, you know, this could have disastrous consequences for the 1974 election.

And in your own position as a leader may be affected.

Now the genius of Franklin D. Roosevelt was not in the quality of his economic thinking.

But one thing didn't work.

He tried something else, and he was always doing something to benefit the people.

He was loved by the country.

Hell, he could have elected him maybe five times over.

You might say despite this, the guy was thinking he was able to do it better.

Well, he could have done something economic thinking in those days.

When I studied the history of that period, some has heard them.

I'd say that Herbert Hoover was the wisest economic man in this city of Washington, and that is a measure of the inadequacy of economic thinking at times.

Better informed and wiser than all the rest.

And you know where he was.

So now there is this, you see, that you've got to think through.

This is semantics and politics rather than economics.

The return of phase two, I'm not advocating it, but I think it's unthinkable politically.

It's just wrong.

A partial return of some features of phase two, I am advocating.

A pre-notification is one.

Let's go on with that.

I think that's the essence of it.

See, with pre-notification, then the cost to the living council could take action on these individual cases that come along.

You can pick and choose.

And if, let us say, you have the notification and the cost to the living council doesn't act within 30 days, well, the price increase and the wage increase goes into effect, you see.

I'm going to give this thing a new machinery.

I don't know what you want to call it.

I would not call it Phase 3 because Phase 3 has gotten a bad name, no matter whether it deserves it or not.

It is a fact.

I don't think it does deserve it, actually.

I think it's unfortunate.

You might call it Phase 4.

You might call it something else.

But we, what I'm thinking of, what's in it besides what we've got except pre-notification, that's all, that's all I can do.

Well, just the pre-notification, well, I'm going to read through my paragraph, and I'm going to have this paragraph, and I'm going to have this paragraph, and I'm going to have this paragraph.

I don't know the next page.

Oh, they go round about another page.

But the last one tells us it's still going to go on.

They have teams, they have devils, and they have respect for the way it's used.

The coverage will be restricted, Lord.

In Congress, it's going to sound very good.

No, because...

No, I think everybody's intention would have been to turn to what happens on the third birthday.

It's like our ceiling on the meat prices.

I thought that was going to quite affect everybody's junk.

Right down our throat, there's no damn good.

See, I don't think they're going to have some effect eventually.

They're trying to have it right now, since the public prices are up against the ceilings.

I don't know what it's going to do to respond.

But may I ask, though, that in terms of those branches, of course, it wasn't reflected in these numbers, the 36, right?

The ceiling is not in these numbers.

No, it's not.

But I think the country is screwing along right now with these new-in-price measures that will be coming along.

They'll excite people.

Now you may go much further, Mr. President, and I don't have the heart to vouch for this.

I urge you to do this.

But I think sooner or later we'll have to do it.

You'll have to take on the trade unions, and they're monopolistic practices, and some are business firms.

I can take our antitrust laws.

It's ridiculous.

The kind of enforcement that we have is inadequate, and certainly the fines that we have are minuscule.

Violation of antitrust law wouldn't be considered serious crime in this country.

And the penalty ought to be heavy.

And our trade union monopolies, I don't think this country is going to live with indefinitely.

And actually, I have a feeling I can't prove this to the countries ahead of the political people.

When I look at surveys of the thinking of so-called trade union members and the rest of the population, trade union members think the way the rest of the population does, pretty much.

I'd like to say something if I can about the leadership question, or leadership versus followership.

I don't want to take their objection to pre-modification.

I don't think it's going to send the people as an evidence of leadership in this field of tech.

Do everybody have those five big businesses like a technicality?

And it seems to me that the

The leadership question is whether you're going to lead people in the direction of a return to the free market or not.

That is the one direction in which I think this administration cannot lead them.

Everybody else is leading them in the other direction.

And if we move in the other direction, we're just following everybody else.

And I think there is...

potential audience out there for this which is not inconsistent with doing this but i think that what needs to be reaffirmed is some confidence that uh that we are going to move in this direction the determination to move in this direction this was the way you stated this on august 15th that this was

a temporary thing that we're not going to set ourselves a perfect machinery of control.

This is our cause for you to move out.

And we will move out.

We try to move out in an orderly way.

But we must wean these people.

If we don't wean these people, we'll never be able to get out of it.

And I think that is a leadership role, which is not in the sense of doing pre-notification or other... We always said that Phase 3 was an adaptable thing, that we adapt more or less.

But I think that the...

I don't think you can exercise the leadership role as a champion of control, because other people occupy that position, and it's natural.

Mrs. Herb, and I want to add a word to what she said, meeting with people to return to the free market means doing everything that Herb wants, and also doing what I've been

Suggestion?

I'd like to see it.

I think you'd like to see it.

It can be accomplished.

You know, leading to a return on free market means really curbing trade union opportunities.

We don't have a free market in the field.

Like, what the hell is the use of kidding ourselves?

And the same is true of much of our big business.

What's the use of kidding ourselves?

The record is that in the free market, in practice, you have giant trade unions, giant corporations doing to a large degree what they like.

You take the banks.

You know where the prime rate would be now?

Well, it's beginning to move now, the dual prime and so on.

If they cut it down to six and a half, it would be seven and a half, or seven and five-eighths.

And this is a more competitive area than almost any other outside farming in this country.

The banks do compete.

But you know, they don't compete.

One winks to the other.

So much of what we say

about the free market is rhetoric.

We've departed from the free market.

I'd love to see a return to the free markets by carrying through some structural reforms, but hell, I can't sit here, I can say this, but I can't urge you strongly, get rid of Brennan, take on George Meany, fight the damn trade unions, fight the giant corporations, fight the farmers' organizations, fight everybody.

Well, can't do it.

No, I don't think so.

You talk too hard, or you're talking about, and that was George Romney's speech, basically, you know, and Romney had a lot of logic, a lot of good there.

You don't know, that means what we ought to do about the giant corporations and trade unions and everybody's power and so forth and so on.

But as I'm sure you realize, and you know better than anybody else, the difficulty was very far from whether it was right, and it may have been.

was there isn't a horrors prayer to get that through this Congress.

I mean, they told me to fool people about it.

I mean, I think it's a nice thing to talk about and so forth and so on, but that Congress with the labor car that is there and the business part, you know what turned them around in this last vote?

I'll tell you what turned him around.

The business lobbyists turned him around.

It wasn't us.

We can take a lot of credit for that.

Those business lobbyists were up there constantly calling in.

If I had got to hit them, you know what to say to those two big hoes?

Our business guys.

We set them up up here.

We're really into this, boys, and they just pounded in there.

The Congress basically, I mean, they all like to do the right thing.

I mean, most of them do.

Some of them do it politically.

But, boy, are they effective when they get a call from a big contributor.

Are they effective when they get a lot of mail?

They should be.

The jackasses should make up their own minds.

And the few that do make up their own minds go to the top, and the others will simply be congressmen or senators and jackasses all their lives.

Go ahead.

It's very good to see you, sir.

Well, don't have to contract, that's what I'm saying.

It doesn't get you to the cap.

The cap, Mr. President, were up there.

They had cows all over the Capitol Hill.

The congressmen would look at it when they were proposing.

Yes, they were real nice.

They were conscious.

Well, I'm trying to get him on the phone now, isn't it?

Maybe I... Well, I'm trying to decide.

I probably will at 5.30.

Think about, uh...

with regard to the

When Kissinger is ready, if he comes up in here, I'll step into the little office.

You didn't manage that.

Yes.

Thank you.

And that meeting tomorrow then will go on at 10.30.

That's what's scheduled.

Now, you tell him that's a 30, that's most financed.

I mean, Arthur, sit down.

I don't know, Mr. President.

I'm sorry to keep you waiting.

I don't know.

I don't remember your first dollar request that I've approved.

Thanks, George.

I don't think they were in the dam, but George said they're no judge, but he's an archer.

Once a month at a park, once a month at a guest.

I think it's important that... You've made a good decision.

The main thing is, Arthur, it's got to be a team around here.

You've got to work with those people.

Of course, let me say, George, we're kind of an even old degree, but...

Well, I sent them over here, but I'll check with Gary.

My name is John Lee.

a top secret check was made on holland about a year ago so this could be speeded up probably you want the name of that right here i think i have a copy that we're all set somewhere so we're all set on that got your personnel out of the way robertson

Frozen, I've got another request.

Yes, sir.

You're in a good mood, and I'm going to take advantage of it.

All right.

I've had a long day, starting with May 31, my admissible Congress.

By the way, did you get the word on Mills' plan to talk to him about the independent design?

And he said what the other guy should have said, namely that this is great, and I satisfied him with what I wanted, and we'll put it through the Ways and Means Committee.

I think I got it through the House, didn't I?

The performance of the Parker Jackson was shocking in that meeting.

And Javitson.

Javitson, their columnist, was the right direction.

Jackson was in effect saying that he would sacrifice arms control of the Russians, that he would sacrifice NDRR, that he would sacrifice

Any part, any influence we could have with the Russians on the Middle East would be vitally important at this time.

And any influence, it's hysterically important, we are having with the Russians in stopping the flow of arms of Vietnam.

Unless the Russians will agree to the Soviet Jewry Act.

Agree the way he wants.

See, they've agreed privately.

Well, this is the way to do it.

Oh, no.

He wants to draw blood.

He says that they won't keep their word.

You know, that sort of thing.

We've got a hell of a good thing.

But the point is, Arthur, you know, I've told him.

I've told him.

I said this to him.

I said, the American Jewish community came in.

They're advocates.

If they ever, if they forbid them the chances for disarmament, I mean, for armament control, nuclear arms control, for mutual balance, for a production of Europe, peace in the Mideast, peace in Vietnam, solely because of insistence in Vietnam, your Soviet Jewry, I said, there'll be the goddamnedest anti-Semitism in this country ever.

Well, it's ridiculous what they had, what they have won.

Do you want the President of the United States to be able to talk to them from within or from the outside?

That's what it is.

How the hell did we get down here out of China, for example?

Because we had a relationship with the Chinese for 20 years.

The Democrats right here, they didn't do a goddamn thing about getting them out because they had no relationships.

We're doing things with the Russians and the Chinese.

That doesn't mean we win them all, but we win some.

It's a thoroughly irresponsible discussion.

What do you think, George?

I spent two hours in writing on an airplane the other day, and we talked about this for a while, and I thought I'd describe my experience there.

And I thought he was sort of thinking about it.

He was thinking about it.

Wait, wait, wait, wait.

I think he should know.

Yeah, we should put this room in here.

I'll see you in a minute.

Now, what do we do about the senatorial check?

You didn't take care of that.

Do you want me to do it?

Why don't I have Timmons call you?

and you work out with him how to do it in any way that's satisfactory to you.

He's a Virginian, is he?

No, he'll come from Nebraska.

Oh, he's retained that, uh... Yeah.

He has property out there somewhere.

What is it, Nebraska and Curtis?

I don't have a special in with Senator Ruskin.

Hmm.

That's fine.

I don't use it except in dire emergencies, though.

You're just a good captain.

That's right.

Jackson's running for president.

He's very, very hard.

Well, but you know, about a year ago, I had a couple of Russians, old friends, and they were over here talking about this, and I told them, they said to me, hell, we're stuck politically.

I said, all right, you guys have been inefficient over the years.

Let the damn thing die quietly.

Don't change the law.

Just practice the inefficiency at which you're so good.

I think that's the way to handle it.

That's the way to move it.

I know.

Yeah.

I know.

I didn't realize, President, that when they have a department, they have an official state that is public, but it is available to be shown in the country that states...

Well, you know what I think you ought to do, Mr. President?

One way or another, not directly, you've got too much to do, but one ought to be able to get to the Jewish community.

We're going to tomorrow at 10.30, and I'm afraid it won't do any good with Ribicoff.

See, Ribicoff, Janitz, and Jackson are playing this harder, solely politically.

They don't want the Jews out of the, you know, the emigres out of there.

They want the issue.

But let me tell you, let me tell you,

i mean this i will be on national television and i'm going to lay it out there that the reason we didn't have the sun was because they insisted with this condition this will turn people aside there it is but president i don't want enough to do but i alex is an old friend of mine

I don't know.

I had the feeling in the meeting that Jackson opened up and he came out strong and he put Javits in a funny position where

where he had a hard time just disagreeing with Jackson.

But what he did say was, well, let's just think this over.

The point is, they can write anything they want into the legislation, but they have got to give discretion to the president.

Where the president negotiates a status back, what he considers to be, he said, that puts the ball in my court, and it's coming.

But God, we've got to have it that way.

I've got to be able to negotiate.

Of course, well, it's... And so, you know, Arthur, the point is, you know, none of them get out of this deal.

Sure.

They got 2,000 or something like that last year.

They haven't gotten any out in three years.

Now, why?

Because we...

What in the name of God does it matter to these people?

Well, anyway, best to get out of that until they're born again.

What else you can do?

All right.

You can speak to the devils and say, boy, we're .

Jack says, oh, but he says the Soviet needs us .

I said, all right.

He said, everybody's playing the game of bluff.

I said, can I risk?

I said, all right, maybe it's a bluff.

But I said, can I risk these five grave initiatives?

They said, can I risk them?

I said, I can't do it.

You shouldn't.

You can get them to do it quietly.

That's what we're trying to do.

Sure.

After all, they're experts in inefficiency.

They've got this damn law.

They don't have to administer it, you know.

But with Janet, I think he's got to understand the Jewish community in this country is going to run into one hell storm.

If the president who went to Beijing and to Moscow and negotiated the arms control agreement has to go on television and says, I'm sorry, because of their intransigence and their insistence, it's all your boys.

That's the way it's going to be.

And I'm going to look.

I don't play for, play, you know, I don't, I play like a gentleman usually, but this time it's going to be cold turkey.

I said, I don't want to.

I'm not allowed to do this, aren't I?

You know Jackson.

I'm not talking to Jackson at all.

I hope he doesn't do it.

Well, I've gotten Jack to do things in the past.

Let's first look at something I understand better.

I've been regulating the bankers.

Yes, sir.

Well, what it means is that they're going to stabilize

the interest rate for small business, homebuyers, farmers, and consumers.

And the interest rate they charge to big business is something that is going to be left to the market.

So I think we're taking care, on the one hand, of the political problem, and on the other hand, let the financial system work its way through.

We're going to stay with it.

Stay with it for the little guy.

That's right.

The big guy will pay a market rate.

Why the hell should the banks be subsidizing the big guys, which is what has happened?

What do you think of this?

You're a borrower and he's a lender.

Well, I think that for profit-based, we have to let, on a moderate pace, the prime rate go up because we're starting with a counterproductive exit.

Sure, sure.

The other part of it...

Well, I think this will work.

I think this will work, and we're going to protect the groups that are important politically.

Now, just to get the PR, how's that done?

You go on and make a statement.

Oh, well, I held a press conference.

I put the issue of the statement, and it's been well received.

You've already done it?

Yeah, it's done.

And I checked with some congressional leaders before I did it.

Why don't they tell us what happened?

You know, we've got a weird problem with the situation.

McGee holding the floor, holding off bills like the Civilization Act to try to get something through that he wants.

I don't know what it is.

It's a postal thing.

Several Spartaners had a couple of, we've had a couple of boats in a recommittal or attempts at it.

One was defeated.

The tower offered to try to clean up the building in case and wanted to recommit the construction to put rent controls back in.

The tower managed to block that.

So right now there isn't a field on the floor and there's a lot of maneuvering going on.

That's between Jerry Ford and Spartan.

Maybe Spartan can pass the papers to Ford.

and the house can take out the curtain rather than the sun, at which point George wants to try to clean it up.

Well, your position has been transmitted now, namely that there are these parts that we don't like, but that if it has to come that way, it's better than nothing, so that's the posture that we're in.

But I won't go to the rank control.

If I go to the rank control, then it's vetoed.

I'm not going to go.

I'm not going to do any rank control.

Good for you.

I don't do that.

That's all.

Well, you'll legislate soon.

You don't find yourself always the one to run later.

No, I, I, I, I, uh, on the interesting, uh, I don't want to, uh,

Yeah, but let me say just a word about interest rates, Mr. President.

Your big banks, when they set the prime rate, they adjust other interest rates to the prime.

And when the prime goes up 1%, other interest rates go up correspondingly.

The small banks,

do traditional kind of banking.

They don't change the interest rate with any frequency, and the interest rate is much more stable.

Now, what we're doing, essentially, is saying to the big banks, now look here, you can charge your big corporate borrowers who have access to the national money market, whatever the market may dictate, but for goodness sake, you would operate the way the small bankers do,

with regard to your small business borrowers, homebuyers, any farmers you may have borrowing from you, and consumers.

And I have a pledge from them to do just that.

And then there are a system of guidelines that I'm going to be checking on them.

Now, the thing is, we want to make sure, reasonably sure, that the flow of credit

until these groups will continue in reasonable volume, and a new system of reporting is being instituted to check on them.

And I have a pledge from the matters, and 90% or 95% will observe it, and that's not bad in human affairs.

I think they'll recognize the problem.

In fact, I think it's so good that I've come to you to request

that I'd be relieved of the chairmanship of the CID.

Well, Mr. President, really, it is, well, it's taken a hell of a lot of time and energy.

I don't mind that.

I've got plenty of time to do a variety of things.

I don't have to sleep on Saturdays.

Sundays don't exist.

It's not the workload, but the prestige of the system, the Federal Reserve system, is being hurt.

Because we are through this activity, or because of my activity here, the Federal Reserve is pulled into the political process.

And for the long run, thinking of the long run and the future of this country, it's not a good thing.

The Federal Reserve is being tarnished.

It's going to be removed from the political process over the years, pretty much.

And it ought to be that way.

And this is a logical time.

I've got the primary problem, I think, pretty well solved.

The activity from this point on, I would think, will be in large part a routine activity.

The guidelines are out.

And I have a good man in mind

The best man is George Shultz, but he's badly overworked, and I don't want to wish that on him.

Well, there's Bill Simon in the Treasury, who I think can handle this.

I'll help him.

I'd like to help him quietly.

George Shultz.

Well, I think, first, that the argument hardly uses the favor of listening, and that this has been worked out from now on as routine.

If that's true, which I would have my fingers crossed... Well, I have to say, honestly, I have my fingers crossed, too.

If that's true, then the problems that you relate to this activity are less important.

It's not going to give that problem.

I think that it is a voluntary system at this point.

we do have to put that word in quotation marks because the federal reserve has tremendous power over these banks and they take on the chairman of the fed at their peril there's just a lot of clout there so i think that helps to helps to get them to be agreeable and i think arthur's involvement in the stabilization program in this uh

Well, Mr. Provost, I'll do it.

I'll read and consider it when things cool off a little bit.

No, that's all right.

That's fine.

And I'm going to... George and I are old friends.

We work together.

He persuades me on many things, and I make a pledge here to you and to him that I'm going to work very hard to persuade him.

Well, for crying out loud, you've got yourself two members of the Federal Reserve Board, both of your nominees.

You've got about 18 people that have contributed $18 million to the campaign, and we've given them a damn job.

That's the way we are.

I want you to put your money in there.

I'll check us all out.

I'll sign with you.

I think you're going to be very happy with these men.

But the CID, I'm going to...

I'm going to abide by your wishes.

Yes, right now.

Right now.

It's too hot now.

I will.

I agree.

But I am, Miss Rosen, I'm not making this recommendation to you to lead an easier life.

I know that.

I'm sure there's the right thing to do at some opportune time.

I am.

You can come back later, George.

Good?

You got your way on that.

Well, get us somewhere I can get.

We get our way.

I can live one today.

I think you're doing pretty well.

I'm going to tell you something, Mr. Brosno.

We have an unhappy country now, but it'll simmer down.

We've got... Well, that's it.

Now, look.

We've got... We have reestablished peace

We have a great economic boom, breaking records by the day, going.

The Negroes are quiet, and they're not marching in the streets, and they're not burning anything down, and the students are studying again in our colleges.

It's a better country.

Now, we do have— Crime is down.

Crime is down.

Now, we do have a nasty answer.

Why?

Yes, I know.

Well, that's a very unhappy thing.

But you see, we have a nasty, very nasty inflation problem.

We do.

And it's badly understood.

But I'll tell you something, though.

The sanity returned to the Congress the other day.

Oh, the way they voted.

What a little bit.

Well, their degrees, but you know, look for a time when you would get price ceilings, rollbacks, a rollback would come.

And ceilings on interest rates.

Unbelievable.

Let her go.

Well, I think that's right, and I think it can do a hell of a lot through a voluntary program.

Well, that's what we'll do.

Now, if this committee in America... You're right, you're right.

I know, that's right.

No, we went much further.

What's your term?

Did you use that speech carefully?

Ways and Price Review Board?

No, you had a term for it.

In-counsel policy?

Yes, in-counsel policy.

Well, how far are we from this now?

Yes, sir.

Just think of those seeds you plant on an ugly tree.

We had a lot of fun.

The main thing is, the carter did get one promise.

I said, all right, for God's sakes, we'll pay the screws in every election.

And I said, let's be sure we won't be sure.

I said, they did send in 50 people.

Not 50, 60.

I'm sorry.

54, 58, 60 people.

Yeah.

I said, no.

And 70.

I said, not this year.

And since 72, the Fed came to my gangbusters.

But you came through so well, but we're doing too well.

Let me tell you this.

I mean, before the lottery, I guess, I don't know.

I don't know.

I read your paper.

I don't know if you do this.

And Connelly's, of course, so mature.

Connelly's just free.

A lot of people say free.

It's political.

I mean, just whack them.

First head or so on, it's just free.

That's the wise thing to do politically.

Let me say this.

I just always believed in the long view.

And I think it's a great reason.

It's going to create enormous plans in the years later if I'm good with it.

And also the circumstances, which I'm speaking now just flat out for you, you know, like free wages, prices, et cetera, for 90 days.

Well, that was great in August of 1971, but I'm not sure the same factors are at work now.

In fact, they're quite different.

The other point I want to make is this.

When we put on policy in 71, as you know, we had the worst of both worlds.

We had a recession and an inflation.

Now, in the present time, we've got a boom and an inflation.

I don't want anything that we do to try to kill the inflation, lead to killing the boom, and not help you on the inflation.

That's the problem we've got, because if we come back through, we kill the boom, and the inflation still goes off.

Well, let me tell you something, Mr. President.

This new appointee you've made for the Federal Reserve Board is going to help.

Sure it will, you see.

You know, I see.

No, well, that's just it.

You see, my whole... Well, but you see, my fellows, my fellows are just frustrated.

Trust me, they want to do something.

And if you get those names, Arthur, it's not a weird... Can they be acting at this point or not?

No, we've got to...

It has to go through... John, it's taking too long, but it's taking... No, I want my priorities right.

I want these done in like two weeks.

Huh?

Just tell me where we can get them done fast.

Because these guys aren't bankers.

They aren't in jail.

Just a word of information, Mr. President.

I am... We have 12 district banks in the country.

Everyone has been in with a recommendation for an increase in the discount rate of a half for 1% or 1%.

Basically, they're right.

I've had my reasons connected with this Economic Stabilization Act, what's going on in the Congress, the activities of my committee on interest and dividends.

But now is the time to raise the discount rate gently by one-fourth of 1%, and I expect to do that on Friday.

What are we going to do after that?

Negligible.

But we look better, you see.

Now we're subsidizing.

See, banks are coming to us and borrowing at 5.5% when they have to borrow in the open market at 7.25%.

And we have been lending to the banks about $2 billion.

Now we've got to discourage that.

It isn't healthy.

George, do you think that we are in for a continuing confrontation with me?

Uh, this is for legal, all sorts of reasons.

I see he's slashing it.

He's bringing it.

All the rest of it.

He's bringing the things that we did just now for Citus Picking, and that that was safer.

Oh, I should have known that would have been a disaster.

Oh, let's see.

He came out far over there.

Citus Picking.

The value of the labor.

The building trade is what I'm having in order to exclude the products of the steel workers.

other people from the from the job site it's a wild issue and you may remember that in the first days of your first administration we had this issue and we sort of threaded our way through the needle and everybody saw all of these bodies that are buried and they just had to bury the issue with it we haven't heard a thing from since coming back

I'd be glad to see him many times, but he's a youth played golf with him recently and so forth.

The only reason I say under this in relation to our wage thing is he .

Oh, he's been swiping.

He's been publicly very tellery of that.

Unnecessarily so, I think.

Although he says to me, personally, I see a lot of him, I talk to him, he blows me up and everything.

He is very upset and he's genuinely scared about food crisis.

He feels bewildered.

And he says, we've just got to do something about these food prices.

And what he has said to me is, I'd like to shut my mouth.

And we'd like to do everything we can to control inflation.

But I can't get behind my membership.

I've got to get in front of my membership.

i've said you don't need to sound off about every single thing we do that has nothing to do with food prices you sure don't there's some good programs that have been put out there that operate in the interest of the trade union movement and you can say a good word for it once in a while but you've just gone on an appointment i don't think i don't know what his problem is with pete pete has not spent a lot of time with him

As we have learned, you've got to spend time with him.

I have a standing rule in my office that if he calls, I just take his call.

Whatever I'm doing, I just take his call right then and there so that he has instant access.

And I don't know whether Pete does that or what.

But... Well, it would be good to advise him, George, to do that.

Well, I have.

And...

And I have tried to build up, as reporters have asked me about it and so on, to build up the fact that, boy, Pete Brennan's a guy who's won all these battles with all this stuff he's gotten.

Sure.

But Meany is very sensitive to the question of whether or not the Secretary of Labor is an effective person.

He doesn't want one.

No, he wants an effective Secretary of Labor.

He has had his fingers crossed about Pete from the beginning, as you know.

And he feels that Pete doesn't understand about Washington and how it really works.

And that, I think, he said, oh, it's troubling him.

But I hope, within the next couple of weeks, to work at this support.

John O'Connell from the Beckford Corporation is coming in, and he works with me on this.

And maybe we can swing him around some.

Well, if you could do it.

Because he's like a kid brown hole here.

Dahl and many of these private meetings.

Then he stands off in public, and he was really nasty the other day, and clowning, and just generally put on a bad performance.

Sort of reminiscent of what he did in Miami.

Yeah, I've been glad of that.

The gun was not all that well received in the building trades.

I've had some private communications from the people.

They didn't like that.

They went out of their way after Pete talked to come up and have their picture taken shaking hands with him and so on.

So they are worried about Dillard.

going too far, and they want to work with you, they want to work with the administration, and they're not about to get into a confrontation.

Let me tell you, let me tell you, you know, apart from the politics, the politics is something that concerns quite as much as it used to in the congressman's sentence, but...

Labor, organized labor, isn't all that high standing in the steam of this country.

And if any of us can have a competition, we'll damn well have it.

Now, there you are.

Have you seen the Howard survey on that?

No.

Labor's standing in the first set recently.

coming back to the meeting we're going to have now with the others let's try to be as reasonable as we can as i'm not trying to tell you what to say and so forth but to tell you as far as i'm concerned

But what I meant is, remember the fundamental rule, the fundamental rule, because you always take the long look.

Don't do something now that we're going to pay a hell of a price for.

That's the reason I've not been in a position to jump.

And then they say, well, go to phase two, or go to this, or go to that, and here's the situation.

Well, let's see.

I just don't know.

I don't know who we are.

Believe me, from a political standpoint, now, we ought to do something very aggressive, right?

Everybody be happy as a clam for three months.

And then what?

I don't know.

Well, I wouldn't advocate that you go to phase two.

I would advocate that you make some changes in phase three.

Not go all the way back to phase two.

I wouldn't do that.

You'd modify phase three.

No, I wouldn't.

You know, there are bad news ahead of us, and there's a new political storm.

The—tomorrow, I think, the GNP figures will be out.

They show—they will show a rate of inflation which will be public.

They will show a rate of inflation of 6 percent.

Now, a more scientifically calculated figure is 6.7%.

The 6.0 will be published, but this is the true figure.

Then you're going to have a CPI index later this week, and it's going to show a rate of increase of about 10%, annual rate of increase.

Ten percent?

Annual rate of increase about 10%.

It will show...

it will show a increase in food prices of in the grocery bill of three percent for a month which means an annual rate of 36 percent and be played up and then the wholesale price index will be coming along usually is going to be banned for a while and the new political storms will

will be ahead of us now you've won a great victory in the house and well also earlier in the senate i think tremendous victory i would not stand still i would do something and i would if i think hard and my suggestion may be good or it might be bad but i think some

Recognition of what is ahead of us, I think, is important for you politically, and I think it could help and should help from an economic point of view as well.

Well, with those kind of numbers, it's going to be rough.

It's going to be rough.

Mr. President, Trump, Mrs. Luck, may want to think this over.

Wilbur Mills is not well physically, do you know that?

Well, he's quite ill.

There's something wrong with the fellow when it comes to getting a medical diagnosis, whether he's afraid of it or is afraid of the money that would cost him high money.

But some friends of his have come to me.

I've gone to see Wilbur, talked about it.

He's promised me he'll really get a thorough diagnosis.

But I don't think he will.

And the thought occurred to me that it might be a good political investment for you perhaps to call him and say you've made arrangements at Walter Reed.

Well, I wish you'd think that over.

Well, I think if he did it, he would go.

You know, he'd be so flattered and so honored that he would do it immediately.

He's a very curious man, Wilbur.

Now, he has his own political ambition here.

You aware of that?

He's foolish enough to think, apparently, that he can get somewhere at the next presidential election.

Oh, nuts.

Yeah, honestly.

No way.

I know that.

Yeah.

He ought to know that, but he's been bitten by the bug.

Now, that's one side of Wilbur.

Well, there's another side.

He can be a very sound man in the financial area, and he wants to work with you.

He genuinely wants to help you.

Yeah, I'll be good, too.

He certainly stood up on the credit card and offered it.

And, you know, some attention to Wilbert can pay off.

That's easy.

That's all I can do.

Let me ask you this, partner.

Why don't we just take a 90-day freeze?

Too long.

For anything.

60 days.

No.

You see, you can't freeze wages now.

I think that's out of the question.

Why not?

Well, in view of what has happened to the cost of living, there would be an out-crime, Mr. President.

I don't think you can do it.

I think all that you can do politically is to freeze prices, and therefore, and I don't think the business system could stand it for more than 30, 45 days.

So if you did something along those lines, I'd keep the period very short.

30-day freeze?

Maybe.

You know, just long enough to evolve a new program, but I don't really think you need a freeze.

I wouldn't do it now.

You'd need a second one.

30 days would be enough.

Well, you see, the country has cooled off, I think.

You mean about the inflation?

Well, it's cooled off for the time being.

You see, Congress has returned, sanity has returned to the Congress, and therefore to the country.

Now, maybe the other way around.

That Saturday we went to the country, kind of stuff.

They sure got rid of it.

Maybe, maybe, maybe, maybe.

But you know something very curious that's happening in the country, Mr. President?

I'll tell you what it is, as I see it.

And this has a bearing on what we do.

Economic events depend fundamentally on psychology, sentiment.

expectations.

These lead to actions in the economic sphere.

Now, we have a curious divergence in sentiment across the country now.

Businessmen are euphoric, uniformly optimistic.

Everything is wonderful.

That's the sentiment.

On the other hand, investors are depressed.

consumers are depressed there's been an extraordinary deterioration in consumer sentiment and in investor sentiment I have here a scissors movement and a divergence of this kind has existed before historically when it exists it doesn't last they'll come together now which blade of the scissors will move I don't know I don't think anyone knows but they will come together

And we therefore may get a super gloom on the one hand, or we may move into trouble later on in the year.

Now, if you want my intuitive guess, my intuitive guess is that the latter is a little more likely because business people are always linked in their psychology and in their responses.

And therefore...

While my fellows of the Federal Reserve want to go wild, I'm stepping on them and keeping things under control.

We've stepped on the brakes, and we have to.

But we're not going to step so hard on the brakes.

This could be the possibility.

We could be in trouble.

We could be in trouble by the Iran camps.

Well, I think that's...

That possibility, and in part it depends on how people define trouble.

If you look at this line on the GNP, real GNP, going back to the fourth quarter of 1971, you have quarterly rates of real increase.

6.7, 6.5, 9.4, 6.3, 8.0 in the fourth quarter, and this one that Arthur was just talking about, this first quarter, 7.9%.

That's just an extraordinary rate of expansion.

And if you say that the natural rate of expansion of the economy due to productivity change, labor force change, and so on,

something a little above four percent well we've got to come down to four percent just by definition and we're expanding so fast that we're close to capacity right now so there has got to be a decline in this very rapid rate of increase people will call that a a

Slow down.

Just a nice motion.

I don't know.

An expansion.

A recession and expansion or something.

I don't know.

Sit down over here.

We should play some music.

So, uh, I'm ready to expand, doctor.

I wrote a whole book.

Psychology and Expectation, right?

It's a book that if I ask the right question, I can get a seat.

Oh, that would be very good.

You should hear that.

What part did it take me to ever do that?

I'm a great respecter of professional men of all kinds.

Which is better, a psychologist coupling as an economist or vice versa?

I'll put my hand on the psychiatrist.

They've been on the monitor.

I get tired of young cats.

Who makes the lines?

I'm a psychiatrist.

No, I don't know.

I saw it the other day.

That must have been a $400 tuxedo on my head.

I know, but these are the finest things.

Well, come on over to now, gentlemen.

Well, Roy, we've got some squeezing everybody, I guess, these days.

Enjoy it.

There's some more squeezing back now, too.

This part here.

It's going to begin to crop up.

When I'm done?

When I'm done, right there.

No, let's try that again.

dealing with the legal suits, and they're just moving up all over there.

And we're just in a meeting on what to do about trying to keep magic under the belt.

I guess that's the issue at the moment.

You push the balloon there, and there it comes.

What is it?

What's important for the action?

We've had some better cases than we have.

There are two basic problems.

First, some of the suits that have already been going down their course in ways that have really been, the constitutional issues that we contend are implicit and haven't been fully and well presented in the very close to most of the cases that have been going on, therefore making our position impotent.

weak, and over and above that, some of the things that we have been doing don't have even a great amount of ground to stand on for cases.

So between the two, the Indian one has minimal ground even to stand on.

Some of the others are shooting all the time.

Maybe we'll have to hold the money hostage if they're going to hold their, hold their name.

I see.

So we really got, at this moment too, we have as good a strategy or a good set of actions

dealing with the counteractions that we've brought on ourselves, putting aside the Congress just taking the course, and having a set of counteractions that keep that under some degree of control when we can move to a better ground for doing battle.

That's an additional issue.

We've just, just meeting with our counsel on matters and so forth,

To kick this off, I gather that we confront the situation, but it definitely

The CPI will be 10 percent.

The wholesale price index in the food, the food component will be 36 percent for the year.

And the wholesale pricing is going to be, under these circumstances, of course, the truckers will do, quote, something, will be honest.

Now, uh, the, uh, the attitudes of, uh, what, what we do is, uh, first question I think Arthur very well summarized the attitude of the country when he said that the consumers and the investors are depressed.

The, uh, businessmen are, for the most part, keeping pretty good because they, they know there's a hell of a boom on.

uh

I remember, however, that in 1971, August, when we adopted the August 15 policy, that we had to wish both worlds we had a boom and a recession, or a downturn, shall we say, all the while.

No, we had a recession and an inflation, sorry.

Now, the first time, we've got a boom and an inflation.

Now, the point is that we do not want to take action now which would fail to deal with the inflation and which could stop the boom.

In other words, we have again the worst of both worlds, the recession and still inflation.

So as I read all the papers and so forth,

For people who say, well, freeze, and that will make everybody feel better, I think it will.

But if you look past that point, first, as to whether a freeze is working, if you look past that point, I would say, first, it might have a good psychological effect for a while.

as far as the long-term effect it seemed to me that it would be at best martian in terms of dealing with the inflation in fact at the end of the thing would blow up over the other way here to the ceiling again you have the problem that if you freeze now the possibly the the the labor just isn't going to go and it's going to get from something into that there's all this food prices if you come down then to

What else you can do?

We got the, everything from returning to phase two to just to modifications of phase three and getting it better understood and riding through the storm.

So, at least from our eyes, except from having seen the

papers that all of you submitted that's about where we are i understand for that reason that there is not much in this group as to what we should do

a couple of recommendations.

Herb and I had a few minutes outside and found that we both felt about the same, and I'll speak only for myself, but that we stand with phase three rather than move to any other phase, backwards or forward, and for a number of reasons.

First, if we get deeper, getting out next time is going to be very difficult, and particularly the timing could be wrong.

because we're going to get out, try to be getting out just before an election.

And that wouldn't be the best place to have the problems that come from getting out.

Or, alternatively, if it goes so much longer than that, that it's beyond the next election, it would be so deep that then how do we get out?

And we may, and I'll leave it to the professionals here, but we may have suffered already the biggest part of the trouble anyway.

Therefore, to put on controls would probably teach the people, once again, the wrong thing, that controls work.

We will be getting more of the wrong lesson.

And that we shouldn't move from phase three as such.

Maybe we can find a cover two or some things to do there within phase three.

That would maybe be enough, but to move now, and fundamentally, the point that you're making is for the economics, putting aside the psychology of it, the economics of it, probably aren't going to be anything but perversely affected if we do attempt to move.

We're not going to increase supply, whatever we do.

We're not going to reduce demand.

The only thing we can work on is changing expectations.

And it's, at this point, hard to imagine what we could do that could change expectations

very much sure enough to make any difference, even if there were to be any action, any consequence at all.

So I would, I would say right through what's left with maybe some residential announcements that recap what has been done, hope to work on the expectation side, but there's not much, subsequently, to do, to deal with the fundamentals.

All right, I heard we wanted to take a chance to

Well, I fundamentally agree with Roy.

I think that the whole thing, as we were saying earlier, is an operation in the field of psychology.

We thought there was going to be a psychology program beginning in August 15, 1971, and as soon as we did,

we taught people, we reduce the expectation of inflection, we also greatly increase the expectation of controls, which generates the expectation of the way to avoid inflection by having controls, but that in turn must be corrected, useful expectation.

I don't support the...

I think after all we've been through, we're not going to...

We're not going to kiss people very much anymore.

I think we ought to, we ought to tell them.

We ought to try to explain what the situation is.

I think, I don't think anybody thinks that we're going to go on having the great relationships we've had the last couple of months.

I think that there is a tendency to want to make policy in the light of 10% rates of increase in the CPI or 20% rates of increase in the WPI, but nobody thinks that what we face in the year or 18 months ahead.

And that isn't going to go on unless we all lose our minds, I mean, here.

We have to explain that to people.

And I think we can.

I'm greatly encouraged by the action in the Congress.

There do seem to be some people out there who don't want to put the whole economy in a straitjacket.

The situation is radically different than it was when we went into this in August 1971.

And we have all kinds of difficulties.

And as you say, we would not, whatever we did in 1843,

would not survive until the summer of 1974, and that's the period that concerns us, and we ought to try to explain the situation.

I always remember what you said once at a meeting, that honestly, maybe that would not be the best policy, but we're trying once in a while.

And I think this may be the time to try and tell people just what the facts are and that we can't...

We can't promise that inflation is going to go away or get down to 2% or 3%, but a lot of this snake oil that they peddle is a way to achieve that or hurt them more than do them good.

I think there are some real questions about the economy in the range of traditional policies.

we just have the gmp figure for the first quarter which shows an increase of 14 a little over 14 percent an enormous increase according to the creation of the korean war and there's more evidence of the boomings of the economy that's the area in which our

my first choice would be to stick

really where we are, and we don't get out and try to explain.

I think that's better than making a few moves to dress up faith, because every time we just make these moves to dress it up, or we can do it, we just contribute more to the notion of the way we solve this thing by making faith a little more correct and control it a little differently now, which is what I'm talking about.

Thank you.

You say that you don't project a rate of inflation.

That seems to be the general view.

You don't project a rate of inflation like this, do you?

Not the rate of inflation we have in the last three months, but I do project a rate of inflation.

And the way we're going, the way we like to go,

there will be nowhere near the mark that you set at the end of the year.

True that.

I think that's, I guess we ought to try to be a little more, maybe a little more precise.

I think that our prospect is somewhere in the neighborhood of three to five percent.

I doubt that the control is going to make much difference by whether we're near the upper end of the lower end of that range, and that that whole range, I regard as radically lower than the picture that people now have in their mind of what the rate of inflation is.

So if that whole range is a very considerable improvement over where we are and over the situation, it generates a perfect surface.

Now, those are historically hundreds of inches, but they're lower than most of the rest of the world.

Or do you think there's something more than that?

Do you think there's something beyond the other range of that range?

It's hard for me to see the money, you know, go back to all the things that we've been determining.

Money growing at, I think you'd like a reason.

I'd say that with money growing at 5.5% this last month, it's hard for me to see the registration over a considerable period.

I think most of the money, I think, probably the difference that we're working with isn't going to bear much on this, although it may be regarded more as a political loss than an economic loss.

Let's not lose either, is really the objection.

That's been broken.

Well, what have you lost?

I think, athletically, you've won that battle in the sense that people, there is no big sentiment for work out and spending quite the reverse.

The whole psychoanalysis turned around, particularly in the legal time, just to inflation.

They think that's part of the reason for it.

We can hold these budget numbers.

uh the the receipts are moving up very fast and we'll have to look again now on the basis of this first quarter that's even higher than we anticipated say two weeks ago and it's going to make an impact on the fiscal 73 receipts and if we come in with a 250

The deficit is going to be much less than $20 billion, I bet you.

And next year, you're going to be way less than $10, maybe down to $5.

We've got a lot of people that can't spend that money.

They can't spend it.

And this is our biggest anti-inflation action of any, as far as this is concerned.

On the other side, you've got to exercise the deficit.

Well, I think everybody agrees that fiscal restraint has got to be exercised.

Everybody agrees that the Fed, as Dr. Arndt said earlier, is to be restrained but not do damage to it.

Right, Arndt?

So don't turn around like Martin used to do.

You don't have to do that.

We used to talk to him about that, how foolish it was to have those ups and downs.