Anti-Inflation Policy Remarks to Members of the American Society of Newspaper Editors Announcing the Administration's Policy.

President Patterson, future President Hughes, distinguished editors from around the Nation, ladies and gentlemen:

I realize that this is one of the most important and prestigious conventions held in our entire country. This has been impressed upon me by several of the editorials I've read from around the Nation's newspapers. [Laughter] However, in the local morning paper, the story was on page D-13, next to the used automobile ads, a place that I thought was reserved for corrections and apologies. [Laughter]

We had a difficult time deciding what I should discuss with you this afternoon. One of our staff members finally suggested that we choose a major problem which we have not yet solved. [Laughter] This took 2 or 3 days. And we finally decided on one of the least difficult ones-inflation, energy, and the value of the dollar.

I am delighted to be with you to discuss this important subject.

During the last 15 months, we in the United States have made good progress in sustaining growth and in creating jobs. Four-and-a-half million more people are at work today than 15 months ago, an unprecedented increase in job availability. The unemployment rate has dropped from about 8 percent to just a little more than 6 percent. Average household income after adjustment for both taxes and inflation is 5 percent higher now than it was a year ago. Business profits in the second half of 1977, compared to the year before that, are 15 percent higher. And during this time in 1977, the inflation rate was held to a reasonable and a predictable level.

But too many Americans—particularly young people and members of minority groups—are still without jobs. I'm determined to sustain our economy's progress toward high employment and rising real income with both existing programs and with new, very carefully targeted incentives to encourage private business to hire the hardcore unemployed.

We have other economic problems which cause us continuing deep concern. Our Nation's economic health can be protected only if we can cope with the two developments that now threaten it most seriously—the high level of oil imports, and the increasing rate of inflation. These two problems both imperil our economic recovery and threaten the strength of the dollar. Both must be controlled.

The steps that we will take are part of a wider international effort by the major industrial nations to promote world recovery in 1978. In this effort, each country has a certain role to play, with the United States maintaining its growth while attacking inflation and limiting oil imports, other countries achieving their growth targets, which we have done, and all countries avoiding protectionism and providing greater aid for developing nations.

In the hope that this concerted effort will make a large contribution to world recovery, I joined the leaders of six other nations yesterday in announcing that we will meet on July 16 and 17 in Bonn, Germany, to press ahead with our common efforts. But the first requirement is effective action within each nation.

The primary reason for our problems with the balance of trade and the decreasing value of the dollar is no mystery. ripen years ago we were paying roughly $2 billion a year for imported oil. This year, oil imports will cost us more than $45 billion.

Our energy problems are no longer theoretical or potential. They are an active threat to the economic well-being of our people.

Of all the major countries in the world, the United States is the only one without a national energy policy, and because the Congress has not acted, other nations have begun to doubt our will. Holders of dollars throughout the world have interpreted our failure to act as a sign of economic weakness, and these views have been directly translated into a decreasing value for our currency.

The failing dollar in international monetary markets makes inflation worse here at home. It raises the price of goods that we import, and this makes it easier for domestic producers to raise their own prices as well, because the competition is not still there.

That's why we simply must have meaningful energy legislation without further delay. Our security depends on it, and our economy demands it. If Congress does not act, then oil imports will have to be limited by administrative action under present law, and this is certainly not the most desirable solution. But one way or the other, oil imports must be reduced.

Recently, our healthy and sustained economic growth has exceeded that of most other nations who are our major trading partners. So, we've been better able to buy their goods than they have to buy our own.

Our standard of living and our ability to grow depend upon the raw materials and the goods that we import from other countries. Therefore, to prevent further serious trade imbalances, we need to export more agricultural products and other goods and services to pay for our purchases abroad.

A Cabinet-level task force, headed by the Secretary of Commerce, will develop these additional measures for me to promote exports and report back within 60 days.

Now I will discuss the steps that we must take to protect our national economic growth and the jobs and the prosperity of our people from the most serious threat of growing inflation.

Conserving energy, increasing efficiency and productivity, eliminating waste, reducing oil imports, expanding our exports will help to fight inflation. But making the fight a success will require firm government policies and full private cooperation.

The inflation that we are suffering today began many years ago and was aggravated in 1973 and 1974 by a quadrupling of OPEC oil prices, widespread crop shortages, excessive Soviet grain purchases, substantial devaluation of the dollar, and a worldwide industrial boom that led to double-digit inflation both here in the United States and around the world. Inflation has now become embedded in the very tissue of our economy. It has resisted the most severe recession in a generation. It persists because all of us-business, labor, farmers, consumers—are caught on a treadmill which none can stop alone. Each group tries to raise its income to keep up with present and anticipated rising costs, and eventually we all lose the inflationary battle together.

There are no easy answers. We will not solve inflation by increasing unemployment. We will not impose wage and price controls. We will work with measures that avoid both these extremes.

Our first and most direct efforts are within government itself. Where government contributes to inflation, that contribution must be lessened; where government expenditures are too high, that spending must be reduced; where government imposes an inflationary burden on business, labor, and the consumers, those burdens must be lightened; wherever government can set an example of restraint and efficiency, it must do so.

The budget that I've proposed for the next fiscal year is both tight and capable of meeting the Nation's most pressing needs. The prospective deficit in the budget is as large as we can afford without compromising our hopes for a balanced economic growth and a declining inflation rate. But, as always, pressures are developing on all sides to increase spending and to enlarge the deficit.

Potential outlay increases in the 1979 budget which are now being considered seriously by congressional committees would add between $9 billion and $13 billion to spending levels next year. The price of some of these politically attractive programs would escalate rapidly in future years. I'm especially concerned about tuition tax credits, highway and urban transit programs, postal service financing, farm legislation, and defense spending. By every means at my disposal, I will resist these pressures and protect the integrity of the budget.

Indeed, as opportunities arise, we must work to reduce the budget deficit and to ensure that beyond 1979 the deficit declines steadily and moves us toward a balanced budget. I will work closely with the Congress, and if necessary, I will exercise my veto authority to keep the 1979 budget deficit at or below the limits that I've proposed.

The Federal Government must also act directly to moderate inflation. Two months ago I proposed that in each industry and each sector of our economy that wage and price increases this year be voluntarily held substantially below the average wage increases for the last 2 years. I'm determined to take the lead in breaking the wage and price spiral by holding Federal pay increases down.

Last year Federal white-collar salaries rose by more than 7 percent. I intend to propose a limit of about 5 1/2 percent this year, thereby setting the example for labor and industry to moderate price and wage increases.

This year I will also freeze the pay of all executive appointees in the Federal Government and members of my own senior staff. I believe that those who are most privileged in our Nation—including other executives in government and also in the private sector—should set a similar example of restraint.

State and local governments employ every seventh worker in our Nation, and I've sent letters this week to every Governor and to the mayors of our major cities, asking that they follow the Federal example and hold down their pay increases.

I've also asked that if those governments plan to reduce taxes that they first consider lowering sales taxes, which add directly to the consumer's burden.

The Federal Government will take several other steps to reduce inflation.

All executive branch agencies will avoid or reduce the purchase of goods or services whose prices are rapidly rising, unless by so doing we would seriously jeopardize our national security or create serious unemployment. I'm also asking that all new or renegotiated Federal contracts which contain price escalation clauses should reflect the principle of deceleration.

We must cut the inflationary costs which private industry bears as a result of government regulations.

Last month I directed executive regulatory agencies under my control to minimize the adverse economic consequences of their own actions. I'm determined to eliminate unnecessary regulations and to ensure that future regulations do not impose unnecessary costs to the American economy. Our efforts to reorganize the Federal bureaucracy and to streamline the civil service, vitally important, will help us put the Government's house in order.

I support "sunset" legislation to ensure that we review these regulatory measures and programs every few years and eliminate or change those that have become outdated.

I also urge congressional budget committees to report regularly to the Congress on the inflationary effect of pending legislation, much as the Council of Economic Advisers and the Council on Wage and Price Stability do to me now.

The combined actions of my administration and the Civil Aeronautics Board have already led to substantial cuts in some airline passenger fees. Despite the opposition of private interests, the airline regulatory reform legislation must be enacted this year. We are also reexamining excessive Federal regulation of the trucking industry, an effort which may result in increased efficiency while reducing freight transportation costs and retail prices.

In addition, I'm asking the independent regulatory agencies to try to reduce inflation when they review rate changes and to explore regulatory changes that can make the regulated industries more efficient.

Last fall, major new legislation was passed which will improve economic conditions for farm families, and we've announced additional administrative action to raise farm income this year.

Unfortunately, the Senate bas passed a bill that would raise food by 3 percent and the overall cost of by four-tenths of 1 percent, would shatter confidence in the crucial export markets for America's farm products, create havoc with the administrative machinery of the Department of Agriculture, and cripple American farm families through increased costs. It's bad for farmers, it's bad for the consumers, it's bad for our Nation.

I will veto any farm legislation, beyond what I have already recommended, that would lead to higher food costs or budget expenditures.

Housing construction rates have been running about 2 million a year, and this has caused costs to go up rapidly, partly because of sharp increases in the prices of raw material, such as lumber. Since lumber accounts for about one-fourth of the cost of a new house, we can obtain some relief by increasing production and using our existing lumber output more efficiently. Therefore, I've instructed the Departments of Agriculture and Interior, the Council on Environmental Quality, and also my economic advisers, to report to me within 30 days on the best ways to sustain expanded timber harvests from Federal, State, and private lands, and other means of increasing lumber yields in ways that would be environmentally acceptable, economically efficient, and consistent with sound budget policy.

Daily hospital costs have jumped from $15 in 1950 to over $200 today. And physicians' fees have gone up 75 percent faster than other consumer prices.

It's very important that Congress act now on the proposed hospital cost containment bill as the most effective means that we can take toward reasonable hospital prices. Failure of Congress to act on the hospital cost containment legislation will cost the taxpayers of our country more than $18 billion in needless Government spending over the next 5 years.

Together with the airline deregulation bill, this is one of the two most important measures the Congress can pass to prevent inflation.

These measures so far have been delayed by the opposition of powerful lobbying groups. I will continue to give this legislation my full support, and I call on the leaders of Congress to do the same.

Such Government actions as I've discussed briefly can be important steps toward controlling inflation. But it is a myth that the Government itself can stop inflation. Success or failure in this overall effort will be largely determined by the actions of the private sector of our economy.

I expect industry and labor to keep price, wage and salary increases significantly below the average rate for the last 2 years. Those who set medical fees, legal and other professional fees, college tuition rates, insurance premiums, and other service charges must also join in. This will not be easy. But the example of Federal action must be matched. Inflation cannot be solved by placing the burden of fighting it only on a few.

The Council on Wage and Price Stability recently began a series of meetings with representatives of business and of labor in major industries such as steel, automobiles, aluminum, paper, railroads, food processing, communications, lumber, and the Postal Service. In consultation with these private parties and others, the Council will identify the rate at which prices, wages, and other costs have been rising in recent years, the outlook for the year ahead, and the steps that can be taken to reduce inflation.

Let me be blunt about this point: I am asking American workers to follow the example of Federal workers and accept a lower rate of wage increase. In return, they have a right to expect a comparable restraint in price increases for the goods and services they buy.

Our national interest simply can't withstand unreasonable increases in wages and prices. It's my responsibility to speak out firmly and clearly when the welfare of our people is at stake.

Members of my administration have already discussed this deceleration program with a number of leaders of labor, business, and industry. Many have already promised their cooperation.

Later, I expect to meet with business and labor leaders to discuss contributions that they can make to help slow the rate of inflation. One of the most important contributions that they can make is to show that restraint applies to everyone-not just the men and women in the assembly line but also the managers in the executive suites. Just as I will freeze the pay of the top executives in the Federal Government, the American people will expect similar restraint from the leaders of American business and labor.

I'm determined to devote the power of my office toward the objective of reduced inflation. Our approach must be flexible enough to account for the variations in our complex economy, but it must be comprehensive enough to cover most of the activities of our economy.

In the long run, we should develop special programs to deal with individual sectors of the economy where government actions have the greatest potential for reducing inflation. These include housing, medical care, food, transportation, energy, and the primary metals industry.

The members of my Cabinet will work individually and also with the Council on Wage and Price Stability to develop and to announce early action to reduce inflation within their own areas of responsibility.

To accomplish our deceleration goals in the private sector, I'm asking my Special Trade Representative, Robert Strauss, to take on additional duties as a special counselor on inflation. He will work directly with me, with Treasury Secretary Blumenthal, my chief financial spokesman, with Charlie Schultze, the Chairman of the Council on Wage and Price Stability, and its Executive Director, Barry Bosworth. He will have specific authority to speak for me in the public interest and will be a member of the Steering Committee of the Economic Policy Group under the chairmanship of Secretary Blumenthal.

Reducing the inflation rate will not be easy, and it will not come overnight. We must admit to ourselves that we will never cope successfully with this challenge until we face some unpleasant facts about ourselves, about the solutions, and about our problems.

The problems of this generation are, in a way, more difficult than those of a generation before. We face no sharply focused crisis or threat which might make us forget our differences and rally to the defense of the common good.

We all want something to be done about our problems, except when the solutions affect us. We want to conserve energy, but not to change our wasteful habits. We favor sacrifice, so long as someone else goes first. We want to abolish tax loopholes, unless it's our loophole. We denounce special interests, except for our own.

No act of Congress, no program of our Government, no order of mine as President can bring out the quality that we need: to change from the preoccupation with self that can cripple our national will, to a willingness to acknowledge and to sacrifice for the common good.

As the Nation prepared for the challenge of war nearly 40 years ago, Waiter Lippmann addressed these words to the American people, and I quote from him: "You took the good things for granted," he said. "Now you must earn them again. It is written: For every right that you cherish, you have a duty which you must fulfill. For every hope that you entertain, you have a task that you must perform. For every good that you wish could happen... you will have to sacrifice your comfort and ease. There is nothing for nothing any longer."

These words of admonition certainly apply to us now.

Thank you very much.