Remarks Before the National Legislative Conference of the National League of Cities.

Mayor Cavanagh and his colleagues, Congressman Ashley and Mr. Healy, delegates of the National League of Cities conference:

I want to thank you, Mr. Mayor, for asking me to come here this morning.

When the burdens of the Presidency seem unusually heavy, I always remind myself that it could be worse--I could be a mayor of a city instead.

So I welcome this opportunity to come here this morning.

I went to the East Room in the White House last night, where I talked to some of the Nation's leading businessmen, many of whom are your partners in municipal growth.

All of our progress and all of our hopes rest on the American economy, an economy that is bursting, really, with riches and with rewards.

--73 1/2 million of our citizens are now working in civilian jobs. That is up more than 7 million in the last 5 years.

--The lowest unemployment rate in more than 12 years.

--Industrial production up 9 percent in the last 12 months.

--Retail sales up 9 percent over last year in the past month.

--The average manufacturing worker bringing home over $110 a week.

--Corporate profits providing the highest sustained rate of after-tax return on owners' capital--higher now than in the entire period for which we have any data in the Federal Government. It is up from $26 billion 700 million after taxes in 1961 to $44 billion 500 million after taxes in 1965; that is, from 1961 to 1965, up $17 billion-plus, or a 66 percent increase.

This is the American economy that will bring us victory against discrimination, against despair, against poverty. This is the economy which will give us the jobs for more than 1 1/2 million people (net) who are entering our labor force this year alone. This is the economy that could defuse social dynamite, recharge our social purpose so as to make it possible for us to avoid dramatic explosions like we had at Watts just a few months ago.

This is the economy which can produce the goods that our men need to win the battle that they are fighting at this moment, 10,000 miles from home in Vietnam.

But it is an economy that we want to keep healthy. We can allow the last 5 years of unprecedented prosperity to be endangered and to be swallowed by inflation unless we take care. We cannot allow continued prosperity to founder on rising costs and shrunken dollars, skyrocketing advances and threats to the consumers' pocketbooks, and threats to the mayors' programs also.

So this is really a testing period for our leadership, mine and yours. This is a testing period for our economic maturity and our commonsense. We do not want to check our economic expansion unless that is absolutely necessary, but one thing is clear and one thing is imperative: Our expansion must continue to be orderly. The American economy must be marshaled with reason and managed with restraint.

You and I are some of the managers. We must balance our efforts against some plain and some telling truths. What are they?

Our effort in Vietnam is budgeted in fiscal 1967--June 30 to June 30 next year--to cost $6 billion more than it did in 1966. But during this same period, over this same year, our gross national product is estimated to grow by $45 billion to $55 billion or more.

What does that mean? That means we have some $40 billion to $50 billion of extra output that is available for our civilian economy.

If there is a problem of overhearing the economy, it is going to be because consumers and businessmen, State and local governments, will want to spend substantially more than the $40 billion or $45 billion over and above what they spent last year. If further restraint on the economy is needed, it will primarily be because civilian demand is too large.

Last December the Federal Reserve Board began building a new restraint into the economy through tight money and through high interest rates. I did not agree with Bill Martin and the other three members of the seven-man Federal Reserve Board that it was either the time or the means to take that action; but they did take it. It was restraint and it is beginning to bite--as you may have observed, in some of your proposed bond issues.

This was December. Then on January 1 we took that $6 billion out of the economy in the form of higher payroll taxes for social security and Medicare. You will remember we had the columnists and commentators writing in the fall that we would have a big dip in January, because there was "speculation"--that is a word they use-"speculation" or "informed sources believe" or "high sources whisper."

But one of the buck sheep went through the fence and said, "We are going to have a big dip because of the $6 billion." Then the little typewriters ran for 2 weeks on .that subject.

There was reason to believe that if you reached in and took $6 billion out, that would have its effect. I think it is bound to have its effect, whether we see it or not. But instead of the dip, it went the other way, so we proposed a tax bill that would take about $6 billion more. We had $6 billion in January. We signed a tax bill March 15th to take $6 billion more over a period of time.

We put excise taxes back on the automobiles and the telephones. In a period when we wanted to stimulate the economy and give it a shot in the arm, we had repealed them the year before, and the year before that, and it had a very desirable effect. It did what we wanted.

Now when we want to restrain it and keep it from overflowing the pitcher, we took $6 billion out in Medicare and $6 billion out in auto and excise and accelerated corporation and accelerated personal payments. We speeded up these personal and corporation payments.

But I warn you--and my prediction in this regard will be almost up to Drew Pearson's 85 percent--it will bite. How much it will bite is a question for the speculative financial writers. We just honestly don't know whether we have done enough. I would hate to do too much, because if I just threw one man out of a job and he had to go and live off unemployment compensation for a while, I would feel bad about it.

But I do have a responsibility, and if we haven't done enough, we want to do enough. Contrary to the general tone of the financial press, I don't believe the American economy is shooting off into outer space.

The housing sector can only be described as weak. It was down 17 percent last month over the month before. Down 11 percent under that month a year ago.

The recent inventory accumulations have been moderate. The order backlogs are lengthened in only a very few fields, and even there they are not long in comparison to 1955 and 1957.

We still, this morning, have 3 million unemployed. Seventy-eight percent of those are adults; 47 percent of those 3 million are male; 81 percent of them previously held full-time jobs.

The average rate of capacity utilization is now about equal to the average rate that is preferred by management, and more capacity is coming into our economic stream every day.

Unit labor costs in manufacturing in February were only four-tenths of one percent higher than a year earlier. The expansion of business loans in February was very moderate. That bite began to be felt.

But now let's look at the other side of the coin. Some strains on the economy are already becoming very apparent. Labor shortages are being felt in several States in a good many industries. Investment plans for 1966 are already $2 billion higher than we had estimated in January. I want to talk to you about some of those investments a little later this morning.

Our balance of payments position is being weakened because of the demand for things here, and because of the rapid expansion of imports to meet that demand. This suggests that the domestic producers are not meeting the demands that are required of them.

But most serious for all of us is this: Prices are moving up too fast to be comfortable. Day before yesterday we had a one-half of one percent increase in consumer prices announced. That one-half of one percent was between January and February. One month, one-half of one percent up.

Over the last 5 months, wholesale prices have been rising at the rate 5 1/2 percent a year. Increases at these rates cannot long be tolerated.

I asked Mrs. Johnson this morning, even as she has changed cooks, is she exercising all the care in her buying that she did in times that weren't so prosperous. I remember a lot of times when I had a different kind of meat. Sometimes it was meat of a kind I didn't like. It was a cheaper cut. I remember a lot of times we didn't have the fresh vegetables. That was when they had gone up because of a freeze we had in Florida which affected the cucumbers or green peppers, or one we had in Texas that affected lettuce or some of the other items.

I just wonder if the women of this country couldn't get out their lead pencils and put on their glasses and look at some of these price lists and see where these shortages are occurring and see where these prices are advancing, and say goodby to those products that insist on going up and up. lust say, "I don't have to have that. I will just substitute."

That would have a good effect, I think. I hope they will do it. I will tell you why: inflation, inflation, inflation.

I remember during the McCarthy 'period in this town, when Senator McCarthy was running his investigation, you couldn't walk in any hostess' home without them saying, "What do you think about McCarthy?" A month ago it was, "What do you think about the pause?" Now it is, "What do you think about inflation?"

I want to tell you about inflation. Eighty percent of all of these price increases come from two items: farm prices for foods, a relatively limited group--butter and pork and meat and fresh vegetables that went up because of freezes in parts of the country (now they tell me those prices will level off, particularly if we watch some selective buying)--plus three metals. Three metals and food prices are responsible for 80 percent of this increase.

So now we can do something about that. I hope that we do, because the amber light is on. In 5 months wholesale prices up at a rate of 5 1/2 percent. So we must proceed with caution and we must use some commonsense. We must see that some restraint is applied by our judgments, by our selections, and by our plans.

We are touching the brakes in January, again in March, but we don't want to put both feet on the brakes and turn us into a skid that is a recession or a depression. We have learned that lesson from just looking back down the road just a few years. We want no more economic accidents or collisions or sudden wrecks. We haven't had one for 60 months. We have been stable. We have the most stable prices of any nation in the world.

Now, if more restraint is needed, I have said that so far as the Federal Government is concerned, we will exert it. When? When the fiscal advisers and the men in the administration and the Congress whose prudent judgment I respect consider we need it.

It is already clear that our ability to meet demands in some fields, such as construction and capital goods, is at this moment under a strain. But we have not decided in the executive branch of the Federal Government that the situation is such as to require either price or wage controls or, either, to require a tax bill. When we do, we will try to let all of you know it at the same time and let all of you participate equally in it.

So beware of the impressionists and the alarmists. When and if this comes, we will do it deliberately, carefully, thoroughly, and make the appropriate announcement.

Last night I asked a group of 200 of the leading businessmen in this country: "How many of you would recommend tomorrow a tax increase to the Congress for the purpose of restraining our economy? Those of you that would, I wish you would raise your right hand."

Not a hand went up. That doesn't mean we won't recommend a tax increase. That doesn't mean we will. That just meant of those 200 present, there wasn't one that thought it was wise.

I talk to the mayors and get their judgments. I talked to the Governors last week and got their judgment. I will talk to the leaders of labor. I have already talked to a good many of them, but I will have them to dinner and get their judgment. I am seeing some Congressmen and Senators today to get their recommendations and judgment.

But last night I made this specific request of your investment partners in the Nation, the outstanding business leaders, to go back home and review their plans for their investment projects to see what plans they had involving construction that could be stretched out, deferred, curtailed, or abandoned.

It may be that when those 800,000 men that Mr. McNamara takes in the service this year come back out of their uniform they would like to have a job. It is not absolutely essential that every businessman always get in the market at its high. It is not absolutely essential that every mayor wait until the cost of money goes up higher than it has been in years and then dash in and want a lot of it.

It is not absolutely essential that a project that has been years in developing has to get out and compete with the Defense Department or defense industry at the moment when all of you need a little copper. We can pass laws that can adjudicate these matters. It is better if we just regulate ourselves, if we can. We have been doing a pretty good job of that the last several months.

Our balance of payments reduced the deficit from $3 billion to $1.2 billion just through voluntary action. Our labor leaders have maintained a very reasonable wage increase policy. Most of our prices over the country have remained relatively stable, but considering all the other things, the chances we had to make mistakes, we have made relatively few of them.

Now I am going to meet with the leaders of the workingmen of this country. I am going to talk to them about the desirable cautionary moves that I think we should take. We will ask them to practice restraint. I am going to ask our Cabinet tomorrow again what I have already asked them to do: to practice what I preach; that is, for each department of this Government, each agency, to review and carefully examine how we can defer any of the expenditures in this budget.

They are coming in to see me tomorrow morning to answer a request I made several weeks ago, to see if there is anything for which the money has been appropriated that they can postpone. I want them to examine particularly these Federal and federally supported construction expenditures, so we can reduce our total construction obligation in the last quarter of this year as much as possible.

I am hoping that I can cut down my planned expenditures in April and May and June and cut up my planned revenue. I can tell you now our revenue is going to make a material jump. If I can get our expenditures down and revenue up, as you mayors know, that is a desirable situation.

I am going to ask the Cabinet to apply this request and this study to every possible form of construction because that is where the bind is, that is where the bite is deep, except that construction that is vitally necessary to immediate military needs.

We have plans for $60 billion in plant investment next year, according to our estimate. But Bob McNamara, at the Defense Department, cut out $640 million of military construction and said we will postpone it. It was already authorized and appropriated for, but we will postpone it. We will get by with what we have.

I see the Governor of New Jersey postponed the turnpike up there because it cost $440 million. There is $1 billion there.

We are going to look at all of these things we have been doing to see what we can hold back so we won't give the unnecessary competition the next quarter and the next few quarters to come.

I believe this group of mayors can best serve the interests of your community and certainly I know it will serve your country if you, when you get home, would order a review of your plans for the next months ahead with a particular view to deferring or postponing any capital plant investment that you think is possible.

The Federal Government is doing it. I have asked the Governors to do it. I have asked the businessmen, the private managers, to do it, and this morning I am asking the mayors to do it. The investments that you are making in your cities are vital to the future of this country. I know that every one of us would like to complete them all at once, but there are a good many mayors and Governors and even presidents in the country that have made building plans when the costs were high, when money was high, and when labor was high, only to have some opponent criticize them down the road and point out that they got in at the high and would regret it.

I wanted to add two little rooms to a house that we have down home that we will occupy some of these days, but I asked Mrs. Johnson last night to defer those two rooms because the construction people who would be working on them would be very much in demand. We have had our plans for several months, and spent a lot of hours and dollars talking about them, but we are just going to defer.

That is a little thing, but if everybody does that, it won't get too tight, it won't heat up too much, the economy won't get out of our hands, and the prices won't go up 5 percent in the next 5 months. You can be your own judge. Nobody is dictating to you or forcing you. There is no law requiring it. Yet, let's see if we can use our own good judgment.

If we attempt to do too much and do it too soon, we will end up by accomplishing less by borrowing our money and issuing our bonds when the cost of money is the highest. So I would hope that you would take that good, hard look. Look at your equipment purchases. See if there are any of them where you can substitute or get by a little longer or repair them. Look at your construction projects and see which one of those could be slipped just a little bit so you won't put any more demand than you have to on this elevator that is already overloaded.

I hardly need to remind you men of experience and sophistication that your own interests are widely and deeply involved. I don't think money will always be as tight as it is today. I don't believe that loans are always going to be as hard to get as they are today. I don't believe that bonds are always going to be as costly as they are today or going to be as difficult to sell. Construction costs now are high and you know and I know that the effect of more construction is just going to make it higher.

I am not asking you to refuse the essential needs of your people, but in January my budget cut almost $17 billion of expenditures from the departmental requests to my Cabinet. We are continuing tomorrow to try to cut some more in addition to that $17 billion. But we can't make much progress if the Federal Government cuts out more than $16 billion--between $16 billion and $17 billion--if the private plant investment goes up more than 16 percent, as they are predicting; and particularly if the States and counties and the cities do not take needed actions.

So I am asking you this morning to please put first things first, to be selective, to excel in management. None of you can object to that way of putting it: to be great mayors by being better leaders who set the national interests beside the local interest and take a broad view of both, and balance them.

So I have come here to ask for your wisdom and to ask for your help in this time of trial. Together, I think, we have proved over the past 5 years that we need not accept a depression or a recession or a boom or a bust as a fact of American life. Now I think it is up to us to prove that we do not have to pay the price of inflation in order to have employment and to have men working at reasonable pay.

I think if we work together we can make some headway. With continued restraint from your Government on your level and mine, with the help of the business leaders, with the cooperation of the labor leaders and the laboringmen of this country, we can all together keep this economy booming--but also keep it balanced.

Our wealth and our strength is continuing to grow. With that growing wealth we can push on to better days. We face these problems together, but still, we here in this room are the most fortunate generation of leaders in all of our history. I am firmly and passionately convinced that it is within our power to make the city a shining tower of a mighty new civilization and to make the slum, the ghetto, and the hovel, all of these, a memory of an outmoded past.

Now, we can't do all this transformation overnight, and it is regrettable that we have to move in our transition as slowly as we are. But I believe that many now living will see the day when every one of our citizens in this Nation lives in a decent home and enjoys the dignity and security that is the mark of a free society. I believe that we are going to see in this country, as a result of your leadership and what cooperation we can give, not only cleaner cities but healthier cities, more beautiful cities, more challenging cities, cities built not simply to satisfy man's appetite, but cities that will stir men's souls.

I believe the future generations will look back on our era as the dawn of the Golden Age of urban living. I am not asking you to stop. I am not asking you to spurt. I am asking you to apply a prudent judgment and excel in management in a critical period when more than 100 men died last week so that we could enjoy the freedoms that are ours now.

I believe our grandchildren and their grandchildren that come after them will look back at all of us in gratitude some day for having been the first of the leaders to start up that long road which will place the great American city at the summit of a new stage in the life of civilized man.

So I leave you with gratitude for the leadership that you are giving your communities. I don't confine that gratitude, Mayor McKeldin, just to Democratic mayors. All mayors are included.

I came here not only to thank you, but to ask for your help to the extent that you feel that it is in the best interests of your people and the best interests of your country. I don't think that we ever ought to have anything compulsory that we can do better voluntarily. I think by reasoning together, as I have been doing the last few months, that we may perhaps avoid some of the harassing details that come in an over-generated economy.

I lived through the OPA, the War Labor Board, and the WPB in two periods of my life, World War II and the Korean war. I remember going home one time and going out to see a farmer neighbor. I told him I wanted to bring back a ham. Lady Bird wanted to serve Sunday night buffet and hams were hard to get. I bought the ham and I said, "How much?" He said "$3." I pulled out my wallet and gave him $3. Then I said, "How many stamps?" He said, "How many which?" I said, "How many stamps are required for this?"

"Oh," he said, "you are talking about the OP&A." (I was a Congressman and I wanted to be very careful to do what I should do, because some of these columnists were kind of looking over my shoulder and I knew some who came to dinner would want to know where I got the ham. There had already been some discussion about a 12-pound ham, whether that is big enough or not too big to be considered unethical.)

So I paid the $3 and said, "What about the tickets and the stamps?" He said, "Oh, you are talking about the OP&A."

"Well," he said, "we just never did put that in down here!"

Now, we don't want to go through that period again. We don't want to put them in down here. So unless you just feel a compelling need--some men do; I saw some grown men, friends of mine, I thought they wanted to wear nylon stockings themselves during the shortage of nylon stockings--but unless you just feel the higher call from up yonder or a compelling need to get in at the high--the fellows that got in at the high of the market yesterday were sorry after they read the stories last night. Some of you may be sorry.

I don't tell you what to do. I don't urge you what to do for your own community. You, yourselves, are better judges than I. I do point out what I think any leader ought to point out that is worthy of leading you, and that is that we do have some thermometers there and we have looked at the temperature charts and we have cautioned taking it easy and a little rest for the immediate period until we can see things a little further down the road. If you can, and if you will find a way to help us, we will be much obliged.