Message to the Congress Transmitting Report of the Council of Economic Advisers.

To the Congress of the United States:

I submit herewith a report from the Council of Economic Advisers on the condition of the American economy and on policies for dealing with some of its problems. I believe that this report will help the Congress and the country to put in better perspective the flood of economic events and news that engulfs and confuses US.

In my message on the State of the Union, on January 30, 1974, after referring to the economic consequences of the energy shortage, I said:

"We expect, therefore, that during the early part of this year output will rise little if at all, unemployment will rise somewhat and inflation will be high. Our objective, however, is to turn this situation around so that later in the year output will be rising more rapidly, while unemployment will stop rising and will then decline, and the rate of inflation will slow."

As events turned out, total production declined about 1 1/2 percent in the first quarter of the year because the gasoline shortage hurt automobile sales and production more than expected. Unemployment rose a little from its low of last October before the oil embargo began. The inflation rate was indeed high.

But by now we can see signs of the improvements that policy has been aiming to achieve. Industrial production increased in April for the first time in five months. The rise in the cost of living in April was only about half as large as in the previous three months, and retail food prices declined. The unemployment rate has not risen since January but declined a little in March and April.

Although the recent events are not conclusive they tend to strengthen the expectation that in the remainder of this year output will be rising more rapidly, prices will be rising much less rapidly and the unemployment rate, while it will probably rise further, will not reach a very high point before it recedes.

These results which we all want will not, however, be achieved without strong and responsible policy actions. There is special danger that the decline of the inflation rate will be small and soon reversed if we do not firmly resist temptations to new inflationary policy.

I would like to acknowledge the recent cooperation of the Congressional leadership in one important area of economic policy. As a result of an exchange of letters between me and the Majority and Minority Leaders of the Senate, economic officials of the Administration have been meeting with the bipartisan leadership of both Houses to consider the problem of shortages. The outcome of these discussions has been agreement on the establishment of a temporary commission representing the Executive Branch, the Legislative Branch and the private sector to examine the possibilities of critical shortages and propose improved methods of foreseeing or averting them.

In the same spirit of working together I call the attention of the Congress to some of the policy implications of the Council's report.

1. Too much government spending is the spark that most often sets off inflationary explosions. As a minimum we must avoid exceeding the expenditures for next year proposed in the Budget. We must work together to cut where we safely can. We must so discipline our present decisions that they do not commit us to excessive spending in the future.

2. We must avoid the temptation of tax reduction without expenditure reduction.

3. The proposals I submitted in April 1973 for improving the unemployment compensation system, and the further steps which I recommended in February 1974, should be promptly enacted. To try to keep the economy permanently pumped up to achieve an arbitrarily-selected full employment goal would be inflationary and self-defeating. To fail to provide the best unemployment compensation system we can is inexcusable.

4. While the immediate energy crisis has passed we must not be lulled into complacency on that subject. There is urgent need for legislative actions now which will improve the possibility of having the least-cost, secure energy in the future. These actions include:

a) Deregulation of natural gas.

b) Establishment of standards governing strip-mining of coal.

c) Authority for the Secretary of the Interior to license deep-water ports.

d) Deferral of deadlines for meeting secondary air quality standards that impede the use of coal.

e) Steps to accelerate site approval for energy facilities.

f) Establishment of the proposed Energy Research and Development Administration with an adequate budget.

5. The future of inflation and employment in the United States depends in part on the further development of open and secure economic relations with the rest of the world. I hope that Congress will pass a trade bill enabling the U.S. to negotiate for that without forcing us to turn our back on a part of the world that is economically and politically important.

This is not a complete list of legislative proposals affecting the economy. I have said nothing about health insurance, or tax reform, or workmen's compensation or dozens of other relevant matters. Obviously, there is much for all of us to do. There is so much to do that we cannot afford to waste time arguing about whether our problems are greater or smaller than our blessings. If we concentrate on working together on the problems we shall be better off, both for the solutions reached and for the working together.

RICHARD NIXON

The White House,

May 28, 1974.