Economic Report of the President

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ates fully negotiable by May 1976. The deregulation of fixed commissionrates illustrates the efficiency gains that follow deregulation.Since the total deregulation of commission rates, average commissionscharged to customers have decreased. Services which were previouslyprovided jointly whether customers used them or not, arenow substantially unbundled.Financial DisclosureThe Securities Exchange Act of 1933 required financial disclosurefor corporations seeking to raise capital through the issuance of newsecurities. The Securities Exchange Act of 1934 required periodic financialdisclosure for corporations with publicly traded securities.One of the motivations for this original legislation was a belief thatcorporations must be forced to disclose financial information inorder to protect the interests of investors. In recent years there hasbeen concern that these requirements have precluded new securityissues thus inhibiting the efficiency of the capital market. Additionally,a growing body of scholarship has questioned whether these requirementshave served the interests of investors. Recently, some ofthese stringent disclosure requirements were ended for certain typesof corporations. Specifically, corporations with less than $3 million inassets and 500 stockholders are now exempt from the filing requirementsof the Securities Exchange Act of 1934.The SEC has also recently allowed, on an experimental basis, somefirms issuing new securities to use "shelf registration'* forms, thuseliminating the requirement to file for each new security issue. Theinitiation of shelf registration is expected to reduce the costs of raisingequity capital, allowing firms to manage their risk more efficientlyby entering the capital markets more often.Industry StructureBefore 1980, stocks listed on stock exchanges could not be tradedby members of those stock exchanges in any other markets. This barrierto entry was partially lifted in June 1980, when the SEC approvedRule 19c-3. This rule allows members of stock exchanges totrade securities in other markets that were listed on those stock exchangesafter May 1979.Stock exchange members are now also allowed to execute trades inthe "19c-3 securities" in markets other than the stock exchanges.The market share of non-19c-3 stocks on the Over-the-Counter(OTG) markets is considerably less than the OTC market share for19c-3 securities. This larger market share for the OTC in 19c-3 securitiessuggests that, for some exchange members, it is more efficientto execute orders on the OTC rather than on the stock ex-120
changes. That is, members can arbitrage price differentials that mayexist between the OTC market and the exchanges.Futures MarketsThe Commodity Futures Trading Commission (CFTC) has alsobeen very active in deregulation. In January 1982, the CFTC eliminatedthe 03 report, which had obligated large traders in future contractsto report their market positions daily to the CFTC. This actionreduced the filing costs of these large traders by around 50 percent.In an effort to lessen the burden of Federal regulation on the futuresindustry, the CFTC's new legislation eases the disclosure, registration,and rule approval process.OPPORTUNITIES FOR FURTHER DEREGULATION IN THE FINANCIALINDUSTRYWhile the financial and securities markets of today operate relativelyunencumbered by unnecessary regulations, owing to the deregulatoryadvances discussed above, several opportunities for further deregulationremain.Geographic Restrictions in BankingFederal laws, such as the McFadden Act of 1927 and the DouglasAmendment to the Bank Holding Company Act of 1956, continue toimpose geographic restrictions on commercial banking activities. Theformer law subjects the branching activities of national banks to thelimits imposed by the States; the latter law prohibits bank holdingcompanies from engaging in interstate banking unless given specificState authorization to do so. Although these prohibitions may reducethe concentration of financial resources on a national scale, they mayalso increase market concentration and lessen competition in localbanking markets.Moreover, these restrictions are effective only insofar as they affectthe taking of retail deposits. Loan production offices, Edge Act corporations,personal finance companies, mortgage lending companies,and bank holding companies have long been the means used bybanks to conduct wholesale and retail business on an interstate basis.With the emergence of automatic teller machine networks, the electronicrevolution is incorporating even retail deposit-taking intolarge-scale operations. This process would be enhanced by exemptingautomatic teller machines from the existing restrictions on the establishmentof branch offices. It is time to reconsider these geographicrestrictions because they are probably not in the best interestsof consumers or the more efficient financial institutions.121
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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Monetary policy will play a critica
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Interest Rates and the U.S. Trade D
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THE ANNUAL REPORTOF THECOUNCIL OF E
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CONTENTSPageCHAPTER 1. FROM RECESSI
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PageConclusions 122CHAPTER 6. REVIE
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CHAPTER 1From Recession to Recovery
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slowed somewhat in the 1970s regard
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nal GNP growth is reflected in a sl
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inflation. More specifically, the A
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inflation rate, or with a 12 percen
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1988, an increase of about one-four
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CHAPTER 2The Dual Problems of Struc
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frequently associated with poor hea
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Chart 2-2Distribution of Unemployme
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Chart 2-4Distribution of Unemployme
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These findings suggest several conc
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Wage RigidityA number of studies sh
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that these measures may have caused
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Most young people find jobs or leav
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to employers who hire youths. Tax c
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defined broadly to include individu
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ship between incomplete experience
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CHAPTER 3The United States in the W
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with 2.6 percent in the other Organ
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TABLE 3-1 .—Structure ofthe U.S.
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TABLE 3-2.—Trade balances by comm
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concentrate on doing what it does r
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the United States will depress pric
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Chart 3-3Real Exchange Rates Of Maj
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AN UNDERVALUED YEN?The explanations
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arily reduced the international com
Page 75 and 76: nancial markets. These transactions
Page 77 and 78: TABLE 3-6.—Economic performance b
Page 79 and 80: were undoubtedly a highly favorable
Page 81 and 82: of lenders that some debtors will n
Page 83 and 84: CHAPTER 4Increasing Capital Formati
Page 85 and 86: ate of net investment was required,
Page 87 and 88: able share in Japan and 56 percent
Page 89 and 90: During the 1970s, productivity grow
Page 91 and 92: MEASURING NATIONAL SAVINGDomestic s
Page 93 and 94: TAX RULES AND PERSONAL SAVINGMany e
Page 95 and 96: on consumption taxation might also
Page 97 and 98: Nevertheless, a number of economic
Page 99 and 100: tion permitted businesses to deprec
Page 101 and 102: A final problem under current tax l
Page 103 and 104: fleeted efforts to deal with proble
Page 105 and 106: egulation was probably not applicab
Page 107 and 108: Aeronautics Board, for example, the
Page 109 and 110: system resulted. Price controls, wh
Page 111 and 112: NGPA, both controlled and decontrol
Page 113 and 114: Price and allocation controls only
Page 115 and 116: nications industries through the re
Page 117 and 118: Several major pieces of legislation
Page 119 and 120: tempt to set cartel rates would be
Page 121 and 122: computer information and advertisin
Page 123 and 124: of computer technology to the payme
Page 125: trend by widening the sources and u
Page 129 and 130: ceived to be a consequence of exces
Page 131 and 132: lowest point in the post-World War
Page 133 and 134: ing. Partly in response to the drop
Page 135 and 136: Chart 6-3Ratio of Consumer Installm
Page 137 and 138: Chart 6-4RATIO1.85Real Inventory/Sa
Page 139 and 140: percent increase in real defense pu
Page 141 and 142: 8.8 percent in 1981. These declines
Page 143 and 144: housing. Borrowing by the nonfinanc
Page 145 and 146: orous competitor for credit as usur
Page 147 and 148: 1982 their share had risen to over
Page 149 and 150: TABLE 6-9.—Economic outlook for 1
Page 151: A critical element in achieving hea
Page 155 and 156: LETTER OF TRANSMITTALCOUNCIL OF ECO
Page 157 and 158: Report to the President on the Acti
Page 159 and 160: ety of interagency and internationa
Page 161: ence J. Kotlikoff (Yale University)
Page 165 and 166: CONTENTSNATIONAL INCOME OR EXPENDIT
Page 167 and 168: B-70. Mortgage debt outstanding by
Page 169 and 170: NATIONAL INCOME OR EXPENDITURETABLE
Page 171 and 172: TABLE B-2.—Gross national product
Page 173 and 174: 19291933193919401941194219431944194
Page 175 and 176: TABLE B-5.—Changes in GNP and GNP
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TABLE B-7.—Gross national product
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TABLE B-9.—Gross national product
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TABLE B-ll.—Gross national produc
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TABLE B-13.—Output, costs, and pr
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TABLE B-14.—Personal consumption
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TABLE B-16.—Gross and net private
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TABLE B-18.—Inventories and final
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TABLE B-20.—Relation of national
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TABLE B-21.—National income by ty
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TABLE B-22.—Sources of personal i
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TABLE B-24.—Total and per capita
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Year or quarterTotalTotalTABLE B-26
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POPULATION, EMPLOYMENT, WAGES, AND
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TABLE B-29.—Noninstitutional popu
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TABLE B-31.—Selected employment a
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TABLE B-33.—Civilian unemployment
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TABLE B-35.—Unemployment by reaso
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TABLE B-37.— Wage and salary work
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TABLE B-39.—Average weekly earnin
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TABLE B-41.—Changes in productivi
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TABLE B-43-—Industrial production
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TABLE B-45.—Capacity utilization
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TABLE B-46.—New construction acti
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TABLE B-48.—Nonfarm business expe
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TABLE B-50.—Manufacturers' shipme
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Year or monthAllitemsPRICESTABLE B-
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TABLE B-53.—Consumer price indexe
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TABLE B-55.—Changes in consumer p
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TABLE B-57.—Producer price indexe
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MONEY STOCK, CREDIT, AND FINANCETAB
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TABLE B-63.—Commercial bank loans
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TABLE B-64.—Total funds raised in
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TABLE B-66.—Aggregate reserves of
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TABLE B-67 .—Bond yields and inte
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TABLE B-69.—Consumer installment
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TABLE B-71-—Mortgage debt outstan
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TABLE B-72.—Federal budget receip
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TABLE B-74.—Relation of Federal G
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TABLE B-76.—Federal Government re
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TABLE B-78.—State and local gover
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TABLE B-80.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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Year or quarterTABLE B-84.—Corpor
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TABLE B-86.—Relation of profits a
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TABLE B-88.—Determinants of busin
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TABLE B-9Q.~Current assets and liab
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TABLE B-92.—Common stock prices a
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AGRICULTURETABLE B-94.—Farm incom
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TABLE B-96.—Farm input use, selec
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TABLE B-98.—U.S. exports and impo
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INTERNATIONAL STATISTICSTABLE B-100
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TABLE B-101.—U.S. international t
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TABLE B-103.—U.S. merchandise exp
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TABLE B-105.—International invest
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TABLE B-107.— World trade balance
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TABLE B-109.—Growth rates in real
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TABLE B-lll.—Unemployment rate, a
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