Economic Report of the President

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unlikely to happen in the future in part because of energy. In 1975,when data first became available, energy-intensive inputs (excludingfertilizer) accounted for 23 percent of the variable cost of producingan acre of corn. Those same inputs accounted for 31 percent of thevariable cost in 1980. Higher real prices for these inputs will be adisincentive to their use and intensify the pressure to use additionalland and water resources. These resources are also more limited. In1972, for example, more than 16 percent of the cropland base wasbeing withheld from production by government policies. None isbeing withheld today. To raise production further, land will have tobe diverted from other uses and developed for crop production. Thecost of doing so will be reflected in higher agricultural prices.Changes in policy, however, could help to ameliorate future increasesin food prices. Certain land-use patterns remain fixed byacreage allotments. Fruit and vegetable growers sometimes restrictoutput or otherwise control marketing to enhance prices and thenseek restrictive trade policies to protect those higher prices. Certainregulatory procedures now impose economic penalties on the use oftechnologies that would raise productivity in the food system. Suchpolicies deny both producers and consumers the benefits of technologicalchange. Finally, certain price support decisions continue to bestatutorily dependent on movements in an outdated parity index thathas little relation to product-specific costs of production. The dairyprice support program is perhaps the best known example here. Suchpolicies enhance the economic position of some farmers, while theyperpetuate existing—but not necessarily efficient—patterns of resourceuse. Such inefficiency is particularly costly in a period of relativeresource scarcity and limits agriculture's potential contribution toeconomic growth.POLICY DIRECTIONS FOR THE 1980sSignificant progress has been made over the past 30 years in adjustingU.S. agricultural policies to a changing world. More importancehas been placed on the allocative function that can be performedby prices, and there is significantly less direct government interferencewith producer decisionmaking.This Administration's farm policies have contributed to the evolutionaryprocess. The implementation of a farmer-owned grain reserveprogram stands out because of its flexibility and its success in moderatingprice fluctuations stemming from changes in production andconsumption levels. Additionally, the recent formation of a government-ownedfood reserve increases the likelihood that food will beavailable to foreign nations during emergency situations, even whenworld prices are high and commercial supplies are limited. The 1980passage of a statute permitting the creation of a partially subsidized,122
comprehensive, actuarial crop insurance program means that therewill be a more equitable sharing of natural disaster risk betweenfarmers and taxpayers. Eventually this new program—which expandsthe private sector's role in insuring farmers against such risks—willreplace the more limited free insurance that is now provided for certainfarmers through the fully subsidized disaster payments program.Future changes in agricultural policy must build on this foundation.In particular, attention must be given to the use of natural resources.Past agricultural policies have treated land and water as giftsof nature. The need for pricing them in ways that more appropriatelyreflect their true social value will intensify. Specific programs must bedeveloped for this purpose; conservation of soil and pricing of othernatural resources can no longer simply be by-products of programsto enhance farm income.Taken together, these policy issues point to a broader reliance onmarket forces, but the critical importance of food to national securitywill dictate a continued role for government in determining agriculturalpolicy. Finding new and more flexible ways to use resourcesmore efficiently while guarding against price volatility will be theprincipal farm policy challenge of the 1980s.TRENDS IN INDUSTRIAL AND LABOR MARKETSThe preceding sections described developments in energy, regulation,the financial markets, and agriculture that have put severe pressureon the economy's adaptive capabilities. Each case illustrated theneed for policies that facilitate adaptation to future as well as currentdevelopments. These four areas are not unique, however. Throughoutthe economy, deep-seated trends are increasing the need forgreater adaptability.INDUSTRIAL CHANGEOne such trend is the elimination of previous competitive advantagesin some sectors and the creation of new ones in others. In thecase of automobiles, for example, competition on the basis of technologicaladvances and fuel economy is replacing competition based onstyle and performance. Vehicles manufactured in large volume accordingto stringent quality standards and utilizing the latest technologyare replacing vehicles whose style changed annually but whosetechnology evolved more slowly. The emergence of the so-called"world car," with its international sources of key components, is evidencethat this remarkable change has not been limited to the UnitedStates.Nor are these kinds of competitive pressures new. Similar pressuresover the years have occurred in textiles, apparel, and footwear.123
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Economic Reportof the PresidentTran
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ECONOMIC REPORTOF THE PRESIDENT
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We have heard much about American i
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at an approach that took account of
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een due to overall demand in the ec
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to $27.5 billion in the new budget
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ductions would amount to over $27 b
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10 percent inflation rate, keeping
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tutes for petroleum. The Synthetic
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esponse can be so large as to wipe
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THE ANNUAL REPORTOF THECOUNCIL OF E
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CONTENTSCHAPTER 1. INFLATION AND GR
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PageChallenges to the International
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CHAPTER 1Inflation and Growth in th
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needed to control inflation by resi
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decline in productivity growth may
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Chart 1Standard Unit Labor CostsPER
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end of 1974 the world price of oil
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price decisions cannot easily be re
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Federal budget achieved a surplus.
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As an abrupt increase in the price
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policies but are based on the wides
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tion, and can policies be designed
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duction and employment to grow only
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Moreover, their actions must indica
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Starting with its 1975 targets as a
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well after the fact whether the mon
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Reserve provides some flexibility i
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in response to circumstances in par
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Although the flexibility of TIPs ma
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ard or that thought the administrat
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given standard, as the reward and t
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large firms. Even among large firms
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cause declining productivity growth
Page 77 and 78: vanced technology and will therefor
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Page 81 and 82: correct some of the distortions in
Page 83 and 84: higher than it would otherwise be b
Page 85 and 86: EXPECTED PRODUCTIVITY GAINSAlthough
Page 87 and 88: supply of adult men in the work for
Page 89 and 90: increase demand pressures, especial
Page 91 and 92: time hours also has drawbacks. For
Page 93 and 94: eintroduce the problem of changing
Page 95 and 96: CHAPTER 2Improving the Adaptability
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Page 99 and 100: expectation of price controls or fu
Page 101 and 102: dependence on foreign oil mean that
Page 103 and 104: While the market solution might pro
Page 105 and 106: High energy prices and excessive de
Page 107 and 108: part, the interests of these partie
Page 109 and 110: Federal regulations designed to pro
Page 111 and 112: Agency (EPA) from considering prosp
Page 113 and 114: other things, that federally assist
Page 115 and 116: ing services. Money-market mutual f
Page 117 and 118: holdings of consumer and business l
Page 119 and 120: they once had and thus cannot conti
Page 121 and 122: finding ways around outdated regula
Page 123 and 124: proportion of the existing farms pr
Page 125 and 126: prices for years in the future, reg
Page 127: derground water resources once thou
Page 131 and 132: duced a decline in the median age o
Page 133 and 134: elude government investments in loc
Page 135 and 136: some of the firms in the chosen sec
Page 137 and 138: CHAPTER 3The Economy: Review and Pr
Page 139 and 140: uild up oil inventories and maintai
Page 141 and 142: Chart 7Selected Interest Ratesand B
Page 143 and 144: had risen just 2 months earlier. By
Page 145 and 146: Chart 8Personal Saving RatePERCENT1
Page 147 and 148: chief cyclical determinant of housi
Page 149 and 150: ment were sharply diminished by the
Page 151 and 152: dropped even faster, in large part
Page 153 and 154: ployment grew more vigorously after
Page 155 and 156: terials fell for a full third of th
Page 157 and 158: 1979, slowed to a 19 percent annual
Page 159 and 160: costs of production. The evidence s
Page 161 and 162: sharp decline in output in the seco
Page 163 and 164: ecord high interest rates during th
Page 165 and 166: automatic transfer services (ATS) n
Page 167 and 168: plunged in March, although the only
Page 169 and 170: (FHLB) System increased their borro
Page 171 and 172: THE PROSPECTS FOR 1981 AND 1982In 1
Page 173 and 174: expectations. Of course, if the eco
Page 175 and 176: The uncertainty of developments in
Page 177 and 178: produce a slight decline in the sav
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more rapid growth thereafter. Durin
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eemergence of modest but sustained
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hike would depend on many factors,
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major revision of the NIPA occurred
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per year. This modest acceleration
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THE INDUSTRIAL ECONOMIES: TRENDS AN
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Chart 10Labor Costs, Value-Added De
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Rather, the German current account
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TABLE 30.—Inflation in major indu
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THE GLOBAL OIL MARKETTable 31 summa
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may be preserved. Stocks are in fac
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straint on growth. Finally, policie
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outside government, both at home an
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ates are high, differences in polic
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Japanese trade performance in volum
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No "Say's Law" operates in internat
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the cost of the loans, and they may
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At the same time, access to the IMF
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to closer cooperation is to risk a
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While all countries, in attempting
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threats of disruption, market-shari
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Past Council Members and their date
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1977 to review selected analyses of
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The Chairman and the Council Member
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University). Kate Stith Pressman, s
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CONTENTSNATIONAL INCOME OR EXPENDIT
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GOVERNMENT FINANCE'—ContinuedB-72
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Gross national product
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TABLE B-3.—Implicit price deflato
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TABLE B-5.—Implicit price deflato
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TABLE B-10.—Gross national produc
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TABLE B-12.—Output, costs, and pr
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TABLE B-14.—Gross private domesti
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TABLE B-16.—Inventories and final
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TABLE B-18.—Relation of national
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TABLE B-19-—National income by ty
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Year orquarter192919331939194019411
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TABLE B-22.—Total and per capita
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Year orquarterTotalTotalCurrencyand
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TABLE B-26.—Population by age gro
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TABLE B-27.—Noninstitutional popu
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Year or monthTABLE B-29.—Selected
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TABLE B-31.—Unemployment rate by
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TABLE B-33.—Unemployment by reaso
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TABLE B-35.—Wage and salary worke
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TABLE B-37.—Average weekly earnin
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TABLE B-39.—Changes in productivi
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TABLE B-42.—Industrial production
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TABLE B-44;—New construction acti
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TABLE B-45.—New housing units sta
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TABLE B-47.—Sales and inventories
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TABLE B-49.—Manufacturers' new an
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TABLE B-51.—Consumer price indexe
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19391940194119421943194419451946194
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TABLE B-54.—Changes in special co
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TABLE B-55.—Producer price indexe
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TABLE B-57.—Producer price indexe
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TABLE B-58.—Changes in producer p
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TABLE B-60.—Components of money s
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TABLE B-62.— Total funds raised i
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TABLE B-63.—Federal Reserve Bank
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TABLE B-65.—Bond yields and inter
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TABLE B-66—Consumer credit outsta
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TABLE B-68.—Mortgage debt outstan
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GOVERNMENT FINANCETABLE B-70.—Fed
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TABLE B-l\.—Federal budget receip
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TABLE B-73.—Government receipts a
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TABLE B-75.—State and local gover
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TABLE B-77,—Interest-bearing publ
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TABLE B-79-—Maturity distribution
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TABLE B-81.—Corporate profits by
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TABLE B-83.—Sales, profits, and s
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TABLE B-85.—Relation of profits a
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TABLE B-87.—Sources and uses of f
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TABLE B-89-—State and municipal a
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TABLE B-91.—Business formation an
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TABLE B-93.—Farm output ami produ
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Year or month1940194119421943194419
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TABLE B-97.—Balance sheet of the
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TABLE B-99— U.S. international tr
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TABLE B-100.—U.S. merchandise exp
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TABLE B-102.—U.S. merchandise exp
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TABLE B-104.— World trade: Export
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TABLE B-106.—International reserv
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• • ' •TABLE B-108.—Industr
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TABLE B-110.—Summary of major U.S
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