Economic Report of the President

esponse can be so large as to wipe out the need for fiscal prudenceand budgetary restraint. We can improve our prospects still furtherby the use of voluntary incomes policies, strengthened when budgetaryresources become available by tax incentives for wage moderation.But, again, incomes policies alone will not do the job. If we tryto rely on them excessively, we will do more harm than good. Onlywith a balance among the various elements, and only with persistencein the realization that sure progress will come gradually, can we haveboth lower inflation and better growth.Sorting out the proper role of government also requires us tostrike a balance. At times Federal spending has grown too rapidly.But in recent years its growth did not result from the introduction ofa host of new government programs by spendthrift politicians or asurge of profligacy by wasteful bureaucrats. It stemmed mainly fromtwo sources: first, increased military spending to meet national securitygoals that are overwhelmingly supported by the Americanpeople; and second, the growth of long established and broadly acceptedsocial security and social insurance programs that are directlyor indirectly indexed against inflation or automatically responsive toan increase in unemployment.There is some waste. There is some abuse. I have instituted anumber of reforms to cut it back. I am sure my successors will continuethis important effort. But waste and abuse are not the fundamentalissues. The essence of the challenge that faces us is how tobalance the various benefits that government programs confer on usagainst their costs in terms of higher taxes, higher deficits* and sometimeshigher inflation.It is my view that we must strike the balance so as to restrict forsome time the overall growth of Federal spending to less than thegrowth of our economy, despite the faster increase of the militarycomponent of the budget. As a consequence, in my 1982 budget Ihave proposed a series of program reductions. I have suggested adelay in the effective date of new programs I believe important. Ihave recommended improvements in the index we use to adjust Federalprograms for inflation.I think we will do a better job in striking the right balance over theyears ahead if we keep two principles in mind: The first is to recognizereality. The choices are in fact difficult, and we should not pretendthat all we have to do is find wasteful programs with zero benefits.The second is to act with compassion. Some government programsprovide special benefits for the poor and the disadvantaged; whilethese programs must not be immune from review and reform, theyshould not bear the brunt of the reductions.18