Economic Report of the President

needed to control inflation by resisting strong pressures for a hastyand potentially inflationary fiscal stimulus.As this Report will have several occasions to point out, there are nosimple and clear-cut answers to the complex economic problems confrontingour country. Many of them will yield only gradually to persistentefforts pursued on many fronts. In some cases where ourknowledge is particularly uncertain, we may have to try several approachesbefore finding an effective solution. Nevertheless, the willingnessto tackle difficult problems which this country has shown inthe last several years provides a reason to temper concern about theseriousness of our economic problems with a belief that they can bemet successfully.The first two chapters of this Report examine the major economicchallenges identified above and discuss appropriate policies to dealwith them. In most instances the Administration has already madespecific policy recommendations, and these are reflected here. But insome cases the chapters identify and evaluate additional policy optionson which decisions would have been made had this Administrationcontinued in office. The third chapter of this Report examines theNation's general economic performance in 1980 and the outlook for1981 and 1982, while the fourth chapter turns to issues pertaining tothe international economy.Chapter 1 addresses the broad problem of reducing inflation whileachieving satisfactory growth in employment, output, and productivity.It considers selected aspects of both demand-side and supply-sidemeasures. After discussing the history and causes of inflation, thechapter outlines the role and the limitations of demand managementpolicies, examines the special problems of setting and carrying outanti-inflationary monetary policies in a world of high inflation andfrequent economic disturbances, and evaluates the potential usefulnessof a tax-based incomes policy as a method for reducing inflation.The remainder of the chapter is devoted to supply-side policiesand pays particular attention to two subjects: first, the importance ofincreasing the share of the Nation's output devoted to capital formationand the macroeconomic policies necessary to achieve that goal;and second, the integration of supply-oriented tax reductions withoverall policies of demand restraint.Chapter 2 deals with major problems in particular sectors or markets.Specifically, it covers six major topics: energy, regulation, banking,agriculture, the labor market, and the generic problems of structuraladjustment among industries confronting economic change.Broadly speaking, the policy measures discussed in Chapter 2 areaimed at increasing supply and productivity by improving the efficiencywith which particular markets work and adjust to change. Like31