65. Report by President Carter to the Congress1
I will be working closely with the Congress in 1978 to enact a program addressed to the immediate and the long-term needs of our economy. I am proposing tax reductions and reforms to continue our strong economic recovery, to encourage increased investment by American businesses, and to create a simpler and fairer tax system. I am seeking legislation to address the special problems of the disadvantaged and the unemployed. And I am taking new steps to combat inflation.
This report to the Congress on the condition of the economy sets forth the overall framework within which my economic proposals were formulated. It outlines, for you and for the Nation, my economic priorities for the years ahead and my strategies for achieving them.
[Omitted here are sections of the report focusing on domestic economic issues.]
[Page 310]INTERNATIONAL ECONOMIC POLICIES THAT PROMOTE ECONOMIC RECOVERY THROUGHOUT THE WORLD
Outside the United States, the world economy has seen a hesitant recovery from the deep recession of 1974–75. The rapid pace of economic growth that was widespread over most of the postwar years has all but disappeared. Unemployment is high, and in most industrial countries except the United States it is rising. Inflation is at high levels and declining only very slowly.
The imbalances in the international economic system continue to strain the world economy. Because of the surpluses of oil-exporting countries, many countries have sizable deficits, including the United States. Some industrial nations are also running large and persistent surpluses—thus increasing the pressures on countries in deficit. These imbalances have been a major factor contributing to disorder in exchange markets in recent months.
The condition of the world economy requires above all that nations work together to develop mutually beneficial solutions to global problems. If we fail to work together, we will lose the gains in living standards arising from the expansion of world commerce over the past three decades. If the world economy becomes a collection of isolated and weak nations, we will all lose.
The first priority in our international economic policy is continued economic recovery throughout the industrial world. Growth of the U.S. economy—the largest and strongest in the world—is of vital importance. The economic program that I have proposed will ensure that America remains a leader and a source of strength in the world economy. It is important that other strong nations join with us to take direct actions to spur demand within their own economies. World recovery cannot proceed if nations rely upon exports as the principal source of economic expansion.
At the same time all countries must continue the battle against inflation. This will require prudent fiscal and monetary policies. Such policies must be supplemented by steps to reduce structural unemployment, measures to avoid bottlenecks by encouraging investment, and cooperation in the accumulation of commodity reserves to insulate the world from unforeseen shocks.
Reducing the widespread imbalances in international payments will require several parallel steps. To begin with, each individual country must ensure that its own policies help relieve the strains. The United States will do its part. In 1977 we had a current account deficit of about $18 billion. While not a cause for alarm, this is a matter of con[Page 311]cern. We can take a most constructive step toward correcting this deficit by moving quickly to enact the National Energy Plan.2
Countries in surplus should also do their part. Balance of payments surpluses in some countries have contributed to the economic stagnation among their trading partners. Where their own economies have slack, it is appropriate for nations in surplus to stimulate the growth of domestic demand—thereby increasing their imports and improving the prospects for growth in deficit countries. In some countries, lifting restraints on imports from abroad and reducing excessive government efforts to promote exports would be useful. After consultations with the United States, the Japanese have indicated they will take a series of steps toward reducing their large surplus.3
The system of flexible exchange rates for currencies also can be helpful in correcting unsustainable imbalances in payments among countries. Since its inception in 1973, this system has operated well under unprecedented strains.
During 1977 the U.S. dollar has fallen in value against several key currencies. The decline in the dollar’s value has occurred primarily against the currencies of those nations that have large trade and payments surpluses, and was not surprising in view of our large payments deficit and their surpluses. Late in 1977, however, movements in our exchange rate became both disorderly and excessively rapid. The United States reaffirmed its intention to step in when conditions in exchange markets become disorderly and to work in close cooperation with our friends abroad in this effort.
Under the flexible exchange rate system basic economic forces must continue to be the fundamental determinant of the value of currencies. However, we will not permit speculative activities in currency markets to disrupt our economy or those of our trading partners. We recognize fully our obligation in this regard, and we have taken steps to fulfill it.
Although substantial progress can be made toward a balanced world economy, some imbalances will persist for a substantial period of time. Financing requirements will remain large while adjustments occur. The private markets can and will continue to channel the bulk of the financing from surplus to deficit countries. But it is essential that adequate official financing also be available, in case of need, to encourage countries with severe payments problems to adopt orderly and responsible corrective measures. To meet this critical need the United States has strongly supported a proposal to strengthen the In[Page 312]ternational Monetary Fund by the establishment of a new Supplementary Financing Facility.4
The United States also will continue to contribute resources to promote growth in the economies of the developing nations. International assistance efforts—through bilateral aid and multilateral institutions—must continue to expand. We must also keep our doors open to imports from developing countries, so that their economies can grow and prosper through expanded trade.
A keystone of our international economic policy is to work with our trading partners to protect a free and open trading system. The American economy benefits by exporting those products that we make efficiently, and by importing those that we produce least efficiently. An open trading system increases our real incomes, strengthens competition in our markets, and contributes to combating inflation.
The United States will firmly resist the demands for protection that inevitably develop when the world economy suffers from high unemployment. The ensuing decline in world trade would worsen our problem of inflation, create inefficiencies in American enterprise, and lead to fewer jobs for American workers. But international competition must be fair. We have already taken and we will, when necessary, continue to take steps to ensure that our businesses and workers do not suffer from unfair trade practices.
I place great importance on the Multilateral Trade Negotiations now under way in Geneva. I believe our negotiators will bring home agreements that are fair and balanced and that will benefit our economy immensely over the years to come. The importance of these discussions can hardly be overemphasized. The trading system that emerges from the negotiations will set the tone for international commerce well into the 1980s. Our commitment to a successful conclusion to these talks underscores our long-term emphasis on the retention and expansion of open and fair trade among nations.
THE CHALLENGE BEFORE US
In this message I have outlined my fundamental economic goals and the strategy for attaining them. It is an ambitious, but I believe a realistic, agenda for the future. It calls for a broad range of actions to improve the health and fairness of the American economy. And it calls upon the American people to participate actively in many of these efforts.
[Page 313]I ask the Congress and the American people to join with me in a sustained effort to achieve a lasting prosperity. We all share the same fundamental goals. We can work together to reach them.
- Source: Public Papers: Carter, 1978, Book I, pp. 129–144. The report is the President’s annual report to Congress on economic policy.↩
- See footnote 4, Document 47.↩
- See footnote 4, Document 63.↩
- See footnote 4, Document 54.↩