First, permit me to say a word on behalf of the President and his administration. From experience, I know that the decisions flowing from the Oval Office today are excruciatingly difficult. In all the years that I spent in Washington, I found that our presidents tried to serve us well, but as Lyndon Johnson used to say, "The hard thing is not doing what's right; the hard thing is knowing the right thing to do." And that, I believe, is one of the great challenges that confronts this administration, as it has confronted every previous administration.

I sense that the President and his administration are now in the midst of a transition, making a difficult passage from the ideas and notions they brought with them to perhaps a clearer, firmer understanding of the real world. Personally, I welcome that transition, for it augurs well for the country. I remember how much inner strength I drew from the good will and generosity of the Americanpeople during my own administration, especially in some of its rougher moments. I hope that during the next three years the American people will always accord Mr. Carter that same measure of respect and appreciation.

Politically, I must confess that as I read about some of the troubles of this administration, my pulse sometimes quickens, but I also shiver just a bit, thinking about the nation's welfare. We still have only one president at a time, and he must be president of all the people, not just some of the people. Trying to get a political leg up on Mr. Carter for 1980 is a lot less important than some politicians think--Republicans or Democrats--and less important than trying to make it to 1980 in one piece. Thus, in coming months, even as some of us express sharp differences over matters of substance--as we will and as we should--I trust that our standard will always be one of keeping patriotism above partisanship and the public interest above our own private, political interests.

In recent months, of course, I have had an excellent opportunity to rest and relax a bit myself, but under the auspices of AEI, I have also had a chance to meet with students at over twenty colleges and universities across the land--from campuses as diverse as Yale and Michigan or Dillard and Albion. Moreover, I have had the privilege of visiting with groups in many other parts of the country, so that overall, I have logged more than two hundred thousand miles since January, with visits to over twenty-three states. Tonight I would like to report to you on some of my observations.

Over the past decade, it was often said that America was in crisis. Riots in the streets, Vietnam, the rise of a counterculture, Watergate, recession, and a long litany of other problems were thought to have wrenched us from our course and ripped away at the fabric of national unity. But we endured--magnificently so--and today those events have passed from the scene. Our boys are home, our streets are silent, our government is intact, and our economy, basically, is very sound.

Yet the curious thing is that even in the absence of a major crisis, a sense of frustration and anxiety still grips many of our fellow countrymen. I don't want to exaggerate. Americans are not leading "lives of quiet desperation," as some have suggested, but there is, I assure you, a massive amount of uncertainty among our people now--a numbed feeling that the world is still out of balance and that things could easily become worse before they become better.

Many explanations come easily to hand. Psychologists and sociologists have been telling us for years about the rootlessness and alienation that spring from living in a mass society. Others point out that our traditional values have come under merciless attack, and that many people lack a clear framework for their lives. Still others point to the swiftness of change. I suspect there is some truth in all of these ideas.

In my view, however, there is a more fundamental cause to today's uncertainty. It is one that should now occupy a predominant place in our discussions of public policy. I speak of our domestic economy.

There are many reasons why we should be encouraged about our economic performance. In the past fifteen years in this country, we have cut the incidence of poverty in half; despite three recessions, real income has risen by 75 percent; our technology has progressed to the point that a single American farmer can now feed fifty-seven people here and abroad. I could continue with a blizzard of other statistics.

Yet, we would be deceiving ourselves by not seeing the cracks in our economic foundation. The structure is still impressive on the surface. Indeed, we still have the world's premier economy by any standards. Our recovery today is far ahead of that in Europe and Japan, and we should be proud of what we have accomplished. But the flaws are there, and some are ominous. Unless we recognize them, unless we undertake some major repairs in coming years, our economy will perform considerably below its potential and millions will suffer.

If you have any doubt about the hardships that are occurring and why people are now so uncertain and anxious about the future, I urge you to spend a little time talking with average working families around the country. As a leading magazine pointed out recently, we are in danger of creating an entirely new class in America, the middle-class poor--people who are forced to take a second job, sink deeply into debt, or scrimp every dollar in order to keep up with the soaring costs of food, housing, and medical care. Just in the past seven years, they have seen consumer prices jump by over 50 percent--almost four times as fast as the average rate in the eighty years preceding.

Or talk with black families in the inner cities, families who must cope not only with inflation but with cruel levels of unemployment. They are terribly worried that they are raising a whole new generation that has only the faintest idea of what it is like to hold a steady job.

Or talk with leaders of our business community. For over a decade now, they have been trying to show that business profits have been virtually flat and that we have not been investing enough in the future. Since the early 1960s the United States has had the lowest rate of capital investment of any major industrial democracy, including Great Britain.

Once again, I do not wish to overstate the case. An economy that promises to grow more than 4 percent next year is not exactly on its death bed. It needs surgery, but not final rites. Nevertheless, it should be a matter of urgent concern today that our economy is stumbling along, that social tensions and hardships exist, and that public confidence in the future is now dangerously fragile. Who can take solace from knowing that 54 percent of the American people today still think we are in a recession? And most of them have felt that way for the past four years. Who can point with joy to the stock market, which has dropped almost 20 percent this year, during the midst of a recovery? Or who can boast about confidence in the business community when outlays to improve and to expand productive capability remain so low? None of us can in good conscience. Economic growth is the best and indeed the only way I know to cure many of these evils.

However, there is a school of thought--the no-growth movement--that disagrees with me. It now claims a number of adherents on the West Coast and in many institutions scattered thoughout the East. Some of their members look upon economic stagnation as a virtue. To them, the central lesson of our time--stretching from Selma and Saigon in the 1960s into the 1970s--is that the United States is inherently greedy and rapacious, a nation that must be brought to heel so that more deserving peoples may share in the world's abundance. Still others in the no-growth school look upon our economic troubles not as a virtue but as a virtual necessity, one that we cannot hope to escape.

Earlier this year, a leading historian who holds an endowed chair put forward a thesis of the irrelevance of history and of the bleakness of the new era we are entering. The age of abundance has ended, he said, and the people of plenty have become the people of paucity. Unlike every previous American generation, we face impossible choices: if we have guns, we cannot have butter; if we reduce unemployment, we produce inflation; if we hire women, we must fire men; if we give blacks preference in admissions to colleges and professional schools, we exclude whites. And he concluded with a quotation to the effect that nothing worth doing can be achieved in our lifetime; therefore, we must be saved by hope. What a remarkable statement from a man who is entrusted with the minds and dreams of our next generation!

During the last year, I have had a thrilling experience. I have talked with a great many young people, and I can assure you that this grim view is not theirs. We should be proud of the contributions they make today and what they will do tomorrow. As leaders of this nation, we must reject out of hand counsels of guilt and despair that we sometimes hear around us. We must never apologize for our material abundance. We have it because other generations of Americans before us have worked and sweated to make this a better land. To be sure, we ought to be generous in sharing our good fortune--at home as well as abroad, both personally and through our government--but we need bear no guilt. As for those who think that we have nearly exhausted our resources and are now faced with impossible choices, I submit they are ignoring the very lessons of history that we ought to be teaching the next generation. One of the great strengths of this country is that whenever the old answers were no longer sufficient, we have always been inventive and determined to find new ones.

Certainly that has been the story of energy development in the United States as, one by one, we discovered new and more plentiful sources to run our industries and heat our homes. Looking at the resources still available to us--the immense amounts of coal beneath the earth, the natural gas and oil below the surface, the potential for nuclear energy, the untapped power of the sun, and many others yet to be found--I believe this is the same path we can follow into the future. The only thing we are in danger of running out of is confidence in ourselves.

One other point must be made. The no-growth movement strikes me as not only incredibly wrongheaded but actually immoral, for if its tenets were accepted, we would condemn millions of our fellow citizens, especially the disadvantaged, to a brutish, dog-eat-dog existence. Surely, we should recognize from history that economic growth has been the great elixir of both our social and political life. As long as there was steady growth, waves of new immigrants could be absorbed into the melting pot in America. Millions who were poor or disadvantaged could grasp the lowest rung on the economic ladder and within a matter of years pull themselves up. For those who could not, at least during the mid-twentieth century, a growing economy created enough new tax revenues so that our government could afford to give them a helping hand and pursue a responsible fiscal policy. With growing profits, private companies could also afford to pay higher wages and still have enough left to invest in the future.

As the economic system rolled forward, America's freedom and abundance became the envy of the world, "The City Upon a Hill" once envisioned by our forefathers. Today, it is true, our problems seem more complicated, and perhaps economic growth will not solve all of them. But it will solve some of the most important ones, and it will make many of the rest far more manageable. Without growth, I hesitate even to think what may become of us.

To return to my original point, I submit that the first order of business in America today is to restore a strong, steadily growing economy--to give people more genuine hope that one day soon, we will once again enjoy confidence in sustained prosperity and greater equity in our society.

As you know, I am a firm believer in the private marketplace. It is my conviction that we will regain a healthy economy only through a revitalization of the private sector, not through government fiat or government-created jobs. I also believe, however, that because government has become so enormous and is so deeply enmeshed in the marketplace, the federal government must help to create an environment that encourages growth and discourages the forces of inflation. It is essential that relationships between government and business be characterized not by hostility or lack of understanding, as so often we see today, but by a basic appreciation and understanding of how each of us can help the other. To the extent that these Francis Boyer Lectures contribute to that understanding, they will make a significant contribution to the country.

Unfortunately, the federal government over the past decade or more has become one of the great destabilizing forces in our economy. Only once in the past eighteen years has our federal budget been balanced. Our national debt is about twice as large as it was only seven years ago. In 1978 we will spend more than we did in the first one hundred and fifty years of our republic combined. To pay for this spending binge, our taxes have been going up, up, and up, so that today some 66 percent of all middle-class families say they have reached the breaking point. If we had an economic protection agency in Washington, surely it would tell us that the federal government has, indeed, become a terrible polluter of the economic environment, spreading inflation and unemployment across the land.

Thus, to restore the long-term economic health of the nation, we must begin in Washington. And our first step, I submit, must be a major, phased-in reduction of federal taxes. Too often, when politicians talk about taxes, they use mirrors and other devices to shield us from the hard realities. Let me see if I can explain in straightforward terms what I think needs to be done.

For a decade and a half after the Korean War, federal taxes equaled about 18.6 percent of our gross national product. As the economy grew, so did tax revenues, but the overall tax burden was relatively constant. But that burden has recently grown larger, so that today federal taxes equal about 19.5 percent of our GNP. More important, the current administration in its midyear budget estimated that by 1981--taking into account the current tax law, as well as the administration's energy and social security tax changes--the tax burden would expand to 21.9 percent of our GNP. Those increases may sound small, but in an economy that will soon be at the three trillion dollar mark, each increase of a single percentage point means that the tax burden increases by billions upon billions of dollars for taxpayers.

Looking ahead, the administration is now talking in terms of a $15–20 billion tax cut for 1979, which we should all welcome. It is important to recognize, however, that such a modest tax cut will barely offset the tax increases that will be imposed upon taxpayers through inflation, through increases in social security taxes, and through new energy taxes that may still be enacted. It is even more important, in my judgment, to keep our eye on the long-term plan of the administration, for that tells far more about what direction taxes will be taking in the future. By 1981, as I mentioned a moment ago, federal taxes are projected to reach 21.9 percent of our GNP. The Carter administration proposes to reduce that burden to 21 percent by 1981, which translates into a total tax cut of about $25 billion over the next four years.

Yet, look at what is really happening. Yes, the administration can claim that it is cutting taxes because it is saving $25 billion in tax bills that would otherwise have to be paid, but the critical thing is that the actual tax burden will still be growing. Under the administration's approach the burden will grow from 19.4 percent of our GNP, where it stands now, to 21 percent of our GNP, which means a net increase in the tax burden in 1981 of $44 billion. In other words, for every one dollar the government says it is saving us with its right hand, it will be quietly taking away two dollars more with its left hand. Frankly, that is just not good enough. The people of our country need far more than paper or illusory tax cuts.

The plan I propose is simple and straightforward: I recommend that over the next four years we commit ourselves to holding the total or real tax burden exactly where it is today. Instead of allowing inflation and other factors to push up taxes every year, as we do now, we should enact a steady series of tax cuts to hold down the tax burden to its current level. The total tax cut that I would recommend, using this approach, would amount to approximately $68 billion by 1981. At first it may sound illogical to say that the only way we can stay even is to cut taxes continually, but that is the truth. It reflects in part the illogic of our current tax system, which allows inflation to push taxpayers into higher brackets and pay more of their income to Uncle Sam.

Time does not permit a full exposition of what I suggest, but I should point out a few of its major features. First, it is clear that tax cuts of this magnitude--cuts as large $70 billion--cannot be put into place overnight without disrupting the economy, so I recommend they be phased in carefully. In 1978, for instance, I believe it would be possible to index personal and corporate taxes for inflation, as proposed by some eminent economists such as Professor William Fellner here at AEI. Then, in future years, we should provide additional tax cuts that are large enough to hold the tax burden constant. Second, let us recognize that tax cuts of $70 billion raise serious questions about our ability to balance the budget by the end of this decade, a goal that remains of overriding importance to me and, I am sure, to the Congress and the new administration.

It is my judgment that if these tax cuts are properly targeted--with a majority aimed at middle-income taxpayers, where the load has become increasingly intolerable, but with a healthy proportion also aimed at American business, so that we can unlock the great reservoir of capital and put it to work creating new jobs--then the government would recover far more revenues than many economists predict. But let me add this cautionary note: to the extent that revenues still fall short of expenditures, it is imperative that the President, the Congress, and the American people hold down the growth of spending. And I emphasize the growth of spending so that we can still balance the budget and achieve economic prosperity with a better handle on inflation. I recognize that this requires far greater restraint, especially in spending, than we have exhibited in the recent past. Indeed it will require great political courage, but surely we should expect no less of our elected leaders.

The overriding point, let us remember, is that all Americans will benefit if we can repair our economy. The first step that we must take toward that goal in 1978 is to begin a sustained program of tax reductions. Let us be clear on a final point, as well: the troubles that afflict our economy today are long term in nature, and they cannot be solved by overnight stimulants. In fact, Washington has frequently made things worse in the past by resorting to quickie one-shot tax cuts or sizable increases in federal spending, characterized for the most part by expediency and shortsightedness. We should enact tax cuts in 1978, then, but not for the wrong reason--that is, not merely to give the economy a quick but short-lived shot in the arm. We should do it for the right reason--to restore the basic long-term health and vigor of our economy.

Large and permanent reductions in taxes, then, must be at the top of our economic agenda for the future. But of course there are many, many other programs that must go hand in hand with this--programs to stimulate more jobs in the private sector, for instance, as opposed to the monumental waste in human and material resources that has too often been the case with Washington-spawned programs--programs that are notable mostly for their attractive titles, large expenditures, and minimal results.

Let me mention only two other issues of particular concern. One is the pressing need for regulatory reform. It is apparent that government regulation now constitutes an even more serious drag and is an even greater source of uncertainty for our economy than in years past. The current administration has often spoken favorably about reform. It has fought hard to enact an airlines deregulation bill and has announced beneficial changes in OSHA regulations, and I commend it for those efforts. But it has also proposed or approved other legislation that serves to increase federal regulation, jeopardizing any gains.

When I left office in January, it seemed to me that the hour for major regulatory breakthroughs was close at hand. It would be a great misfortune to let that opportunity slip away.

The other issue is energy. The failure to enact energy legislation this year, especially after all the fanfare, is a grave setback for the country, both here and in our relationships with many other nations. As I said many times during my two and a half years in the Oval Office, we cannot continue to place such heavy dependency upon foreign powers, nor can our economy long afford the gigantic drain on our own resources that we are experiencing today. I do not wish to be sending in plays from the sidelines, but it is the responsibility of the elected leadership in Washington to build a stronger political consensus, both in the capital and throughout the land, so that Congress can enact a responsible bill in the early days of 1978. In my judgment, that consensus must be erected not upon a program that stresses only conservation and new taxes but that sets a healthy balance between conservation and increased domestic production through bona fide incentives for production.

In conclusion, let me underscore the obvious truth that at any single moment in time our understanding of the public policy issues that I have mentioned can be only partial and fragmentary. We must continually seek new insights and new ideas.

And that is one of the great contributions that AEI and its sister institutions can make--to shine the light just a little farther down the path than most of us can see on a day to day basis, to show the curves, the dangers on either side, and the forks down the way where fundamental choices must be made. The dogmas of our past are simply not sufficient for the uncertainties of the present.

The one point of which I am absolutely certain tonight is that the job ahead of us can be done. I have always been an optimist. I wholeheartedly believe we can restore the vitality of our economy and, in the process, renew the confidence of our people. I recall how Dwight Eisenhower used to review the broad sweep of U.S. progress, from the early wilderness to the great wealth of the twentieth century, and then remark: "as far as the economy is concerned, the optimists about our future have always been right." That remains true today.

There is another tale from Washington folklore--perhaps Ike knew it, too--that captures my sentiments a little better. It's about a young man who arrived at National Airport and, as a taxi was taking him to his hotel, passed the National Archives building. There engraved in stone, the young man saw the motto: "what is past is prologue." He leaned over and asked what it meant. "Oh, that," said the driver, "that's just bureaucratic talk. What it means is--you ain't seen nothin' yet."

And that's the way I feel about this great country of ours tonight: you ain't seen nothin' yet. It is going to get better and better.

Gerald R. Ford is the recipient of the AEI Francis Boyer Award for 1977.