Policy Statement

Pessimism about the current economy and its near-term prospects is overstated. The economy has grown at a 2 1/2% rate for the last two years. This is slightly lower than the average for the last century, but the difference is small. Concerns about near-term prospects have encouraged a return to the policies of fine-tuning that failed in the past and will fail again. The Treasury Department, Wall Street economists and various seers urge the Federal Reserve, the Bundesbank and the Bank of Japan to lower interest rates. Efforts to force interest rates lower, to depreciate the dollar and to stimulate the economy to head off protectionist legislation are based on the mistaken belief that we have learned how to stimulate now and prevent inflation later. Efforts to get Germany, Japan and others to replace stable, noninflationary policies with additional stimulus are similarly short-sighted and wrong-headed. The administration is repeating the mistakes of the Carter Administration. We have been playing "locomotive," and we are now urging others to play locomotive in turn.