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October 16, 2001

Cipriani 42nd Street
New York, NY

Thank you, Dick Cavanagh and distinguished guests. It is a privilege, a genuine privilege -- all speakers say that; I say it with full sincerity tonight, given the illustrious history of this organization and the illustrious membership of today, reflected in this room.

I spent a good part of this afternoon with the now-world famous mayor of this great city, and thus am reminded, in having the honor to be with you this evening, of the comment of his earlier counterpart, his Honor, Mayor Richard Daley of Chicago, who once described an occasion like this as the pinochle of success.

The Conference Board is renowned to all of my colleagues in government today, as it was to all of my colleagues during my years in business really as the authority, the source of unbiased, unvarnished counsel and advice. I have always associated with the view that expert advice is a comfort, even when it’s wrong. It is rarely wrong when it comes from the people at the Conference Board.

President Reagan used to say that an economist is someone who sees something work in practice and wonders if it works in theory. But he wasn’t talking about Gail Fosler or Dick Cavanagh, or any of the people with whom you are so fortunate as to be associated here.

So it is a humbling experience to be with you. Now, humility, you may have read, is deemed a cardinal virtue in this administration. Washington is having real trouble deciding what to do with us. The Washington Post, in what I thought was a somewhat snide column early in the administration, counted up the number of times the President or others on the crew had spoken of the need to avoid arrogance, to maintain a pose of suitable humility, and defined it as "the flamboyant humility of the Bush administration." I guess they have spent too much time covering people of hubris to know quite how to accommodate.

But the President even yesterday, as he gathered the senior management, some 3,000 or more of the federal government in Constitution Hall, reminded us yet again of the need to approach our duties as I approach this evening, with some modesty.

This comes rather naturally to some of us, and this was not the only reminder I have received. Probably the most graphic one came a couple, three months ago, when I was bumped at the last minute from "Good Morning America" in favor of live liposuction. One of those important, perspective-setting life lessons.

We are humble about the assignment that the American people have given to President Bush, and that he in turn has given to some of us. But lately, our humility is matched by a genuine sense of fulfillment in the work we do. Particularly lately, in the last month, I hope that even the most skeptical among you has felt some measure of appreciation for the swiftness and decisiveness with which this government has proved that such an enterprise can act when called upon to do so.

And the degree of bipartisanship and comradeship that I have been able to witness, across the branches of this government, has really been quite startling. I have seen long-time -- maybe lifelong -- antagonists share tears, embraces. I have seen spontaneous eloquence of a kind that is common in your country, Mr. Chairman, but all too infrequent, I think, in the halls of American government.

We have seen the leadership of both parties in Congress face restlessness and challenge for the way in which they have frequently compromised and come together. This in other ages was known as statesmanship, and it has re-emerged in our Republic under the direst of circumstances, and it is something for which I believe all citizens of this republic ought to be very grateful.

Now, I want to speak tonight of our fiscal and economic affairs. And I take as a salient point of departure this very bipartisanship that I have just applauded. The bipartisanship you see in Washington, I am here to testify, is authentic. It is uplifting. It is efficacious. And it is expensive.

By the time that a bipartisanship majority or a consensus has been assembled, quite often costs have been escalated to bring on board those who were at first hesitant. And so we are now spending, you may have noticed, a lot of extra money, a lot of unforeseen money.

The good news is we had an awful lot of it to spend. The American fiscal situation has probably never been so strong as it is in calendar 2001, as it was on September 10th. With all the events of this year, we will run an enormous surplus, either the second- or third largest in American history -- even after the impact of recession and extra spending up through September 30th.

The President favors conditions of budgetary balance, and -- particularly looking ahead to the unfunded liabilities of our nation -- surplus, and the reduction of outstanding national debt against the day when those bills come due, and has been pursuing a balanced fiscal policy that included tax reduction for long-term growth, debt reduction, and moderate spending growth to make those first two objectives possible.

He had always listed, throughout his campaign and since, the reasons why the nation might depart from this policy, reasons he had given as acceptable for running fiscal deficits: for war, recession, or emergency. As he said to me in mid-September, "Lucky me. I hit the trifecta."

And it is quite likely, now, that in fiscal ‘02 we may run a deficit, very modest by comparison to those of the past, possibly something in the two digits. This will depend on whether a stimulus package -- and I will say a little about that in a minute -- is passed, and at what size. But this would not be a startling thing.

But there are risks of things far worse than a temporary, relatively modest excess of spending over revenue, because we have suddenly exchanged in Washington a climate of, and a content of, reasonably firm restraint about spending the taxpayers’ money, for, at least temporarily, a climate of virtually no restraint.

If the popular fictional producers on Broadway had wanted to write a truly boring show, they might have chosen to call it "Springtime for Spenders." Well, that show has opened in Washington, and the fact that very few of us are really interested in matters of government spending doesn’t mean that it can’t have a long run in Washington.

You will remember something called the Social Security lockbox, which was also fictional, but nonetheless very, very effective. It had become a compact between the parties that had proven and was proving far more effective at disciplining spending than all the laws passed in this country since Gramm-Rudman in 1985. It was not embodied in a statute; it was fictional in its nature. Money was not in the box, but the Congress sure was. In fact, probably a better term might have been lockdown; they had essentially locked themselves all down through the common promise to run surpluses at least as large as that attributable to the Social Security system.

Overnight this has changed, and citizens are entitled to ask if anybody is paying attention to that, or planning to do anything about it.

I am associated with a small religious school in the inner city of my hometown. And at the lunch line one day, one of the teachers placed a sign by the bowl of apples that said, "Take only one. God is watching." At the end of lunch, they found a note in crayon by one of the children at the cookie plate, which said, "Take all you want. God is watching the apples."

Watching the flow of money over this last five weeks, you’re entitled to ask, who is watching the cookies? It’s a good question. In this sudden springtime that I referred to, creativity is in full bloom in Washington. Anyone who feared that there was a dearth of imagination in your federal government, I am here to dispel that apprehension.

Congress made available $40 billion for emergency -- I underline "emergency" -- spending, emergency appropriations, to be associated with the war on terror and disaster recovery here at home. We at OMB are responsible for apportioning that money.

We quickly received $120 billion in helpful suggestions as to how $40 billion might be spent. And pursuing the metaphor a step further, many dormant bulbs sprang to life from the bottom drawer of some bureaucracy. Many hardy perennials made their appearance.

You know, with a little imagination, almost anybody’s pet project can be redefined to fit under the very welcoming headings of war or recession or emergency. We have heard from virtually everyone with a K Street address. Shipbuilders, and Amtrak, and farmers.

President Calvin Coolidge once said that almost everyone who came in his office was after something they ought not have. He said, if you just sit dead still for three or four minutes, they’ll go away. Well, he knew a trick I don’t know, because I’ve tried sitting still, and they don’t go away.

Tomorrow, we will release the next installment, our proposal to Congress for the second $20 of that $40 billion that I mentioned. And I think this money will be well spent. This is money that must be spent. We must err on the side of action and caution in pursuing the defense of our homeland and the eradication of terror, and the repair of the damage that evil has done to this city and elsewhere.

But many of the ideas that flooded in do not truly address those goals. Many were very opportunistic. And the worst of them, in my judgment, would be those that led to an expansion of the permanent infrastructure of government. And this is a very serious risk of our present day, which needs to be avoided at all costs. These are the cookies some of us must watch most carefully.

In addition to the emergency package, another very inviting flowerpot in this springtime for spenders is the idea of fiscal stimulus. The President has strongly endorsed this idea, believing that here, too, we must err on the side of action.

Our economic forecasts are reasonably temperate. We are looking for a modest contraction over a couple, three quarters, to be followed next year by growth. We haven’t finalized our forecasts, or the assumptions on which the next budget will be written. Things are just in too much flux. But we do not differ widely from the private sector forecasts that you have all been reading. And the President thinks that that is risk enough to warrant additional stimulative action.

But it is very important that it be defined and bounded. And so he has suggested that it must be limited in size -- you know the numbers; $75 billion at the top end. It should be limited in character -- tax relief, principally or entirely, to balance the spending which is already in train. It needs to be national and macroeconomic, not sector-specific or microeconomic.

And let me just digress for a moment to talk about some of the ideas that are extant on this subject. The administration engaged in a very vigorous intervention to rescue the airline industry from at least the potential of collapse in the immediate aftermath of the attacks. It was a very real possibility; it appeared that, either due to business losses or uninsurability, or both, service to the public, not to mention the confidence of the public, might be very, very substantially diminished. And so your government acted, with too little information and too little time, but acted in a way that I think will stand the test of time.

But now, having done so, come the echoes, and the calls, for what some would urge is similar treatment. Rental cars have been heard from, travel agents, hotels -- I’m sort of losing track.

The policy of the administration really must be as I mentioned. Having addressed the essence of the problem, the center of the problem, the point in the lake from which all the concentric ripples -- which are very real -- have flowed out and damaged these other industries, the remaining task of policy must be national and macroeconomic in character. That is what the President suggests. And that really ought to bound the debate that is now going on.

Let me say just one other thing, because I think there is an occasional point of confusion. The administration is also exploring possible intervention to make certain that terrorism insurance remains available. This we do not see -- and nor should you see, I submit -- as a sector-specific activity. This is not about the insurance industry. This is about all their customers in the entire economy that they insure. And so we are working with the Congress, listening to the industry and all the affected industries, about the best way to see that commerce can go on, economic activity can continue, without open-ended exposure, to try to restore and return a functioning market that can price that risk in the new climate.

So, stimulus bounded in size, in its character and nature, and by the need to be neutral across industry and national in scope. Finally, and I think most importantly, all these measures should be limited in duration, in the duration of their economic and fiscal impact, lest we compromise the hard-won long-term fiscal strength which, frankly, this government inherited, and which it was, I think, succeeding in preserving and extending. This must continue.

True, we have two new overriding goals of public policy. They will be expensive. Countering terror and defending our homeland meets Sir Winston’s definition of the first goal of government, requiring no justification and brooking no dissent. And we will treat them that way in the budget we submit, and perhaps in future supplemental requests.

But dealing with these two imperatives, and repairing the evil the damage has done, cannot simply be layered on top of the edifice of government that we have known. Beyond these imperatives, all else is secondary. All else.

And this, I suppose, will lead to some disagreements, which I look forward to. But folks in Washington who may have struggled in the past to differentiate between priorities, who couldn’t tell a truly urgent public need from something else, maybe will have less trouble doing so now.

This will be a difficult debate. I don’t doubt that the urgency, maybe the bipartisanship, that has served us well in these last few weeks, may fray and erode. I hope not. But if difficulty comes, this President and those of us who serve him, I think, will take it on gladly.

Edward R. Murrow said, "Difficulty is the one excuse history never accepts." We will not accept it either. We would appreciate your expert advice, as we have always learned to expect from the Conference Board, but likewise, your support for decisive government action with a long-term perspective at this time of national peril.

Thank you very much.

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