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dollar of sales they were roughly unchanged from the high rate of 1965. Net income per farm rose more than 10 percent.

The single most meaningful measure of economic well-being is real disposable income per person—the after-tax purchasing power in stable dollars, available on the average to every man, woman, and child. It rose 31/2 percent or $89 per person in 1966. Although this advance was somewhat smaller than in 1965, it was still three times as large as the average yearly gain in the 1950's.

February 1961 launched the strongest and most durable economic expansion in our economic annals, and it still continues.

Almost 9 million jobs have been added in the last 6 years.
The rate of unemployment has fallen from 7 percent in early 1961
to under 4 percent. The rate for white adult males fell from 5
percent to 2 percent; for Negro men, from nearly 12 percent to
less than 5 percent.
Early in 1961, more than two-thirds of our major labor markets
were "areas of substantial unemployment”; today only 8 of the
150 are so classified, and 66 have unemployment below 3 per-

cent.
• While total population rose 11 million between 1961 and 1965,

the number of Americans in poverty declined 51/2 million, and probably fell at least another 1/4 million in 1966. (The poverty

definition is adjusted for the increase in living costs.) • Our gross national product (GNP) has grown 50 percent in 6

years. In constant prices, the gain has averaged 51/2 percent a year. The physical output of our factories and mines is up over

50 percent.
• Private output per man-hour in 1966 was 19 percent higher than

in 1961.
The 6-year addition to our gross stock of private productive
capital—machines, buildings, transportation equipment, land

improvements, and inventories—is valued at $220 billion.
• American families have added $470 billion to their accumulated

financial assets. They have added $150 billion to their debts. So their net financial position is $320 billion stronger than 6 years ago.

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OUR ECONOMIC PROBLEMS

Prosperity is everywhere evident. But prosperity is never without problems, and-in 1966—some of them were serious.

SOME LEADING PROBLEMS

1 Economic progress still left far too many behind.

Nearly 3 million workers were without jobs at the end of 1966.
Perhaps two-thirds of them were “frictionally” unemployed :
new entrants to the labor force in the process of locating a job;
persons who quit one job to seek another; workers in the “off”
months of seasonal industries; those temporarily laid off but with
instructions to return. Their unemployment will be temporary;
many were drawing unemployment insurance.
But most of the remaining third will wait a long time for a steady
job. They are the "hard-core” unemployed—lacking the neces-
sary skills to find other than intermittent work; the victims of past
or present discrimination; those unable or unwilling to move
from depressed areas and occupations; the physically or emo-
tionally handicapped.
Another half million to one million potential workers were not
even counted as unemployed. Many had long ago abandoned

any search for a job. Some had never tried.
• But even among those who worked year-round, some 2 million

breadwinners—particularly the low-skilled with large families
earned incomes insufficient to support a minimum standard of
decent subsistence.
And 61/2 million families were poor because the heads of their
households were unable to work: either aged, severely handi-

capped, or a widowed or deserted mother with young children. Those left behind used to be called the "invisible poor.” But an awakened public conscience has sharpened the vision of most Americans.

2. Price increasesalthough less than in many comparable periodsstill were greater than we wanted or should long tolerate.

It is tempting to blame the creep of prices on the greed of producers or the irresponsibility of labor-or Government policies or bad weather-or economic disturbances abroad. Some of the price rise may have been due to each. But the main causes lay elsewhere:

• Some can be traced to imbalances created by the special pressures

of Vietnam procurement and booming private investment. • The spurt of demand-partly real, partly psychological—that fol

lowed the step-up of our Vietnam effort in mid-1965 simply exceeded the speed limits on the economy's ability to adjust. Our resources were sufficient for the task; but the sheer speed of the advance strained the ability of industrial management to mobilize resources at the required pace.

• Some price advance was the inevitable cost of the adjustments required in recovering from a decade of slack:

Wages had to be raised sharply in underpaid occupations, which previously held their labor only because the alternative

was no job at all.
-Producers in once stagnant, low-profit industries saw oppor-

tunities for expansion and found it possible to raise prices and
earnings in order to attract needed capital.
-Demand pressed harder on skilled occupations and pro-
fessional services where we had trained too few persons to

meet the needs of a high employment economy. Some price increases would still have occurred had we moved at a

steadier pace.

But these price increases could have come slowly enough and have been small enough not to threaten a chain reaction of wages chasing other wages—wages chasing prices—prices chasing wages—and prices chasing other prices.

It is this spiral we must and can avoid. But it will require responsible action on the part of all.

3. Achieving equilibrium in our balance of payments remained a problem, in spite of strong new measures.

The costs of Vietnam required us to spend many more hundreds of millions of dollars beyond our shores. At the same time, the spurt of demand caused our imports—especially of capital goods—to soar.

We are determined to continue our progress toward equilibrium.

4. Tight money and high interest rates concentrated the burden of restraint on housing.

Interest rates in 1966 were as high as at any time in 40 years. They were pushed there by an insatiable demand for credit, straining against a deliberately restricted supply. Monetary policy in 1966—like tax policy—was properly aimed at slowing down an economy expanding too fast.

The brakes applied last year worked. But tight money worked painfully and inequitably. It cut construction by more than $8 billion during 1966. Its impact was equivalent to a heavy across-the-board tax increase, but with most of its effect concentrated on a single industry.

FINDING SOLUTIONS

We will move this year toward solutions for these problems and others. But they cannot all be completely solved in 1967.

Lifting the Burden on Housing

Now that the economy's advance is again more moderate, the burden of tight money is being lifted. Interest rates are still extremely highbut they are moving down from their peaks. Credit is still not readily available to all who can make sound and productive use of it—but it is becoming easier to get. More savings are flowing into our thrift institutions and are beginning to be available to builders and homebuyers.

The steps we took last year and those I am now proposing, the steps the Federal Reserve has recently taken and is continuing to take to increase credit availability and lower interest rates, should have our housing industry moving smartly forward by the end of 1967, and ready for one of its best years in 1968. Restoring Price Stability

The advance of prices has already begun to slow. Wholesale prices in December were below their levels of August.

The more moderate pace of economic advance now underway, which the policies I am recommending are designed to maintain, should. further diminish inflationary pressures.

We cannot rescind all of last year's increases in costs, some of which are still spreading through our structure of prices. Price stability cannot be restored overnight. But we will be making good progress toward price stability this year. Improving Our International Payments

We have recently announced stronger voluntary balance of payments programs for 1967. Our policies to constrain economic expansion to a sustainable pace should permit an improved export surplus.

I am now recommending further steps to strengthen our external payments. Yet so long as we remain heavily engaged in Southeast Asia, we will have a balance of payments problem. Combating Poverty

We will continue to attack poverty and deprivation through such weapons as

- Community Action and Head Start;
-rent supplements and child nutrition;
-aid to elementary and secondary education in poverty areas and

the Teachers Corps;
-the Manpower Development and Training Act, the Job Corps,

the Neighborhood Youth Corps;
-Medicare, Medicaid, and neighborhood health centers;
-measures to end discrimination in jobs, education, and public

facilities;

a

—the expanded coverage enacted last year for a higher minimum

wage. I am proposing that our attack be reinforced with new weapons in 1967.

Yet, with old weapons and new, the war on poverty will not be won in 1967-or 1968. There is no wonder drug which can suddenly conquer this ancient scourge of man. It will be a long and continuing struggle, which will challenge our imagination, our patience, our knowledge, and our resources for years to come. Our capacity to stay with the task will be a test of our maturity as a people.

USING THE GAINS OF GROWTH

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From early 1961 to the end of 1966, our GNP rose an average of $44 billion a year. About $9 billion a year was price increase. Of the balance

• An average real gain of $10 billion a year (in 1966 prices) came

from putting idle men and machines back to work. • An average real gain of $25 billion a year (in 1966 prices) came

from the growth of our resources: a larger work force, more and

better capital and management, higher productivity. Further gains from putting idle resources to work will now be harder to achieve.

But our annual dividend from growth has meanwhile become more generous. In 1967 it will add $30 billion at today's prices to our po

. tential output.

Our economic policies must assure that we realize this potential dividend-and use it wisely.

REALIZING THE GROWTH DIVIDEND

To ensure our full dividend from economic growth requires that markets for goods and services expand steadily and adequately—but not excessively. In recent years, we have tested and refined the power of fiscal and monetary policy to stimulate or moderate the expansion of total demand.

During 1966, Federal expenditures were expanding rapidly. But tax policy worked to counter their impact.

Federal expenditures in our national income accounts grew $19 billion in calendar year 1966, reflecting the step-up in national defense; in Social Security, Medicare, and related payments; and in grants to State and local governments. They added strongly to private pur

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