The president's State of the Union message was less noteworthy for what it said -- i.e., that we will draw the line at Soviet expansionism in the Persian Gulf -- than for what it neglected to say. In many ways, what was not covered was more important. For instance:
1) In 1980, our payments to OPEC for imported crude will be running at the rate of nearly $100 billion per annum. This compares to about $6 billion before the 1973 embarbo. Over the next five years, the United States will pay out about $500 billion dollars for a product it burns into the atmosphere every day.
The value of all companies listed on the New York Stock Exchange is approximately $900 billion. The idea that over the next five years we would mortgage to OPEC half the productive capacity of this country, built up over 200 years, to pay for oil is obviously absurd. This situation is as dangerous to our system, and as unacceptable to our security, as would be a Soviet presence in Saudi Arabia.
2) Domestic inflatin and our economic posture are a baisc factor in our international security posture. Our economy is the foundation upon which our security is built. This foundation is shaky. The United States cannot finance a rearmament program of the type envisaged by the administration by simply increasing its budget deficit. The United States cannot hope to convince OPEC to hold on to its dollars if we continue to give in to runaway inflation that has two main components: energy consumption and government spending.
The United States is not a credible partner, economically or militarily, unless it takes concrete actin to reduce drastically energy consumption and to strengthen its currency. Coming off the high end of a business cycle with a $40 billion deficit is not reassuring.
3) There are only two ways to reduce domestic energy consumption both drastically and soon: gasoline rationing or increasing the price of gas with a substantial tax. Ultimately, both may be needed. With the additional financing requirements for defense, a gas tax seems to be the most logical answer.
Of all the presidential candidates, only Rep. John Anderson has had the courage to advocate what many see as only common sense. A 50-cent-per-gallon gas tax would raise aproximately $55 billion per annum, could reduce consumption by about 10 percent and is an absolute minimum. A $1-per-gallon tax, phased in over three years, would be more appropriate. In Europe, gasoline taxes amount to $1.50 to $2 per gallon, with a per-gallon price at the pump of $2.50 to $2.70. Europe's per-capita consumption is 40 percent that of the United States', not only because people drive less but because long ago they switched to small, fuel-efficient automobiles.
The proceeds of the gas tax should be used partly to fund increases in defense spending, partly to lower taxes on business in order to increase capital investment and productivity and partly to help lower-income groups by financing mass transit and lowering Social Security taxes.
4) A significant gas tax would do more to strenghten the dollar and give OPEC long-term confidence in our currency than any other single economic action available to us. It should set the stage for a dialogue with OPEC aimed at changing our payments for oil from freely convertible dollars to long-term bonds guaranteed by the U.S. government. The proceeds of these bonds could be used only to purchase American commodities or manufactured goods over a period of years as the bonds mature.
As an inducement to such an arrangement, we should be willing to commit part or even all of our current gold reserves. At current market prices, the United States has approximately $250 billion worth of gold; sitting on a mountain of gold will do us no good if our economy collapses. We should be willing to commit the only commodity we have that has risen in value as much as oil as part-payment for oil, if OPEC will accept long-term bonds, with limited convertibility, for the balance.
If such an arrangement were negotiated with one or two members of OPEC, such as Saudi Arabia and Kuwait, others might follow later. The producers must understand that we will be driven to much harsher choices if the bankruptcy of our society is the only alternative.
5) Our commitment to protect the oil resources of the Middle East benefits Europe and Japan at least as much as it benefits us. They should, therefore, pay their fair share. As part of the mutual security arrangements with Egypt, Israel, Saudi Arabia and Jordan, any American troops stationed there should be evenly matched by European forces financed by Europe and Japan.
The U.S. nuclear umbrella must stay over Europe, but the free ride on the ground must stop.
6) Committing large sums for training young blacks, Puerto Ricans and Chicanos is meaningful only if jobs are available to them once they are trained. This is not the case. We have accepted the notion that we are a service economy instead of a manufacturing economy. This is highly questionable.
We need a balanced economy, both services and manufacturing -- with the emphasis, however, on manufacturing. This is the best way to provide employment opportunities to the minorities and the underpriviledged. Such a policy may require certain limitations on free trade, which can be a price worth paying. Free trade, in any case, is something we practice while others only preach it.
7) The economic forces being generated in the United States will increasingly divide the country between haves and have-nots. The region where most of our oil and gas are produced will now be the recipient of most of our defense contracts. In addition to the severance taxes charged by the oil-producing states to the consuming states, there will be the drain of tax dollars to Georgia, Texas and California for defense. Half this country -- the half where the sun shines -- will produce oil and guns; the other half -- the urban areas of the Northeast and Midwest -- will produce unemployment and slums.
The windfall profits tax could not be applied to the oil-producing states themselves because of congressional resistance. At a minimum, a certain proportion of defense contracts as well as subcontracts of the synfuel programs should be mandated to the urban, impacted areas of the Northeast and Midwest. If we are to survive as a Union of States, then there has to be a balance as to burdens and benefits.
8) This country faces major challenges in the coming decade without a foundation of consistent domestic or foreign policy for a base. Double-digit inflationis not abating, nor is a meaningful reduction of energy consumption taking place. The wage-price guidelines are as irrelevant to wages and prices as the windfall profits tax is irrelevant to production and consumption of energy.
Wage and price controls are not a long-term solution, but a 6-to-12-month wage-price freeze should be considered to provide a relatively stable pause during which the administration and Congress can debate and arrive at a sensible, interrelated set of policies for the 1980s.
Policy is a fabric, a tapestry in which all strands are interwoven, linked to each other, clearly describing a basic posture and direction. We have no such tapestry. The State of the Union message concentrated on what might happen but is not likely to -- i.e., Soviet expansion into the Middle East oil fields. It ignored that which is inevitble but which we have no answers for -- i.e., reducing energy consumption and paying for what we use, reducing inflation and paying for defense, protecting the dollar and giving a future to the young black, keeping this Union viable and united.
Those are some of the inevitables we face, and those are only a few. What is certain is that we are living at the end of an era: the era of Keynesian economics, growth with limited inflation, cheap and plentiful energy, U.S. economic dominatin of the Western world. If we are to be in control of our destiny as a viable democracy in a state of transition, it cannot be done with business as usual at home.
The American voter is usually far ahead of his leaders. He is entitled every four years to his most precious right: namely, to ask those who propose to lead just what it is they propose to do. The answers, so far, both by Republicians and Democrats, have not been inspiring.