    [Public Papers of the Presidents of the United States: George H. W. Bush (1991, Book I)]
    [February 6, 1991]
    [Pages 117-127]
    [From the U.S. Government Publishing Office www.gpo.gov]

    [[Page 117]]

    Remarks and a Question-and-Answer Session at a Meeting of the Economic
    Club in New York, New York
    February 6, 1991

        The President. Thank you so very much. And Dick, thank you, sir, for
    inviting me to this most prestigious organization. May I pay my respects
    to Secretary Brady who is with us, came up with us from Washington, and
    in my view is doing an outstanding job for our country. And I'm just
    delighted he's here.
        And I want to thank one other, Ray Price, an old friend who I
    understand does a lot of heavy lifting for this organization--a lot of
    the organization. And each one of you, all of you--and I want to thank
    you not for standing up to greet me, for heaven sakes, but for standing
    up for all those fighting against aggression tonight in the Persian
    Gulf, and especially all the coalition forces, but especially the
    fighting men and women of the United States of America.
        Looking around at this dais and at the audience, I wonder who's home
    minding the GNP. [Laughter] This is a classy, star-studded audience, and
    we are very pleased, again, once again, let me say, to be here.
        This year, as Dick said, marks a defining hour--a moment of truth--
    for this generation, for this country, and I'd also add for the United
    Nations. We were patient and we were cautious. But when the moment of
    truth came, America and the world did what was moral, what was just, and
    what was right.
        We said the occupation of Kuwait would not stand. And 3 weeks ago
    tonight, at just about this time, we announced that the liberation of
    Kuwait had begun. Three weeks ago tonight, allied forces moved to end a
    conflict that we did not seek and that we did not begin. But ladies and
    gentlemen, it is one that we and our allies will finish. And I can tell
    you firmly that tonight we are on course and we are on schedule. Mission
    by mission, hour by hour, Iraq's capacity to wage war is being
    systematically destroyed by American and coalition forces.
        The road to real peace will be difficult--long and tough, I'd say.
    But we will prevail. And when we do, we will have before us an historic
    opportunity. From the confluence of the Tigris and the Euphrates, where
    civilization began, civilized behavior can begin anew. We can build a
    better world and a better new world order.
        Tonight the world is united by shared commitments, shared interests,
    shared hopes. Our efforts will determine the kind of legacy that we
    bequeath our children, the kind of world they will live in. And so, let
    us rededicate ourselves to the ideals in which our troops so resolutely
    believe. Because in the final analysis, America and her partners will be
    measured not by how we wage war but how we make peace.
        I said in my State of the Union Address that ``we are the nation
    that can shape the future.'' And shaping the future is a job that begins
    at home. And so I want to talk to you tonight about the economy. Long-
    term economic growth is central to the quality of life for America's
    families, quality of decency for America's communities, and to the
    quality of leadership America can bring in its special role as the
    world's leading diplomatic, cultural, and economic power.
        Just over 8 years ago, when we came out of a recession, the longest
    peacetime expansion in American history began. Working together, we
    created millions of new jobs, cut both interest rates and inflation in
    half--a triumph driven by the energies of the most dynamic and diverse
    economy on Earth.
        Against this background, the events of 1990 served to remind us that
    even a fundamentally healthy economy faces the risk of temporary
    disturbances, short-term setbacks. For example, when Iraq invaded Kuwait
    in August 1990, it was a shock to the world's conscience. Business and
    consumer confidence fell. We all remember the rise, the dramatic rise,
    in oil prices. Inflation worries rose, and interest rates reflected an
    extra risk premium. Taken together, this produced a very real blow to an
    economy that had already slowed down.
        But make no mistake: The current reces-

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    sion does not signal any decline in the fundamental, long-term health or
    basic vitality of our economy. America is a can-do nation. And America
    is home to the largest, most productive economy on Earth. Our
    administration's economic policies are designed to strengthen the
    foundation for a solid recovery and guarantee the highest possible rate
    of sustained economic growth. I described the three pillars of that
    foundation in the State of the Union Address: encouraging economic
    growth, investing in the future, and giving power and opportunity to the
    individual.
        Encouraging economic growth means reducing Federal borrowing by
    cutting the growth of Federal spending. That's why we sent Congress a
    budget proposal that holds spending growth below the rate of inflation--
    the lowest increase in spending in 5 years. And that's why the budget
    law was armed with real teeth--pay-as-you-go provisions and enforceable
    spending caps--aimed at cutting the growth of debt by nearly half a
    trillion dollars over 5 years. True, the deficit is high, unacceptably
    high. The S&L costs, the war, the economic decline haven't helped a bit.
    But thanks to the budgetary reforms that began last fall, the deficit
    will be virtually eliminated by 1995.
        To ensure economic growth, this administration will also redouble
    its efforts to weed out counterproductive government regulations.
    [Applause] I thought there might be some enthusiasm for that one because
    I really believe that the market must be allowed to work without
    unnecessary Federal intervention.
        We must also fuel economic growth by providing incentives to promote
    private savings and job-creating investment. Our budget includes tax-
    free family savings accounts, penalty-free IRA withdrawals for first-
    time home buyers, and a reduced tax for long-term capital gains. And
    that will help bring down the cost of capital, which will help American
    businesses compete at home and abroad.
        We must also renew our investments in America's future. And that
    means investing in the education and safety of our children, investing
    in the infrastructure of our transportation system, investing in reforms
    for the financial services system, investing in high technology and in
    space.
        The budget proposal that we sent up there to Capitol Hill has been
    well-received. I'm not saying we don't have any critics--[laughter]--but
    when you look back over your shoulders, I think it's fair to say this
    one has been well-received. It includes a record $76 billion for
    research and development, one of the most important investments we can
    make in the long-term economic and military strength of our nation. It
    also recognizes that government must help translate the results of basic
    research into the generic technologies that strengthen our industries
    and improve our lives. This isn't an investment in machines; it's an
    investment in people--in the scientists, the engineers, and the
    educators who will produce the advances of the 21st century. And
    together with the Nation's Governors, we've launched a comprehensive
    effort at reform and restructuring, aimed at producing an educational
    renaissance.
        We've still got a long way to go. But we won't sell our kids short.
    As one observer said of the troops manning Patriot missiles in the Gulf:
    ``In one day, they wiped out the idea that young Americans are not smart
    enough for the 21st century.''
        Investing in the future--it also means modernizing our financial
    system, which is exactly what our able Secretary of the Treasury
    unveiled yesterday with our banking reform proposals. These reforms will
    continue to protect every insured depositor in America. But they will
    also address the reality of the modern financial marketplace by creating
    a U.S. financial system that protects taxpayers, serves consumers, and
    strengthens our economy. We don't want to be back again in a couple of
    years to do this all over again. That's why halfway solutions won't do.
    We have to do the whole job, and we have to do it now.
        The challenges ahead are great. But by any historical standard, the
    current downturn is expected to be mild and brief. And today in America,
    the bottom line is this: While our economy may be beset by difficulty,
    it should not be beset by doubt.
        A healthy sense of confidence is backed by the facts. Inflation has
    been kept under control. Interest rates are beginning to de-

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    cline further. The trade deficit declined for the third year in a row.
    Inventories have been kept down, reducing the need for many production
    cuts to work off excess inventory. Because our major trading partners
    are seeing relatively strong growth and the price of U.S. exports on
    world markets remains low, the pace of U.S. exports will continue to set
    record highs. In spite of many prewar predictions that a Gulf war would
    send oil up to $80 a barrel--and I think we can all remember those
    speculative days--oil prices have fallen substantially since their peaks
    in October, especially since the start of Operation Desert Storm. I
    believe that by standing up to aggression in the Gulf we are
    guaranteeing the future security and the stability of that entire area,
    an area that is so vital to global economic prosperity.
        Later this month, the administration will release our National
    Energy Strategy. The strategy will propose Federal, State, and private
    sector initiatives to increase energy efficiency and conservation. It
    recognizes the need for creating a clean, safe environment. And it also
    recognizes that we must find more domestic oil and gas, and use more
    alternative sources of energy.
        Our strategy is designed to reduce our vulnerability to foreign oil
    supply disruptions. Now, some will argue that reducing our energy
    vulnerability is not enough and that we should embark upon more drastic
    measures designed to achieve total energy independence. That's down the
    road, because the reality is we are a long way from total energy
    independence and we must avoid unwise and extreme measures that would
    seriously hurt American consumers, American jobs, American industries.
        Yes, we've got to begin reducing our energy vulnerability now. Our
    new strategy will do that because it is prudent, it is balanced, and it
    is comprehensive.
        And finally, don't forget another underlying strength of our
    economy: the flexibility of America's free market system. To preserve
    this flexibility, we must keep our markets open and hold government
    restrictions to a minimum. This, frankly, is not easy. I will continue
    to oppose protectionism. I will continue to fight for a level playing
    field, so that international trade is free and fair.
        And that is what we are doing in this Uruguay round of trade
    negotiations--trying to lower the barrier to the free flow of goods and
    services around the world. And that is also what we seek in the
    negotiations that we will launch this year with Mexico and Canada to
    create a North American free trade area. And our Enterprise for the
    Americas Initiatives--and again I salute Secretary Brady for his key
    role in all of this--is intended to extend the benefits of flexibility
    throughout the Western Hemisphere.
        To build a new, peaceful world order we must secure the democratic
    triumphs of the past year. I'm thinking especially of the Revolution of
    '89. The new democracies in Central and Eastern Europe inspire us all
    with their commitment to free societies and free market economies. But
    look, they face daunting obstacles from the Communist past as well as
    severe new problems brought on by lost markets and brought on by higher
    oil prices.
        Our administration is committed to help, and we're committed to
    lead. Despite the burden we are bearing in the Gulf, I've asked Congress
    for $470 million in new assistance for Central and Eastern Europe--a
    substantial increase over last year's request.
        Four decades ago, the Marshall plan helped build a West European
    zone of prosperity and security that greatly benefited the United
    States. Together with our Western European partners, we can now extend
    this success to create a Europe whole and free--an entire continent of
    prosperity and stability that fulfills the vision of that Marshall Plan.
        With their great human potential and commitment to market economic
    reform, Central and Eastern European countries offer real opportunities
    for U.S. trade and investment. And I urge American business to seize
    these opportunities, as many are doing.
        I see Jack Welch over here. Well, G.E. weighed in with $150-million
    joint venture with Tungsram in Hungary. Drew Lewis, who is not here with
    us tonight--but his Union Pacific stepped up to the plate with an
    impressive effort to modernize Poland's railroads. And Bell Atlantic and
    U.S. West

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    have begun a $80-million telecommunications venture in Czechoslovakia.
        History is moving decisively in favor of freedom, thanks in large
    part to American ideals and perseverance--the touchstones of the modern
    world which the emerging democracies are now striving for: free markets,
    free speech, free elections. America has lived by these tenets for over
    200 years. And they've given us both our power and our purpose.
        And that is why America and our allies are going to prevail in the
    Gulf. And that is why America and our partners are going to prosper in
    the years to come. You see, I firmly believe that our best days are
    before us. And I can assure you, America, and the world that we will
    continue to fight for principle, we will continue to do the hard work
    for freedom.
        Thank you all very much. I'll be glad to take your questions. And
    may God bless the troops in the Gulf and the United States of America.

    Free Trade

        Q.  Mr. President, every year there are 80 million new more mouths
    to feed in this world. You and your Presidency have been sensitive to
    their needs--not only to help feed them, as we can, but more importantly
    to help them economically to be able to feed themselves. Recently you
    sent Carla Hills to the GATT negotiations, and she has done a superb job
    of moving the world's food trade to the top of the agenda at GATT in an
    effort to try to get more market-oriented agricultural trade which would
    help enormously during the next decades in getting food produced where
    it should be produced and into the mouths of hungry people.
        Now, while we try for free trade, just about every country we
    compete with is using managed trade in a democratic, socialist
    mercantile system replete with export subsidies--like Japan and the EEC.
    In view of the fact that they seem to be rejecting our desire that they
    move toward freer trade, do you think GATT will ever be able to solve
    the problems of that kind, or will we have to go to a managed industrial
    policy like most of the Western world in order to compete?
        The President. Well, Dwayne, I don't want to give up on the GATT
    round. I go from optimistic to sometimes pessimistic. I still believe
    that we have an opportunity to get a successful conclusion of the GATT
    round. Whether it will be done by the time our fast-track authority runs
    out, I'm not sure.
        But I believe that we can get the kind of conclusion that will avoid
    making the situation that you've described even worse. Because I don't
    want to see us resort to the kind of government-mandated targeting and
    the government controls that go with the kind of economies that you have
    described. So, I am still hopeful that we can get the successful
    conclusion. The major hang-up on the GATT round involves agriculture.
    And we have had a great deal of difficulty getting some of our friends
    in Europe, and to some degree the Japanese, fully on board in terms of
    agriculture.
        Carla Hills is tough as nails, and she will continue to work hard to
    get this done. But I think we ought to--before we start going down the
    road of managed economies and targeted products like some of the others
    that we compete with do, I think we ought to go all-out to see that we
    can successfully resolve that round.
        At the same time--I was talking to David at dinner and to Rand--we
    are working hard on this new North American free trade zone. And I
    believe that, even if GATT gets hung up for a while, we should keep
    pushing hard for a free trade zone with these three countries--Canada,
    Mexico, and the United States. And that would lead, I think,
    inextricably to a hemisphere that is free and fair.
        So, I want to keep pushing on that. I worry about the problems that
    you throw out there, but I'm not prepared to give up yet on GATT. And we
    are weighing in heavily with the EC, with France, with Germany, and with
    Japan so we can reach a successful conclusion.

    Japan and Germany

        Q. Mr. President, wars are often historic moments in the
    relationship among nations. In this war, our two largest economic
    partners, Germany and Japan, appear to have

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    become our two most reluctant and troubling political partners. Will
    this adversely affect our economic relationships with these two
    countries or, on a brighter note, do you think that the war will make
    Germany and Japan realize the need for closer political and economic
    cooperation with the United States?
        The President. In the first place, I believe that it is not fully
    realized that Japan has pledged $9 billion to Desert Storm in addition
    to the billion they spent before we were in the war, and Germany has now
    pledged $5 billion. Those are very generous contributions in my view--or
    appropriate contributions, in my view. And I am grateful to Prime
    Minister Toshiki Kaifu and to Chancellor Helmut Kohl for doing this.
        So, the concept of burden-sharing that has concerned the American
    people on the costs of the war is in far better control than I think
    we've made clear. In other words, I feel comfortable where it is. Now, I
    think we have to recognize that Japan and Germany have constraints,
    constitutional constraints placed on them as a result of World War II.
        I think if you look around the world and you take a look at the
    Pacific countries, particularly the countries out there, the ASEAN
    countries, there still is some concern about a totally rearmed Japan.
    And that's a sentiment that is shared by many members of the Japanese
    Diet. So, we should not be saying to them, you've got to do more in the
    way of tanks and planes and military force.
        So, I'm hoping that the world will see that they are pitching in and
    will continue to pitch in as these costs mount, because clearly we are
    doing a lot of work that benefits the people in both those countries.
    They are both dependent on foreign sources for oil--both of them heavily
    dependent on oil from that part of the world. But I think they
    understand that.
        In terms of the long run, it is my hope that because we have taken
    this lead role in the coalition--because we have put together what I
    think history will show is an historic, albeit diverse, coalition--that
    the people of Germany and the people of Japan as well as others around
    the world will see a United States that has a vastly restored
    credibility, and that that will help us, I think, as we talk to them
    about other kinds of problems.
        So, I don't see anything out of this that should diminish our
    interest in continuing strong economic relations with them. Having said
    that, I'd go back to Dwayne's question. Both--particularly Japan has got
    to give us access, and Germany in agriculture as part of the EC has got
    to give us access to markets. But perhaps our credibility will be such
    because we've bitten off this really tough--decided to bite off this
    tough assignment and complete it, that we will have some--I wouldn't say
    leverage on them but persuasiveness that will lead to a more harmonious
    trading relationships.

    Soviet Union

        Q. Mr. President, every European nation now has a comprehensive
    trade treaty with the Soviet Union including investment guarantees.
    Western Europe this year will do eight times as much business with the
    Soviet Union as we do, and in manufactured products almost 30 times as
    much.
        Now, looking ahead, and with special reference to the problems you
    see involved in the negative attitudes of Congress, how do you see the
    possibility of U.S. business and industry catching up with the long lead
    that the Europeans have in trade with Russia?
        The President. Well, right now, Dwayne, as you well know, why, we
    have some big problems. And you've seen the EC pull back within the last
    few days on some of their trade breaks for the Soviet Union. You see the
    pressure mounting in our Congress for me to pull back on most-favored-
    nation and on the moderate steps that we took to include the Soviets or
    to encourage the Soviets to join some of the international financial
    organizations. And that stems from the fact that there is this visible
    repression against the Baltic States.
        A little history: We have never recognized the incorporation of the
    Baltic States into the Soviet Union. And so we have enormous problems
    when we see force used against those three Republics. And it is a big
    problem. And it concerns me deeply, it
    concerns the American people deeply. And there are certain constraints
    on what we

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    can do in moving forward until we get satisfied that this was an anomaly
    and not a new way of life.
        Mr. Gorbachev faces enormous problems inside the Soviet Union.
    You've heard suggestions that--maybe you heard the press conference
    yesterday--the tone of some of the questions: ``Well, you ought to start
    dealing with other leaders.'' He's the President of the Soviet Union. He
    has done wonderful things in terms of reunification of Germany, in terms
    of getting out--of freeing up the Eastern European countries. But he's
    faced with big problems.
        And these are internal affairs of the Soviet Union that I've got to
    be a little careful discussing. But for the United States standpoint,
    we've got to see that no more force will be used against these Baltic
    States and that there can be peaceful resolution to these questions.
    Otherwise, not only will our trade relations be set back, as they are
    now being set back in some European countries, but the rest of our
    overall relationship could undergo a problem. I don't want that. They
    have been steadfast in support of our objectives in the Gulf. And that
    is very, very important. They have lightened up on their sending
    military equipment into this hemisphere, a problem we have always had.
    We're having cooperative work with them in terms of freedom in Angola.
    So, it is to our interest to work closely with the Soviets for many
    things.
        But when we see a repression in the Baltics, it is very hard to have
    business as usual, say nothing about trying to catch up. So I'm very
    hopeful that the representations that were made to us when Mr.
    Bessmertnykh was here will prove to be do-able by President Gorbachev,
    and I am hopeful that we can find a way to move this productive
    relationship forward. But I am not in a position at this juncture to say
    exactly what we can do more positive while we have this big problem of--
    the human rights problem and the problem of this military crackdown in
    the Baltics. It puts us in a very difficult position, and I think the
    Soviet leaders know this. I've talked frankly to them about this, and I
    believe they know it. So, let's hope that these things can go forward
    with a peaceful resolution to the question of the Balts.

    Banking Reform

        Q. Since it's the Economics Club, we have an economics question. In
    reaction to the S&L crisis and in response to new and tougher guidelines
    from banking regulators, many banks have now become ultraconservative--
    some to the point of making no loans at all.
        We all know that sound bank lending is central to stimulating the
    economy and getting us out of the recession. Do you think the regulators
    have gone too far, and do you think the new legislation that we've just
    heard about will stimulate and encourage bank lending in the United
    States?
        The President. To answer the easy part, I think the--less
    controversial part--[laughter]--the new Brady proposal--it will be
    called the Bush proposal if it's successful--[laughter]--should indeed
    renew confidence. Regulatory reform is long overdue. I headed a task
    force when I was Vice President that I thought came up with some very
    sound recommendations for regulatory reform.
        Now Secretary Brady has come up with some recommendations that I
    think are even better. They're more simplified. The Fed manages one set
    of organizations and the new organization under Treasury another. And I
    should think this would renew confidence. I think the interest rates
    coming down should instill confidence. And, yes, I do believe that some
    of the regulators--I'm not sure I can answer it specifically on
    regulations per se--but I think some of the regulators in the past got
    overzealous, and I think that scared some of the banks.
        Just to be fair about it, I think some of the banks made some bad
    loans. [Laughter] And so what I think we're seeing is, in an effort in
    this reform legislation and hopefully as the economy starts coming out,
    a banking system that is fundamentally sound, a banking system that
    deserves the confidence of the American people--and I think these
    reforms will help on that--a banking system that will be able to get
    into other forms of business, as some of our com- petitors abroad do.
    And that, I think, should usher in a whole new era of prosperity
    involving fundamental loaning by these

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    banks.

    Low-Income Housing

        Q. Mr. President, I was talking with an old friend of yours, Tip
    O'Neill, the other day. [Laughter] And he seems to be now one of your
    greatest friends and advocates and supporters of your--particularly of
    your management of American foreign policy in your Presidency. But he
    asked me to ask you--[laughter]--housing is fundamental to our economy.
    The rate of housing and construction is less now than it was in 1982.
    And he feels it ought to be at least 20 percent higher. What do you have
    in mind, if anything, to correct this situation?
        The President. First, let me profess my love for Tip O'Neill.
    [Laughter] And I really, sincerely mean it, as I think many people--I
    know Barbara knows, and I really feel strongly about it--the guy has not
    been well lately, nor has Millie, his wife, who we love dearly. So, I
    will take this opportunity through C-SPAN or whoever to pay my genuine
    respects and affection to him. He knows this. And I think you've phrased
    it very well--we do have a different approach on how housing should be
    done in this country. I think when Tip goes back, he was talking about
    government-paid-for, government-owned housing.
        Our approach is something else. We believe that the best way to do
    it is to have tenant management, encourage ownership, voucher systems.
    We have a program called HOPE, which relates fundamentally to home
    ownership as opposed to Federal ownership. We have put much more money
    in the budget for this. We happen to believe that enterprise zones going
    into low-income areas would do an awful lot to bring business there and
    thus enable people to buy more homes.
        So, I hope that the program that we've put forward, the HOPE
    program, will have the support of many of Tip's former colleagues. I
    have a feeling it will. We'd made a good step on it last year in the
    Congress and got good support from both sides of the aisle. But if Tip
    is referring to the government-owned-bricks-and-mortar approach, we
    think that that has been tried, and we think in many instances it has
    failed. We think it has built misery into the system. You've seen
    programs in St. Louis that at one time looked good, and then they had to
    tear them down in their entirety.
        So, I would like to encourage support for this new approach which
    empowers the people and I think will lead to far more housing.

    New World Order

        Q. Mr. President, you have talked several times about basing the
    future on a new world order. Can you give us a definition of the new
    world order? And if it depends on the collaboration between the Soviet
    Union and the United States, how do events in the Soviet Union affect
    this concept?
        The President. Well, it doesn't depend entirely on it, but it would
    be greatly enhanced by a Soviet Union that goes down the line with its
    commitment to market reform, to private ownership of land, to a free
    economic system, to a system that resists and does not use force to
    assure order amongst the Republics, that goes farther down the road with
    elections and all the openness that I give President Gorbachev credit
    for. And as well as the openness in terms of glasnost and the reforms in
    terms of perestroika--we're going to continue to support those concepts.
    But it was this, it was the farsighted vision of Mr. Gorbachev that
    enabled us to work together in the United Nations.
        Now, my vision of a new world order foresees a United Nations with a
    revitalized peacekeeping function. I think most that follow the United
    Nations see the economic and social side of the United Nations as having
    performed well since it was founded. Most people that follow it find
    that the peacekeeping function for the most part has not been effective.
    And one of the reasons it hasn't is because of the veto in the hands of
    the five permanent members of the Security Council, one of them being
    the Soviet Union.
        When I was Ambassador 20 years ago in the U.N., we hardly ever voted
    with the Soviet Union. Now we're with them on many, many things. So, the
    new world order I think foresees a revitalized peacekeeping function of
    the United Nations. But I cannot and I will not predict a Soviet

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    Union going back, turning its back on reform--perestroika--turning its
    back on glasnost--openness. I don't believe, no matter what the ferment
    in the Soviet Union today, that they're ever going to go back to that.
    And I don't think anyone there wants to go back to that.
        And so it would envision, though, a much more cooperation between
    the United States and the Soviet Union. And on matters of the Gulf, in
    international matters, not bilateral, it envisions a greatly enhanced
    peacekeeping function of the United Nations itself.
        One of the reasons we have so much support for this is that we went
    to the United Nations 12 times. There are 12 resolutions that speak to
    the Gulf, and that has mobilized world opinion. And so when we are
    successful in fulfilling all 12 of those resolutions, I think there's
    going to be new credibility for that peacekeeping function, new
    credibility for the United States. But we should have and should strive
    to have Soviet cooperation all along the way. And that's why I'm not
    going to back off on my efforts to try to improve relations with the
    Soviet Union.
        Then we've left China out of the equation, and we ought not to do
    that. They've been through a difficult time. I took on some shots for
    trying to keep relations from China. I was offended as anybody else was
    by the human rights abuses at Tiananmen Square and spoke out on it. But
    I think it is in the interest of the United States to have continued
    relations with China. And I think it is vital to this new world order
    that that veto-holding member of the Security Council go along and be
    with us on these matters of trying to bring peace to troubled corners of
    the world.

    Soviet Union

        Q. Mr. President, this is a followup question having to do with
    Soviet trade. The Jackson-Vanik amendment, the Jackson-Vanik bill, has
    been in effect since 1972; really, in effect, says that we cannot have
    normal trade with the Soviet Union until they have permitted free
    emigration from their country.
        There's no question but what the Jackson-Vanik legislation has
    played a role in Gorbachev's decision to free emigration. So in that
    sense, it has been a success. Now the emigration rate from Israel is
    about 600,000 a year, which is 10 times more than we asked for. And most
    of the religious organizations that I know are saying they're very happy
    with it and very well satisfied. And as a matter of fact, Prime Minister
    Shamir of Israel has said publicly that he thinks it's totally
    satisfactory.
        There doesn't seem to be much possibility that they're going to get
    around to codifying that, but it's the custom in Russia for 100 years
    that emigration is an administrative decision. I'm wondering,
    recognizing the problems in Congress, do you think there's a
    possibility, in view of the fact that they have fulfilled that
    commitment, that Congress will authorize business with the Soviet Union
    on the same basis that we trade with other countries somewhere along the
    line here?
        The President. The provisions of--what they have agreed to do is
    pass legislation that will, I think as you put it, codify this. They
    have not been able to do that. I think they've got some internal
    problems inside the Soviet Union on this. Under our law, they have to be
    passed before we can have the kinds of trade agreements and other things
    with them that we would like to have.
        I think you make a very good point on the fact of emigration. The
    Israelis are pleased. The Israelis have started up--taken a step through
    consular relations for diplomatic relations, and they're very happy with
    the exodus, and so am I, as one who have been very much concerned about
    the exodus of Soviet Jews to Israel and to other places.
        I don't want to overstate the problems of the present. I can tell
    you it would be extraordinarily difficult to pass anything of this
    nature in terms of waivers given the current situation inside the Soviet
    Union. It is very difficult to do. You see all kinds of legislation
    getting talked about and some perhaps already being offered that would
    indeed move the relationship backwards, not towards understanding of
    this nature. So it is my fervent hope that problems that I've outlined
    earlier in the Baltics can be

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    resolved peacefully, and demonstrably so, so that we can get on with
    finding ways to improve our trade relations.

    Defense Spending

        Q. Mr. President, with the end of the cold war, many Americans
    believe we might be able to reduce our spending on national defense,
    creating a so-called peace dividend. Has the Gulf war and the problems
    inside the Soviet Union delayed or eliminated the chance for a peace
    dividend, or do you see it long-term?
        The President. No, we've actually--well, let me get to dividend in a
    minute. But in terms of--I always had a different concept of dividend--
    [laughter]--you have a profit, you pay a dividend. If you don't, why,
    you don't. We're operating at 300-and-some-jillion-dollar deficit--
    [laughter]--so we're not in exactly a dividend-paying mode, but the fact
    of the matter is that we have reduced defense spending.
        It is substantially reduced with almost every other account going up
    in this budget. When you take a look at what we put out there yesterday,
    you'll see that defense spending is down. I think it's robust enough to
    have the kind of rapid deployment force that's going to be required in
    the future.
        You heard Cheney yesterday doing a superb job testifying about why
    we're having to lay up some of the battleships that are proving
    themselves today off Kuwait. He said he had to make the tough choices,
    and we've done that. But we are not going to do it to the degree some of
    the antidefense Members of Congress want, where they want to go in and
    slash 30 percent out of the muscle of defense.
        And I think if there ever is a reason not to do it, you just have to
    look halfway across the world today. So we're not going to stand for
    that. And I think that we are going to try to find ways to further
    reduce defense spending, but not at the risk of weakening our
    fundamental defense. And I think that some of the criticized high-
    technology weapons are paying off.
        I am annoyed at the propaganda coming out of Baghdad about targeting
    civilians. This has been fantastically accurate. And that's because a
    lot of money went into high-technology weaponry--these laser-guided
    bombs and a lot of other things, Stealth technology--many of these
    technologies ridiculed in the past now coming into their own and saving
    lives, not only American lives, coalition lives but the lives of Iraqis.
        And so, we are going to have to have a high-tech, a highly mobile
    force. And it ain't going to come cheap. It's not going to come cheap,
    not going to be achieved by slashing the muscle of our defense. And I
    will keep it strong. And I think yesterday's budget, which is at a
    reduced number from what we had before, is going to provide us that kind
    of force. But anything less I won't stand for.

    Block Grants

        Q. Mr. President, our Governor Edgar was grinning from ear to ear,
    very, very pleased about the Governors' meeting the other day where it
    was explained to him your new plan to transfer a good many functions to
    the States. I wonder if you would mind telling us the philosophy behind
    this new emphasis on State activity.
        The President. Actually, one, it's a concept that could have the
    label ``block grant.'' The Governors heretofore have been suspicious of
    block grants because they never got the funds with it. They got the
    mandates; they had strings attached. And this is a block grant where we
    have proposed by name the elimination of programs. And we then say the
    money saved--$15 billion is the figure we're using--will be distributed
    to the States to use as they see fit.
        And the philosophy behind it is very, very true. I have been
    President only 2 years. But I believe that the best problem-solving is
    done as close to the people as possible, at the State level or at the
    local level. And so this concept is to give these Governors the
    opportunity in these various fields, and the money with it, to solve the
    problems. It will cause innovation, it will cause a lot of
    experimentation, but it will be done without some centralized mandate
    from a committee chairman or committee action in Washington.
        So, the concept isn't spectacularly new,

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    but it has never been tried where you actually get it fully funded and
    give the Governors that flexibility. Now, some of the mayors are upset
    because they say, ``Hey, don't give it to Governors, give it to us.'' We
    can't give it to everybody, so we'll give it to the Governors and let
    them use their legislatures to distribute it.
        But it was well-received by liberals, conservatives, Republicans,
    and Democrats at the gubernatorial level. Now our fight is to take some
    of these entrenched committee interests in the Congress and have them
    look at it with the same farsighted view. [Laughter]

    Economic Stimulants

        Q. Mr. President, the war in the Gulf has shown your decisive
    leadership. Every American is proud of American technology and American
    servicemen and the success we're having there. But at home, one of the
    unfortunate things that's happened is businesses have postponed
    expenditures, consumers are postponing spending, travel is down--a lot
    of things have been put on hold. What would you tell us all, and what
    can you and business do to regain this momentum?
        The President. Well, I think I tried to address some of that in the
    remarks I made earlier, because I believe we should have more
    confidence. We are in a recession; there's no question about that. But I
    think it will be shallow. I believe that the financial reforms we're
    talking will help. I believe the lowering of interest rates will help. I
    believe that the budget that, in spite of the magnitude of the deficit,
    with the restrained growth in the spending that is held to less than the
    rate of inflation, would help marginally--because the deficit works the
    other way.
        Some people are talking about stimulating--the old Keynesian
    approach of pump-priming, stimulating the economy. We've got a major--if
    government spending is what stimulus is, we've got the stimulus that
    comes from an unacceptable deficit. So, I will resist all these programs
    that are going to be offered up of make-work job programs or special
    housing programs or special added spending programs. They will not bring
    this economy out. I believe it's going to be shallow for the reasons I
    gave--inventory and interest rates and a lot of other reasons.
        So, I think what's needed is a boost of confidence. You mentioned
    travel--I understand that some people are afraid to travel because of
    security. I remember the charge going up, well, maybe we shouldn't have
    the Super Bowl because of security. We've got good security, and we've
    got good intelligence. And I think the American people should have
    confidence in travel and tourism. And I think people should come here
    with a renewed sense of confidence and travel.
        So, some of it is psychological; some of it is something the
    government can do something about, and I hope some of the programs that
    I've mentioned here tonight will do that. But I'm certainly not
    discouraged about the economic future in this country or our ability to
    get back on the growth path for the reasons I said in the speech itself.
        Mr. Voell. We'll have two more very short questions. Dwayne, have
    you got a short one?

    Postal Rate Increase

        Q. All right, I was just told that we're at the end. But I have a
    short one. [Laughter] But, Mr. President, it's my duty to deliver you
    just a bit of bad news, I'm sorry to say. It's about that 29-cent stamp.
    [Laughter] I hear that the ladies would like to have it made 30 cents
    because the problem that the post office has with the pennies is
    enormous, and there's a rumor going around the Middle West that maybe
    this was a conspiracy of the copper people to increase the consumption
    of copper. [Laughter]
        The President. No comment. Next question. Thank you very much. I'll
    look into it. [Laughter] It's better than saying, ``I'll study that
    one.'' [Laughter]

    Economic Forecast

        Q. Mr. President, the final question. The outlook right now is not
    as great as it should be for the economy. What's your prediction for the
    rest of your term--this term and your next term?
        The President. No, I predict that in a

    [[Page 127]]

    couple of quarters we'll come out of this and that we'll have a robust
    economy. It will grow--the estimates that we used in our budget figures
    are somewhere in the middle of the blue chip estimates. They're not
    overly optimistic. They were less than the CBO, the Congressional Budget
    Office; normally, administration's are on the rosier side than the CBO.
    So I think we've got a real opportunity before half the year's over to
    start seeing a recovery and see us come back on a growth pattern and see
    us resume our economic vigor. And then I think that will begin to be
    felt as these interest rates, hopefully, come down in the housing
    market.
        I think the transportation program that I didn't talk about tonight
    will have a stimulatory effect in the construction industry. I think the
    fact that oil prices are lower than where many of the pessimistic
    predictors would have them is another reason that this will not be as
    severe a recession--or put it this way--will be a shorter recession if
    prices stay in this range than have been predicted.
        So, basically, I'm optimistic. I think we've had too much pessimism.
    I can understand why, and if I were an auto worker laid off I guess I'd
    have every reason in the world to have doubts. But I think the
    fundamentals are still there. I do not think that this war is going to
    add an unacceptable burden to it. When you heard the testimony as to the
    cost that will inure to us after the others come in with their support--
    I believe that that's another reason that the economy will recover fast.
    I can tell you I don't believe--I will say this without any fear of
    contradiction whatsoever: This is not and will not be another Vietnam.
    This is not going to be a long, drawn-out, difficult situation with an
    ill-defined ending. I'm absolutely confident of that.
        And I can't tell you what and when and how, but I can tell you I
    have never been more certain of anything in my life. We're going to win
    it, and we're going--and I think to some degree--and this is your
    business, not mine, but the market seems to be saying there is reason to
    be far less pessimistic--or turn it around--more optimistic than many
    had felt in the late fall or even when we first got in there and the oil
    prices were spiking up around $38-$40 a barrel.
        So, the fundamentals are good. Some industries are hurting. Some
    regions in the country clearly are doing better than others. But
    basically we're a strong nation. We're a productive nation. We can out-
    trade anybody if we can get the playing field level, and so that means
    renewed efforts on GATT or on our free trade areas.
        And I'll end up this way: I'm very optimistic about the United
    States of America. Thank you all very, very much.

                        Note: The President spoke at 8 p.m. in the Grand
                            Ballroom at the New York Hilton Hotel. In his
                            remarks, he referred to Richard A. Voell and Ray
                            Price, chairman and president of the Economic
                            Club of New York; Secretary of the Treasury
                            Nicholas F. Brady; Dwayne O. Andreas, chairman
                            and chief executive officer of Archer Daniels
                            Midland Corp.; Carla A. Hills, U.S. Trade
                            Representative; David Rockefeller, chairman of
                            the Rockefeller Group; Rand V. Araskog, chairman
                            and chief executive officer of ITT Corp.; Prime
                            Minister Toshiki Kaifu of Japan; Chancellor
                            Helmut Kohl of Germany; President Mikhail
                            Gorbachev and Foreign Minister Aleksandr
                            Bessmertnykh of the Soviet Union; Thomas P.
                            O'Neill, Jr., former Speaker of the House of
                            Representatives, and his wife, Millie; Prime
                            Minister Yitzhak Shamir of Israel; Secretary of
                            Defense Dick Cheney; and Gov. Jim Edgar of
                            Illinois.