Thank you very much. Dr. Cooper, Mr. Wilson, Mr. Tosh, Dr. Flinchbaugh will you please extend your distinguished president my congratulations on his wisdom. I want to congratulate the Board of Regents for choosing a man smart enough to miss this lecture and be in Topeka for a meeting of the Board of Regents. He obviously knows where the best interest of this university lies. To the patrons, to the faculty, to the students, let me express my deepest gratitude for the privilege and opportunity of being here on the campus of this great University to participate in the Alfred M. Landon Lecture Series. I only regret that I will not have the privilege today of seeing the distinguished American for whom this series is named. But I've had the privilege over many years of seeing him under different circumstances. And always it has been a source of great personal pride and pleasure for me to be in his company, to listen to his wit and wisdom. Again, I want to express my regrets that I will not have that privilege today. And I want to commend Kansas State University for inaugurating the Landon Series in honor of a man who has had a remarkable career and impact on this country.
Let me begin by pointing out to you that in the 1980s I think America has to face up to a decade of danger and a decade of decisions unlike anything that it has experienced in perhaps the life of this nation. We are finally coming face to face with the realities of the times in which we live. We have too long ignored it. We have been diverted from focusing on things that are most relevant and most important to us. And as a consequence, we are today witnessing an incredible series of events. Let me quickly review them.
In the foreign affairs field we see the greatest loss of prestige and influence that I think this nation has ever witnessed or ever gone through. We have seen a deterioration, on a relative basis, of the armed forces strength of this nation to the point where we have clearly lost any similarity of parity with the Soviet Union in conventional military strength. Indeed, the Soviets are now seeking superiority in strategic nuclear weapons as well. And unless we change our policies and change our course, they will achieve a strategic military capability over the United States in the decade of the 1980s.
This brings up the question of how to deal with a monolithic government. How do you deal with a communist government? How do you deal with a country such as the Soviet Union unless you deal from a position of strength? Without that strength, how do we live in a world basically dominated and controlled by the Soviet Union? That's the problem that we have to face up to. It is a problem we have to try to answer. It doesn't just stop with military strength. We have been blind to the motivation of other nations of the world. We have been blind to the realities of the changes that were occurring around the world in an economic sense. We permitted the industrial base of this nation to deteriorate to the point where we are rapidly becoming noncompetitive in the marketplace of the world.
We've done it under the assumption that the United States had such strength, had such superiority, had such a great lead and such a technological advantage that we could violate all the principles of economic reason and logic, and do so without suffering any disadvantages whatsoever. Those things are now coming home to roost for us. We see today a rate of inflation in excess of eighteen percent. We see a prime rate of nineteen percent. That's the highest interest rate that this nation has ever known even during the period of the Civil War. These interest rates are as high as anything we have ever known in all of our history. The rate of inflation we are experiencing today is something new for Americans. We don't know how to cope with it. We don't know how to live with it. It is going to have enormous repercussions and reverberations throughout this society.
What is happening today? Our federal policies are going to bring about a depression in many segments of American society. They will have an amazingly adverse impact on the homebuilding industry, the automotive industry, the savings and loans associations, just to name a few. And before we are through, before the end of this year, we could well be deeply embedded in not just a recession, but in a depression, certainly in many of these vital industries.
We are witnessing today a loss of productivity in America. It is not the result of an inability or unwillingness on the part of American workmen to do their best, to seek and to compete. Instead, this loss of productivity is a reflection of the unwise policies we have followed over a number of years that have resulted in our retaining an outmoded and obsolete base in this country. Three weeks ago, United States Steel and Bethlehem Steel, the two largest companies in the country, announced that their very survival might well depend upon federal aid because they were operating with obsolete plants. Why are they operating with obsolete plants? Basically, because we in America have not faced up to the fact that other nations had policies that encouraged the revitalization and the rebuilding of their economic base every ten years. Our policy encourages rebuilding every thirty years. And as a consequence, we are trying to compete now with the more modern plants, the more modern techniques that have been adopted in other nations around the world. Speaking of the steel industry in particular of the twenty-four modern blast furnaces in the world today, fourteen of them are in Japan. Fourteen out of the twenty-four, and not a single one is in the United States. That's why Bethlehem and U. S. Steel are saying that they question their ability to compete in the world marketplace.
Let me give you an example of how this affects us. We are getting ready to build, if we can finance it, a pipeline from Prudo Bay in the MacKenzie Delta area of the Arctic Circle to bring gas from that part of the world down through Canada into the United States, which we desperately need. It's going to cost somewhere between $16 and $20 billion, depending on when we build it. We're going to pay for it, but we are not going to furnish a foot of the pipe that it takes to build it. Why? Because it was designed to be a 56-inch diameter pipe. There is not a steel mill in America that can roll a foot of pipe 56 inches in diameter. The largest we can roll in any steel mill in this country is 48 inches. So we'll buy all the steel for this pipeline from Western Europe and from Japan. Now this is happening time and time and time again. Yet the incentives in this country are to penalize savings, to penalize productivity, and to penalize the rebuilding of the economic base of the country.
In the United States today, the productivity of the non-farm sector has been on a steady decline over the past twenty years. It is now less than level; it is in the zero or minus zero category in terms of productivity. In Japan, productivity has increased and inflation is low. In Germany, the rate of productivity is increasing and inflation is low. In this country, productivity has been declining relatively for twenty years and inflation is building and building and building. Part of that is the fact that we've not understood the need in America to save and to invest and rebuild. Consequently, we have the lowest rate of savings of any industrial nation of the world. These are facts, they are known, they have been known. But the average American does not think in those terms. And our political leaders have not been telling the American people what we had to do and why we had to do it. Today the most recent figures show that we are saving three percent of our disposable income, that is all. That is the lowest of any industrial nation. By contrast, Germany is saving 13 percent of its disposable income. Japan saves 25 percent of its disposable income. That is why they have money. They have the capital to rebuild every ten years. We have not understood the necessity for it. Consequently, we tax capital gains in America. We are only one of two industrial nations that does. And Great Britain followed our suit about four years ago. No other industrial nation in the world taxes capital. We also tax savings, as you know. If you put money in a savings and loan to earn interest, or a bank certificate of deposit, you pay a tax on the income on those savings. So that discourages savings in America. There is not a policy that encourages savings. What we basically need to do is change the whole thrust of our government policies. We need to encourage savings, and up to a limited extent, say $10,000, we ought to permit any American to put as much as $10,000 into a savings account or certificate of deposit in a bank, invest in common stock, invest in bonds, and if they leave all of that money in that account provide incentives to save. If they leave all the principal and interest in savings, there should be no tax on it at all.
We need to change the whole depreciation schedule in America. Why would anybody invest $4 billion to build a new steel mill if they can't recover it except over a 25-30 year period? They are not going to do it, because things are changing too rapidly in this world. They don't have the confidence. They don't know what's going to happen thirty years from now. Today many insurance companies in America will loan money on a 30-year amortization but they have a recapture clause after five years. They can renegotiate the entire trade. That's the only way they are willing to loan money now. They are not going to loan money for thirty years for a home loan or anything else because they don't know where we're going. They don't know what is going to happen. They've lost confidence in this nation.
So in the decade of the 1980s we have to understand that we must deal with the realities of the times in which we live. We have to understand that we are dealing with forces over which we no longer have complete control.
We assumed in the aftermath of World War II that because we were the most powerful nation on earth, which we were militarily and economically, that somehow we would have that power and that influence forever. We thought we had nothing to worry about, that the United States was the supreme power in the world. And that we could maintain the technological advantage we had without really trying. We thought we could adopt and live with unwise policies without damaging the economy of this country or without damaging our economic system. We've done that. Yet at the very same time, we shared the bounty, we shared the strength of this land with other nations around the world. We helped rebuild other nations, but they understood better than we did the competitiveness of today's world. They understood better than we that out of the colonial empires that expired at the end of World War II, well over a hundred new independent nations would arise. They understood better than we the sense of independence that was going to prevail in those nations. They understood better than we that the resources that we were consuming at an unbelievable rate were no longer going to be available to us at our price.
We represent about five percent of the people on earth, yet we consume about one-third of all the resources of the world. We are the most productive nation on earth, beyond any question, but we have not learned to deal with that. We have not learned to use the economic power we built. We have not learned that we have to develop an energy policy. We have not learned that we are vulnerable economically, that we are vulnerable militarily. And we haven't understood what that means to us. We have assumed that because we were a freedom-loving people, that these new nations were going to emerge and were all going to seek the same type of democracy as we have. We assumed that they were all going to seek the same things that we seek. But they came from different backgrounds. They came from different experiences. They came from different educational levels. What might work for us will not necessarily work for them.
So we have been unrealistic in assuming that the world would emulate what we've been able to do in this country. We have tried to impose our standards of government, our standards of morality, our way of doing business on other countries of the world and it is not succeeding. Largely we have failed because we didn't understand nor appreciate the necessity of dealing with the diversity with which we were confronted around the world.
As a consequence, today we are extremely vulnerable. Let me tell you how vulnerable we are. Americans have great faith. We are an optimistic nation. We are people who believe in the future. We are people who have great confidence in ourselves to the point where it becomes somehow dangerous. We are at that point today. A few years ago we had a civil defense program. Today we have none. And today we are vulnerable. We arc the most vulnerable people on the face of the earth. We don't understand it. We came, in 25 years, from being the most protected, the most sheltered, the most invulnerable people on earth, to the most vulnerable. Until well after World War II we had two great allies in America time and distance. We had time to prepare. Time to arm. Time to martial the strengths of the country. We did it in World War I and we did it in World War II. We've always done it in our history, but we had time. Time to react. We were invulnerable because of the depth and breadth of the oceans that surrounded us. So we had time and distance.
But suddenly we changed the world. We changed it when we split the atom. We changed it for all time and for all people. And in that one thing we sowed the seeds of our own vulnerability. Today we are the most vulnerable because we built the atom bomb and we showed other nations how to do it and they learned along with us. Our two greatest allies have disappeared.
The ICBMs of the Soviet Union are pointed and aimed directly at the United States. They are not aimed at Mexico, Central or South America. They are aimed at the United States. We are the most vulnerable people on earth and we are 30 minutes away. We have neither time nor distance. And yet we have somehow assumed we were going to be able to live with this kind of environment from a position of weakness. That we were going to deal with it in a position of weakness. No way. No way should we realistically assume that we can deal with a monolithic, godless ideology such as that which prevails in the Soviet Union. Prom a position of weakness we can't do it. If indeed we assume that we can, and indeed if we persist in trying, we are going to be without options. That is what we are approaching now without options. What options did we have in Iran? Did we have any greater options in Belgium, Holland or Luxembourg? Suppose it happens again. What options do we have in Afghanistan? Is anyone afraid of what we are going to do? Not at all. Why? Because we really have no options. Who has the options? The Soviets say they do now. The Soviets say in Pravda nearly every day that the United States can no longer call the tune. The United States can no longer react to the objectives of the Soviet Union.
This is where we are. And the time to aim for is 1982 and 1983. The Soviets are going to achieve a capability. I don't think it's going to happen, but they are going to achieve a capability of a first-strike attack against the United States that will knock out more than 95 percent of our land-based ICBMs. Yet we haven't built the MX missile the mobile missile. We've been content with a fixed ICBM, yet we know they're going to be vulnerable. There is nothing we can do about it now. Time has already passed. If we started tomorrow, we couldn't do anything about it in 1982 and 1983. What options will an American president have?
If the Soviets decide to launch a first strike against the United States they'll knock out 95 percent of our land-based ICBMs. Then a president is confronted with a choice. Does the president launch the aging B-52 bombers, hoping they can get through the 12,000 surface-to-air missiles ringing the Soviet cities and Soviet installations? Does the president launch the missiles from submarines? If so, remember, they're not targeted on fixed ICBMs. They're targeted on cities. Cities and people, because of the relatively imprecise manner in which they are going to have to be delivered. And it's estimated that if the Soviets launch a first strike against the United States, they'll obviously evacuate their cities. They have bomb shelters in all the major cities to care for millions of people. It's estimated we will kill fifteen million people, but we will not destroy their capacity to launch a second strike against the United States, which would be targeted against American cities and American people. And because we have no bomb shelters, it's estimated that on their second strike they would kill 150 million Americans. What kind of option is that? Obviously we don't want that. Obviously we don't expect that. But the point is that we are not in the position to do anything about it. We are in the hands of someone else. Just as we are in the hands of someone else in terms of energy.
This is the most industrialized nation in the world. We are the greatest trading nation in the world. We are the greatest producing nation in the world. We have the highest use of energy from inanimate sources in the world. Yet we sit here vulnerable. Why?
Because we didn't understand. Because we didn't see. Because we didn't act to produce our own sources of energy, coal, nuclear power, oil shale, solar energy, geothermal, all types of energy. It is not because we didn't have warning. It is because in this form of government we are basically unresponsive.
This is the real crux of the decisions we are going to have to make in the decade of the 1980s. Can a representative form of government respond and be responsive in a timely fashion to a changing world condition? We haven't. How many of you in this hall remember when they closed the Suez Canal in 1956? That changed the world. But we didn't change. We knew then that there was no security in the importation of foreign oil. And some of us said so, but nothing happened. But that showed that other nations could have an enormous influence on this country. All of you remember the October war, the Yom Kippur war of 1973 and the subsequent embargo of the Arab nations over the shipment of oil to the United States. That should have proven to us beyond any shadow of a reasonable doubt that we were vulnerable. What have we done since then? Nothing, absolutely nothing. We have imported more oil. Fifty percent of all we use comes from other countries around the world. Failure to receive it would mean chaos and consternation in this country. And yet it can be shut off almost overnight. Yet we've done nothing since 1973. That is almost seven years. We have done nothing about developing coal, nothing about the oil shale, nothing about solar energy. We have made it more difficult to mine coal. We have made it more difficult to explore for oil and gas. We have made it more difficult to build nuclear power plants. And we have done substantially nothing about development of alternative sources of energy. This is an unrealistic attitude. It leaves us vulnerable. Why haven't we? Because the political leadership of the country was not prepared to tell the American people what was happening to us and what we needed to do.
Today there is a great number of people in this country who do not think there is an energy crisis in America. A great many people would argue about it. And there is no energy crisis in the sense that you can drive up and fill up your car at a gas pump. But there is an enormous crisis in terms of vulnerability of this nation to being held in bondage and held as a hostage by the OPEC countries of the world. That is an immediate crisis. And it is a continuing crisis of enormous proportions, yet somehow we in America don't understand it. We don't relate to it. These are the things that are happening to us today. This is why I'm as pessimistic as I am about what is going to happen to us unless we face realities in the 1980s. We have to rebuild the industrial base. We have to be fiscally responsible. We have to develop an energy policy. We have to increase the military capabilities of this country in order to have any options. So for the decade of the 1980s I will end as I began.
I am saying that the decade of the 1980s is to be a decade of danger and a decade of decisions for America. We are going to have to decide what kind of country we want and what kind of society we want to live in. We have to decide whether a free society can and will be responsive to the changing conditions of the world changes that we are bringing about every, single day. We have to decide whether we are realistic enough to understand that we have to change the industrial base of this country every ten years. We have not yet invented or discovered 90 percent of the products we will be using and consuming ten years from now.
We have transformed communications and transportation in this country. We are doing it in medicine. We are doing it in food. We are doing it in everything we touch. But we have somehow failed to look at and understand the underlying stabilizing factors that have made it possible.
So again I say that this brings on new challenges and new opportunities for America and for those of you who are students here. Don't let me leave you on a pessimistic note. There is not anything that we are confronted with that we can't do something about. We can do something about every one of these problems. We can do something about conventional weapons. We can increase our military capabilities. We don't need to lose the lead in strategic nuclear weapons. We have to keep the lead for a long time to come, until we are certain that other nations around the world are going to be as peace loving as we are and that they are going to respond to the same motivations that prompt us. We can do something about revitalizing the industrial base of this country.
We can do that, but we have to understand the necessity of doing it. We have to have the political courage to face up to it. We also have to understand that the thing that sets us apart, the thing that has permitted us to do more for more people and in more ways than any other society that has ever existed, is the economic system we have. We have to have security for the free world. We can indeed secure peace in this world if we understand that you secure peace through strength and that you maintain the economic base on which that strength is built. Thank you.