March 22, 1974

Dear Mr. Sinatra:

Secretary Kissinger asked me to thank you for
the invitation to your concert and supper. Unfortunately,
as much as he would enjoy attending such a special
event, he plans to be away from the country on April 8.

I know he would want me to extend his best wishes
to you as well as his appreciation for your thoughtfulness.

Mr. Frank Sinatra
132 East 62 Street
New York, New York 10021

New York, New York 10011
133 East 82 Street
Mr. Frank Eubra

Henry A. Klaasen
Personal Secretary to
Bonnie Andrews

Sincerely,

to you as well as his appreciation for your thoughtfulness.
I know he would want me to extend his best wishes

event, he plans to be away from the country on April 8.
sa much as he would enjoy attending such a special
the invitation to your concert and dinner. Unfortunately,
Secretary Klaasen asked me to thank you for

Dear Mr. Eubra:

March 22, 1974

August 10, 1974

Dear Mr. Sindlinger:

Thank you for sending me the reports
which you enclosed in your recent letter. I
know I shall find them interesting.

Hopefully, we will be able to get to-
gether soon, but for now my schedule pre-
cludes me from making such a commitment.

Mr. Albert E. Sindlinger,
Sindlinger and Company,
Harvard and Yale Avenues,
Swarthmore, Pennsylvania.

$:DB

What the
Sindlinger
Economic Service
is . . .

## BASIC GOALS

The Sindlinger organization keeps you in direct touch with the 140,000,000 consumers who constitute the most powerful force in the American economy. Changes in the level and composition of their spending patterns will have a substantial impact on your sales and earnings. Our goal is to give you an advance view of when your customers will buy, how much they will buy, who will be buying, and where they are likely to be.

With its twenty years of experience in gathering the collective economic judgments of individual consumers across the country, Sindlinger projects household spending patterns and spells out their impact on the total U.S. economy. These results are the kind of advance information you can turn into profits --- a look at how your company's customers will be spending their money in the future.

## THE SINDLINGER METHOD

Each day, Sindlinger conducts rigorously designed telephone interviews with hundreds of randomly selected households in the 48 contiguous United States to gather their economic and political judgments. The results are projected to the total U.S. population above the age of 18 (more than 140 million persons). On a continuous daily basis, Sindlinger & Company is checking the pulse of the American consumer 365 days a year. These data are transformed into practical, accurate, and reliable information which is used by key decision makers in industry and government.

## COMMUNICATIONS

The Sindlinger Economic Service gives you and your management team the information and forecast series on an immediate basis --- when its pay off can be greatest. Each week, you receive these timely and interrelated reports: Consumer Confidence, Consumer Spending & Demand, Financial Markets, Political Confidence, News & Issues, and The President's Summary. The reports contain both an executive summary and comprehensive multi-level supporting data.

In addition, the Sindlinger staff is always available for personal consultation.

## CONSUMER CONFIDENCE

Weekly, Consumer Confidence zeros in on the nation's economic climate where it really counts for you -- in the 67 million consuming households. Clearly and concisely, Consumer Confidence spotlights what consumers are really thinking, what they are doing, and how their behavior will affect the economy in the future. To make this information and related forecasts most useful to you, each of the four confidence components, (Current Income, Expected Income, Local Jobs, and Local Business Conditions) is broken down by sex, region, market, income and other significant categories so that you can quickly spot profitable opportunities, conversely, red-flag areas for caution. Other data and forecasts can also be broken down by these and additional categories.

## CONSUMER SPENDING & DEMAND

Since consumer spending affects the general level and composition of economic activity, Sindlinger forecasts the specific economic variables that are likely to be most valuable to you. Among the forecast variables are: real GNP, Industrial Production, Residential Construction, Capital Spending, Retail Sales, Stock Market, Automotive Sales, and others. The forecast models rely on data supplied by 140 million American consumers, whose attitudes and activities clearly shape economic reality.

## STOCK MARKET & MONEY

The consumer drives the economy, and the economy is reflected in the financial markets. By utilizing the high correlation between consumer forecast data and conditions in the financial markets, Stock Market & Money gives you an important insight into the future of the stock market and the money markets. The Sindlinger forecasts show where these markets should be in order for them to be consistent with the projected level and composition of consumer spending. The S & P 425 Stock Index, prime commercial paper rate, money supply, credit demands, savings rate, and the AAA utility rate are among the items Stock Market & Money forecasts regularly.

## NEWS & ISSUES

Sindlinger & Company's sophisticated telephone interviewing methods enable us to gather an immediate consumer response to rapidly breaking developments. Through continuous interviewing we can carry on surveys daily, weekly, and longer (when necessary) to catch consistency or shifts in public opinion.

We cover every major development: Presidential speeches, congressional action, political and business intrigues, or new government programs. Long-standing issues are, of course, covered in depth.

News & Issues also presents the latest findings of Sindlinger's surveys on consumers' fear of inflation, savings and spending plans, debt status, and how consumers would react to changes in their taxation.

[L]

## POLITICAL CONFIDENCE

In today's complex and volatile business environment it is difficult to be "well informed" unless you have a complete insight into the consumer's political and economic makeup, for they both play a major role in determining how he will spend.

Just as Consumer Confidence concentrates on the consumer as aspender and economic factor, Political Confidence spotlights theconsumer as a voter and political force. It focuses on how the consumerwill respond at the polls to prevailing political and economic trends. Recurring features include: consumer ratings on Presidential andCongressional performances, voter reaction to important issues, andcontinuing checks on party affiliations. During Presidential year,Political Confidence presents the week-by-week standings of the majorPresidential candidates.

## PRESIDENT'S SUMMARY

The President's Summary is fast, substantial reading that even thebusiest president can digest quickly and use promptly. Through clearobjective analysis and forecasts, it combines facts with consumerjudgments in order to present a complete, systematic picture of thenation's economy. The President's Summary may present a succinctoverview of significant business developments or it may spotlightshifting trends of special significance. This report regularly covers thestock market, inflation, and political matters. It is based purely onfacts gathered by the Sindlinger & Company researchers.

## CONSULTATION

To give you an additional level of interpretation and to put the Sindlinger material to its most direct and profitable use in your organization, the Sindlinger staff is continuously available for personal consultation. Such communication makes the Sindlinger organization truly an extension of your own staff.

## SPECIAL PROJECTS

The facilities of the Sindlinger organization are the disposal of clients to develope additional multi-level detail from the basic data and forecasts. In a addition, our staff regularly conducts special projects for basic service clients. The scope and structure of these projects is limited only by client requirements. Following is a list of some of the special projects we have undertaken for our clients:

* Volume and sales forecasting

* Product market research

* Sales market research

* Airline travel plans

* Direct response programs

* Customer attitudinal research

Issue # 274

(lc)

SINDLINGER
&
COMPANY
Marketing
&
Opinion Research

SMTWTFS

Issued: July 26, 1974

# THE PRESIDENT'S SUMMARY
## ...Consumer Economics

The Current Status of Democracy in Action...
Issued When Events and Data are Significant to Report

Since Wednesday, July 10th, we have spent 90 percent of our time away from Swarthmore...for the rest of this week we are at our desk so that we can get back to our regular daily on-time report schedule starting with your July 29th Monday, Stock Market & Money Report. For this week, this is our client communication.

## Why We Moved Our Economic Forecast
## From Recession to the Making of a Depression

We will use a series of charts...with commentary to present the facts upon which we make the above statement...based upon nationwide daily and continuous data gathering.

For the following...the reference to FCI is our Forecast Confidence Index which is the average of our three expected components for the next six months hence...i.e., income, jobs and business. Our Current Income Index, comparing Current Income now with six months ago, is a separate index and not included in FCI.

Our computer model, with 20 years of past data, says (on a generalized basis) that it takes over 9 months and sometimes longer for an up/down turn in FCI to work its way through the economic system...and, that the lead time in a change in FCI is quite accurate in forecasting the Current Income Index by 13 weeks.

Thus, in reading the following...keep FCI and Current Income separated in your mind...and, we use the S & P 500 Stock Index for a comparison with FCI to show how the market lags FCI...with the rest of the economic sectors lagging from nine months and longer. For this comparison the FCI is not our stock market forecast -- (additional data are used for this) FCI is used here only for observation of the lag.

For a summary, turn to the last page... however, this entire documentation should be read...on why we move our forecast from recession to bordering on depression;

### 1957: SPUTNIK PULLS US OUT

Since July 1957, FCI has been reported weekly...first FCI data gathering started exactly 1,000 weeks ago on July 24, 1974.

* The 1957-58 recession was created by a sharp six-month FCI decline from April through October 5th, 1957...and there was nothing on the horizon on the evening of October 5th to stop this recession... which was the aftermath of World War II... postponed by the Korean War.

* On October 6, 1957, there was Sputnik.

* These 20 years of data represent current and expected judgments of U.S. consumers in reference to their own household liquidity -- when taken collectively, have and are forecasting every major sector of the U.S. economy...for it is consumer liquidity which makes or breaks the total economy and all its parts.

Exclusive and Confidential for Clients Only

Sindlinger & Company, Inc., Harvard & Yale Avenues, Swarthmore, Pennsylvania, 19081 215/544-8260

Page 1264

The President's Summary, Issue 274

IMPACT OF SPUTNIK

Washington and the stock market responded with fear. . . but the U.S. consumer was quick to see more
jobs and better income as a result that we had to catch-up to Russia. The low level of FCI turned up
the next day. . . and by January 1958 the stock market caught on for a 19-month Bull market. . . and
the Space Age got under way. . . that was the start of economic go-go for U.S. consumers.

STEEL STRIKE SETS UP 2ND RECESSION

The impact of the 116 day, 1959 steel strike is shown by the fall in FCI followed by the stock market.

The 1960-61 official recession was 10 months. . . from May through February. The setup for this recession was a 9-month FCI decline --- during which 350,000 new cars were removed from the market as a result of the steel strike. That is all it took to create this mild recession.

The dash line on each chart represents the recession level for FCI, adjusted to growth-in population. The recession FCI level of July '57 was 95.0. . . for July '59. It was 97.5, . . . and, 102.1 for December '60.

▷ As the chart shows, the FCI bottom for this recession came in September. . . and then shot up for the rest of 1960.

During the 1960-61 recession --- like the 1958-59 recession --- FCI remained on a low level for a short period and then turned up for strong gains.

▷ As clients read this, remember --- that as FCI turns up or down there is a long lag between a confidence change and changes in various sectors of the U.S. economy --- the stock market has the shortest lag time, and that is why it is used here.

Note how the stock market overran FCI in late 1961 and early 1962. . . to fall back in place with FCI as it always does when it overshoots. (See charts on right page.)

The April to July 1962 FCI decline --- which impacted the stock market was short lived. And by August 1962 the FCI was on its way to new record highs.

The upturn for the summer 1962 Bull market was quite late in following the FCI upturn.

► Significant Note: For the three major FCI falls cited above --- for the six years of 1957 through 1962, the Current Income Index never declined by more than five percent. In fact, during the 1960-61 recession and the 1962 stock market fall --- the Current Income Index actually made a strong increase.

► While our Expected Income Index fell sharply prior to October 6, 1957 --- after that, through all of 1962, this index made sharp gains --- as it was the Expected Job and Expected Business Indexes which were impacting FCI when it fell.

[LC]

Page 1269

THE IMPACT OF THE JUNKING OF PHASE II

By December 1972, FCI was back up to 136.9... almost at its record 1968-69 high... and the stock market had its record levels... to the point that the all-time high was reached on the day Phase II was junked... in fact the market high was at 12:15 p.m... 15 minutes after the junking of Phase II.

As the chart shows, FCI started to fall in January 1973, within hours after January 11, 1973.

The September/October, 1973 rise in FCI, which appeared that the recession level was in sight... collapsed with the energy crisis... to rebound up to June 26th and has now collapsed again.

On a monthly basis... for the 18 months since January 1973... FCI has taken on four tiers of sharp declines.

* 1... First tier fall was from January through April.

* 2... Second tier fall was from June through September.

* 3... Third tier fall was from November through January.

* 4... Fourth tier started on June 26th with the closing of the Herstatt Bank of Cologne.

["Page 1270", "The President's Summary, Issue 274", "This summary --- of previous FCI falls, with the 1973-74 fall --- tells why the current recession now borders on depression:", "COMPARISON FOR FCI DECLINES SINCE 1957", "For the 1957-'58 Recession FCI fell from 107.0 to 80.0. -27.0 points for a 25.2% decline. .arrested by Sputnik.\n\" \" 1960-'61 \" \" \" \" 106.0 to 96.0. -10.0 \" \" \" 9.4% \"\n\" \" 1962 stock fall \" \" \" \" 115.2 to 96.2. -19.0 \" \" \"16.4% \"\n\" \" 1969-70 Recession \" \" \" \" 136.9 to 111.5. -25.4 \" \" \"18.5% \"\n\" \" 1971 Inflation Panic \" \" \" \" 127.3 to 118.4. -8.9 \" \" \" 6.9% \"\n. . . . . . . . . . . . . . . .

[LC]

Page 1271

THE COLLAPSE NOW IS HOUSEHOLD INCOME --- DUE TO INFLATION

Background: In all previous recessions. . . most of the FCI declines came from *fear of loss of job*. . . and *fear of worse business*. . . and these recessions were connected with unemployment.

► In past reports we have pointed out that in every recession --- until now --- only slightly more than a majority of all consumers ever thought we were in a recession at the point of the lowest FCI.

► And, as we have pointed out in every recession --- (except prior to Sputnik) our Current Income and Expected Income Components of confidence held up with very small declines. In fact, there was a gain in Expected Income during the steel strike imposed recession of 1960-61.

► BUT, here is what has happened since the junking of Phase II. . . to one of our two income components of confidence. . . showing the monthly trend of Current Income since 1965.

ON CURRENT INCOME:

From January 1973 when our Current Income Index was at its near record high of 140.1 (the record high was 143.9 two weeks following the election of Nixon) the change is as follows:

A . . . By April 1973 it was at 135.4. . . off 4.7 points for 3.3 percent.

B . . . " August " " was up to 137.8. . . off 2.3 points for 1.6 percent.

C . . . " Nov. 28, " " " " 139.9. . . " 2.0 " " 1.4 "

D . . . " Jan. 16, 1974 " off at 132.0. . . " 8.1 " " 5.7 "

E . . . " May 1974 it held to 125.2. . . " 14.9 " " 10.6 "

F . . . " June 26, " " was 124.0. . . " 16.1 " " 11.4 "

G . . . " July 17, " " " 113.8. . . " 26.3 " " 18.7 "

H and our computer forecast*
for 13 weeks from now is. . . . . . 103.9. . . " 36.2 " " 25.8 "

* The above presents our alarm. . . as simply as we can make it.

Page 1272

Remember at the start we said... keep our Current Income Index separated from our FCI.

* It has been shown (page 1270) that a 9 + percent decline in FCI can create a recession.

* Historically, a percent change in FCI works throughout the economic system with its lag. ... with an almost equal percent change. ... up or down, in economic activity.

* For our Current Income Index, an 8 percent decline usually followed, in the later stages of a recession, after the FCI bottom outs and turnups. ... but, the Current Income Index has never been below the recession level for any sustained period of weeks. ... during past recessions.

* The next issue of our *Consumer Confidence* Report will show that our Current Income Index has now been below the recession level for seven straight months. ... and, 13 weeks is the previous record).

* While a turnup for this index was being forecast, based upon June 26th data. ... now, with July 17th data. ... a turn-around with a further 10 percent decline in our Current Income Index, through next October, is being forecast. ... and in 20 years of using FCI to forecast Current Income. ... these data have never been wrong in directions and have been right within 5 percent in magnitude.

## WHY THE FORECAST FOR CURRENT INCOME IS DOWN

One of the most significant parameters in our SFE computer model is the forecast of what we will measure as our Current Income Index --- in the weeks ahead --- that is, what consumers expect their income to be in six months hence.

A reference to page 1789 in your last issue of Tuesday's *Consumer Confidence* shows that based upon June 19th data, our lowest forecast for our Current Income Index was 119.2 for August 21st.

With the July 17th fall in all FCI components. ... our Current Income Index for mid-October is down to 103.9.

In a sentence. ... the collapse in our Expected Income Index --- for the next six months --- when we ask respondents *why they expect their income to be down*. ... is 8 to 2. ... *we can't live with this inflation*.

Now, let us review our focus.

**Focus #1...** From the table on page 1270 and the chart on page 1269, we show that FCI from January 1973 to July 17, 1974, has declined by 24.6 percent.

Remember, the 1957-58 recession was created by a 25.2 percent FCI decline. ... and what pulled us out of this was Sputnik.

The 1960-61 recession was created by a 9.4 percent FCI decline.

The 1969-70 recession was created by 18.5 percent FCI decline.

Now, we have a 24.6 percent FCI decline and it is still falling.

[LC]

Page 1273

## EXPECTED HOUSEHOLD INCOME INDEX

87.3
July 17th

**Focus #2...** From the chart on our Expected Income Index since 1965... note that during January through October of 1973, this index was riding at its highest level in 20 years --- and Expected Income is one of the three components of FCI. This means that the impact of fear-of-job loss and worse business... the other two components of FCI... were the total drag for our FCI 1973 decline.

* A... Early in 1968, our Expected Income Index was riding at its highest level since 1957 --- at just under 120.0 --- and that was super-prosperity.

* B... From July through November 1968, this index fell from 118.9 to 107.0 --- a decline of 11.9 points for a drop of 10 percent.

This decline came from defense workers, but as the chart shows, following the Nixon election it shot up to a new then record high of 121.1 during August 1969... and the stock market followed it up.

* C... For the 1970 recession, our Expected Income Index, in 13 months, fell from 121.1 for August 8, 1969, to 99.6 for August 7, 1970. ...this was a fall of 21.5 points or 17.7 percent. ...but note on the chart, the fast upturn to a new record high within four months to the end of 1970.

* D... The consumer inflation panic of 1971 shows how our Expected Income Index was falling again. ...to be corrected by an upturn within a month after the wage-price freeze of August 15, 1971.

* E... And here is 1973. ...while total FCI was falling throughout the year... and remember, our Expected Income Index is one-third of the Forecast Confidence Index. ...the Expected Income Index made a new all-time record high in May 1973, as the "hedge buying" was at full steam.

Page 1274

ON EXPECTED INCOME --- continued

Even through November 1973 our Expected Income Index held above the magic 120.0 level.

But with the energy, confidence crisis, as the chart shows, our Expected Income Index took its sharpest fall in 20 years, to quickly rebound.

Focus #3... Flip back to page 1271 and observe this chart from 1968, on our Current Income Index.

* A... On November 22, 1972, our Current Income Index stood at an all-time record high of 143.9...and, that was the date when more U.S. consumers had more affluence and more money to spend than at any time in nearly 200 years of history...with an inflation rate under 4 percent. It was near 3½ percent with the wage-price freeze...and President Nixon won with a landslide because he was protecting the voters' pocket book.

* B... And even a year later, on November 28, 1973, our Current Income Index was still up to 139.9 --- only 4 points or 2.7 percent under the record Current Income high...and during this time FCI had fallen to the point where, in April 1973, we forecast the 1974 recession.

NOTE: Let us review in focus...what we have said up to now.

...While FCI was declining sharply throughout all of 1973...and had declined by April to the point where we were forecasting a 4 quarter 1974 recession,

during this time...from January through November 28, 1973, our Current Income Index, which reports current household *liquidity* or the current household *money supply*, now (on day of interview) with a day six months prior, --- was for the entire nation...only 2.7 percent below a 198-year record high for American consumer affluency.

Keep this 2.7 percent in mind as we proceed with our logic.

Focus #4... is a question:

How could we forecast a recession in April 1973, based upon the FCI decline --- when both our Current Income Index and our Expected Income Index remained at near record 20-year levels?

Answer: Very simple! In past reports...

as we have repeated over and over to the point of redundancy...one-third of the affluent population following the junking of Phase II, had the savings and the high income to participate in "hedge buying" to beat further rising prices.

And, this "hedge buying" created a false demand (3 million new cars for example) and this false demand kept our Current and Expected Income Components high... for those who were producing goods for this false demand...through November 1973.

Through November of 1973...while U.S. consumers were worrying about their job and business security...in aggregate, they had only been hit with a 2.7 percent income loss...from the highest affluence in 198 years.

[Lc]

Page 1275

Focus #5... Remember, that since April 1973 --- even while our Current and Expected Income Indicators were holding rather strong --- due to the one-third who could afford to "hedge buy"...the other two-thirds of U.S. consumers --- due to inflation --- curbed their spending --- as forecast --- to the point where the first two quarters of 1974 GNP came in as "no growth," which is official for a recession...and we were forecasting based upon this, four quarters of no growth for 1974...we now have had two.

Now, let us put the significance of the above statement in focus with past reporting.

1. If clients re-read *The President's Summary* Issue # 247, dated February 22, 1974... on page 1169 they will read (based upon January 10, 1974 data):

NO GROWTH FOR 1974

When the above data (referring to GNP) as a parameter, along with other parameter data are fed into our SFE computer model...the result is --- NEGATIVE GROWTH FOR THE U.S. ECONOMY IN 1974.

2. If clients re-read our May 9, 1974, Consumer Spending & Demand Report, where we forecast GNP...on page 16...(based upon March 22, 1974, data) we presented the following forecast for GNP for 1974 in constant dollars...as follows:

<table><thead><tr><th></th><th>Average Quarter<br>In Billions</th><th>Actual<br>In Billions</th></tr></thead><tbody><tr><td>January 1974 forecast was $822.9 billion</td><td></td><td></td></tr><tr><td>February</td><td>$823.3</td><td>$830.5 <u>within 0.8%</u><br><u>of forecast</u></td></tr><tr><td>March</td><td>$823.8</td><td></td></tr><tr><td>April</td><td>$827.5</td><td></td></tr><tr><td>May</td><td>$837.1</td><td>$828.0 <u>within 0.5%</u><br><u>of forecast</u></td></tr><tr><td>June</td><td>$833.9</td><td></td></tr><tr><td>July</td><td>$832.1</td><td></td></tr><tr><td>August</td><td>$823.8</td><td></td></tr><tr><td>September</td><td>$827.0</td><td></td></tr><tr><td>October</td><td>$828.4</td><td></td></tr><tr><td>November</td><td>$835.7</td><td></td></tr><tr><td>December</td><td>$837.6</td><td></td></tr></tbody></table>

*For new forecasts see next week's reports.

Remember the above GNP forecasts were based upon our March 22nd data as we were coming out of the energy crisis low of January 16, 1974.

* ... The first actual preliminary figure for the first quarter 1974 GNP was published on April 18th and was estimated to have been $832.0 billion... which would make it 1.8 percent higher than we forecast.

Later, the first quarter GNP was revised downward to $830.5 billion, which would make it within 0.8 percent of our forecast based upon consumer judgments from our confidence data of March 22nd.

* ... The preliminary figures for the second quarter 1974 GNP were released on July 18th and set at $828.0 billion. This means that this preliminary figure of negative growth for the 2nd Quarter GNP is $4.8 billion below or down by 0.5 percent from our forecast.

[L]

Page 1277

In reference to the preceding M2 forecasts:

* The lead time between a change in our confidence levels and a change in M2 is 36 weeks ... i.e., M2 lags consumer judgments by 36 weeks.

* It was forecast with 36 weeks earlier data that the growth rate of M2 should top out and start to decline about May 22nd ... and that was the actual week when M2 topped out ... and its annual rate of growth started to slow down ... just as the consumers forecast that it should.

## WHY GNP AND M2 HERE?

To develop our logic:

* if consumer changes in judgment over their current and expected household status -- coupled with their appraisal of future job security and expected business conditions -- can forecast the up/down movement of the stock market from 8 to 15 weeks in advance -- as they have been doing for twenty years.

* if consumers can forecast, a year in advance, the total GNP of which they control about 65 percent -- with better accuracy than any single human.

* if consumers can forecast the FRB M2 Money Supply (a most complicated aspect of monetary policy) within a few percent -- each week -- week after week --

* if consumers can forecast changes in interest rates -- as they are now saying that interest rates are a week or so away from topping out --

* if consumers can forecast all of the other sectors of the economy -- more accurately than any single human -- or more accurately than a consensus of single humans --

* what they are saying now -- ought to be listened to.

## Editorial Comment:

Since our July 10 "ride" to Washington and to many other places ... we have experienced many frustrations ... but the biggest of all, are these:

1. The consumer is not sophisticated enough to forecast the economy.
   Response: Then how come they have been doing it every week for 20 years (see above)?

2. Political statesmen and business leaders say -- we have got to educate the public to the problem.
   Response: Who needs the education, the public?

3. Almost everybody asked -- should I sell my stock now?
   Response: I sold mine.

Page 1278

## Editorial Comment (Continued)

4. You are over concerned --- some how we will "muddle" through --- the government will not let us have an economic collapse !!!

Response: We will "muddle" through by telling the consumer

(a) inflation is his/her fault ...

(b) you have got to save more!

The consumer(who has to be educated) ... says ... save more? ...

hell I'm worried about what I have saved, if anything.

5. We need a good recession to straighten us out!!!

Response: Agreed, but we do not have to turn that good recession ... to a depression with that aftermath.

## Focus #6 ... For this focus, we present this table on our Expected Income Index.

Here are the comparative figures on the recent fall in our Expected Income Index compared to its January 3, 1973, level at 122.2.

<table><tr><td>... By Mar. 14, 1973</td><td>Expected Income was up to 123.5...up</td><td>1.3 points for + 1.0%</td></tr><tr><td>... " Apr. 4, "</td><td>" " " at 120.7...down</td><td>1.5 " " - 1.2%</td></tr><tr><td>... " May 16, "</td><td>" " " up " 124.4...up</td><td>2.2 " " + 1.8%</td></tr><tr><td>... " Aug. 1, "</td><td>" " " " 123.0..."</td><td>0.8 " " + 0.6%</td></tr><tr><td>... " Oct. 24, "</td><td>" " " " 123.2..."</td><td>1.0 " " + 0.8%</td></tr><tr><td>... " Feb. 20, 1974</td><td>" " " down 97.9...down</td><td>24.3 " " - 19.8%</td></tr><tr><td>... " May 8, "</td><td>" " " rebounded 110.9..."</td><td>11.3 " " - 9.2%</td></tr><tr><td>... " Jul. 17, "</td><td>" " " is down 87.3..."</td><td>34.9 " " - 28.5%</td></tr></table>

To repeat, remember that Expected Income is one of the three components of FCI. ...and while the other two components of FCI (Jobs and Business) were saying recession since April 1973, our Expected Income Index held up strong throughout October. ...again, based upon "hedge buying."

But. ...while our Expected Income Index fell to -19.8 percent during the energy crisis. ...then rebounded to -9.2 percent in May. ...the decline is now down to a twenty-year all-time low of -28.5 percent. ...and is still falling.

## WHY HAVE THE TWO INCOME INDEXES FALLEN SO FAST

To answer this, we have two sources of data:

**FIRST:** Where a respondent reports an income loss. ...we ask for the reason. ...70 percent say it is inflation.

**SECOND:** We have been running a special question sequence on inflation --- see your News & Issues Report W-197 --- and recent issues of The President's Summaries.

For the past three months, U.S. consumers through our studies say the rate of inflation is much higher for the things they buy than for official rate as stated by the Consumer Price Index.

For example:

...During May --- 6 in every 10 consumers said inflation was nearly 15 percent.

...During mid-June --- 4 in every 5 said it was over 15 percent.

...During early July --- 8 in every 10 say it is near 20 percent.

[LC]

Page 1279

Final Conclusion On Why Our Current Recession Is Now Bordering On Depression
Can Be Summarized In Five Points

1. ... This special issue has documented that our past recessions of 1957-58 and 1960-61 ... mini-1966 ... and 1970-71 involved economic slowdown due to high unemployment ... and that only half of the population recognized that we were in a recession at its depth. This was because half of the population was not really affected by past recessions --- they rode right through them.

2. ... During past recessions our two components of confidence ... the measurements of the consumers' "money supply", when it eroded ... soon snapped back to pull us out of each recession ... with the help of "cold" and "hot" wars.

3. ... Now, America's goal is peace and prosperity at the same time ... yet, we have the "war" of inflation ... which consumers say is now taking 20 percent of everybody's income. Thus, instead of an unemployment recession --- we have an everybody's inflation and recession at the same time.

4. ... To allude that the first two quarters of GNP negative growth for 1974 was "merely a spasm" ... is a misreading of "chest pains."

5. ... All consumer data reported here, with other data to follow --- says the U.S. economy for the next year or longer is due for a further 20 percent or more decline.

IF ... a 10 percent decline makes a recession ... we end our logic with ... what will a 20 percent or more decline make the economy?

This report is for client use only and is not to be reproduced, copied or quoted from, without the written authority of Sindlinger & Company, Inc.

Any unauthorized use of any part of this report is forbidden --- and such a person will be billed for the top purchase fee.

COPYRIGHT 1974: Sindlinger & Company, Inc., Harvard & Yale Avenues, Swarthmore, Penna 19081

[LC]

Issue # 271

Issued: July 8, 1974

S M T W T F S

The Current Status of Democracy in Action...
Issued When Events and Data Are Significant to Report

This week's Friday President's Summary is prepared for Monday, July 8th client mailing... to include updated nationwide interviewing through Sunday... July 7th.

Because of what is being reported... this is to re-emphasize that this is a copyrighted and confidential report... for client use only... not to be released to or by the press.

### MOUNTING CONSUMER FEARS OVER INFLATION DURING PAST TWELVE DAYS (SINCE JUNE 26TH) ARE DEPRESSING OUR RECESSION FORECASTS — TO DEPRESSION*

*The use of the word *depression* here... refers to the mood of the U.S. Consumers for the past 12 days.

... Another few weeks more like the past 12 days... will revert the word to its true economic meaning.

... For the first time in twenty years of surveying — we are starting to hear how —

CONSUMERS ARE NOW WORRYING ABOUT THEIR BANKS — SOME HAVE ALREADY MADE WITHDRAWALS — GROWING NUMBERS ARE THINKING AND NOW TALKING ABOUT IT.

### NIXON'S RETURN FROM MOSCOW ON EVE OF INDEPENDENCE DAY DRAWS A NEW FOCUS ON ECONOMIC/POLITICAL THINKING AMONG GROWING NUMBERS OF U.S. CONSUMERS WHO WANT TO HEAR NO MORE ON WATERGATE... AND DEMAND THAT CONGRESS ACT ON INFLATION

### IT WOULD TAKE ONLY 15 MINUTES TO STOP THE PANIC IF ACTION IS SOON

In writing this special issue of *The President's Summary* we have exercised much self-discipline... for what we are reporting is horrendous.

This issue updates your regular Tuesday *Consumer Confidence* Report which accompanies this mailing.

Sindlinger & Company, Inc., Harvard & Yale Avenues, Swarthmore, Pennsylvania, 19081 215/544-8260.

Page 1246

The President's Summary, Issue 271

THE JUNE/JULY TREND --- FOR SIX PERIODS IN TIME

<table><thead><tr><th></th><th>4 Days<br>Ending<br>July 7</th><th>1 Week<br>Ending<br>July 3</th><th>1 Week<br>Ending<br>June 26</th><th>2 Weeks<br>Ending<br>June 19-26</th><th>3 Weeks<br>Ending<br>June 12-26</th><th>4 Weeks<br>Ending<br>June 5-26</th></tr></thead><tbody><tr><td>Percent With<br>Consumer Confidence</td><td>48.4</td><td>51.2</td><td>52.9</td><td>53.8</td><td>54.4</td><td>54.8</td></tr><tr><td>Current Income Index</td><td>120.6</td><td>123.1</td><td>123.4</td><td>123.1</td><td>123.8</td><td>124.0</td></tr><tr><td>Expected Income Index</td><td>101.0</td><td>104.3</td><td>106.5</td><td>107.8</td><td>108.1</td><td>108.1</td></tr><tr><td>Expected Job Index</td><td>100.2</td><td>108.5</td><td>109.5</td><td>109.9</td><td>111.8</td><td>113.2</td></tr><tr><td>Expected Business Index</td><td>131.6</td><td>135.2</td><td>135.2</td><td>135.4</td><td>135.4</td><td>136.9</td></tr><tr><td>Forecast Confidence<br>Index (FCI)</td><td>111.0</td><td>116.0</td><td>117.2</td><td>117.7</td><td>118.9</td><td>119.5</td></tr></tbody></table>

THIS IS WHAT THE FIGURES SAY

* Consumer Confidence is now down 6.4 points for a loss of 11 percent... and we need a 64 percent Consumer Confidence just to get out of the recession level.*

* To get back to a recession level*, our Current Income Index should be at 134.0... it has now fallen 13.4 points or 10 percent below the recession level.

* Our Expected Income Index... to get back to a recession level should be 118.1... now it is 17 points or 14.3 percent below the recession level.

* On Expected Jobs, the recession level is 124.2 and by April and May, this Index was moving up fast from the low 50.0 on January 16th to 115.3 by June 5th. Now the Expected Job Index has fallen back to 100.2... 24 points or 19 percent below the recession level.

* For our Expected Business Index, the recession level is 138.3. From the January low for this Index at 93.2 to the June 12th, 137.5, the Expected Business Index was within eight tenths of a point to break the recession level. Since this Expected Business component is the most important parameter in our SFE forecasts for the stock market... it was the up movement of this Index, along with the Job Index that said the recession low Time To Buy Stock was when the 425 Index was under 104.0 and we had no odds for the S & P 425 Index to go under 98... with 8 to 2 odds to go to 98.0.

Now, the Expected Business Index has turned down and is 6.7 points or nearly 5 percent below the recession level.*

This confidence collapse is now producing 9 to 1 odds for the S & P 425 Index to go below 90.0. There are 8 to 2 odds now for as low as 85.0.

* The recession level is based upon the average for the 1957-58...1960-61...1966... and 1969/70 recessions.

The President's Summary Issue 271

[LC]

Page 1247

TO HEAR IS TO BELIEVE

Since July 1st (6 p.m.) we have been conducting a costly special question sequence ... to determine why our confidence component figures have reversed so downward.

If it were possible to hold an Economic Summit here in Swarthmore, Pennsylvania so that Statesmen could hear what U.S. Consumers are now saying and thinking not only on economics but politics ... the idea of "old-time religion" and *laissez faire* would go out the window as fast as the time it takes to dial another consumer to hear more of the same.

They would hear ---

* how 98 percent say inflation is their number one problem.

* how well the consumer is informed and how a majority laud Nixon on International Affairs --- and then tear him apart on inflation.

* how mad a strong majority of consumers are at Congress ... and for those in Congress who went home over the Fourth of July ... they are hearing this too.

* how up-tight consumers are on inflation --- how they say inflation is over 20 percent now -- they were saying over 15 percent in June.

* how 9 in 10 expect further price rises --- by November election time. ... and how there will be so many new faces in the next Congress.

* how hedge buying to beat further rising prices moved up from May's 20 percent near 38 percent now.

* how the recent Democratic telethon thrilled about 30 percent and turned off 60 percent.

* the rumors going on for further job layoffs --- where people work ... 23 percent now fear their own job.

* how 1 in every 5 consumers are naming a big company or bank --- that they think is in financial trouble.

* how growing numbers of consumers are fed up on politics and Watergate.

And, they would hear
* something we have never heard in the past 20 years ... how consumers are reporting bank withdrawals ... and, how more and more are worrying about their money in their banks and savings accounts ... and talking about withdrawals.

[LC]

Page 1248

A NOTE

From Page 29 of Saturday's *New York Times*. . . this was reported:

The weekly banking data showed a decline in M1 --- currency plus demand deposits --- to $280.4 billion in the week ended June 26, from $281.5-billion in the preceding week.

M2, in turn, which is M1 plus time deposits at commercial banks other than large time Certificates of Deposits, was $597.4 billion, down from $598.6-billion in the preceding week.

Thus, during the latest available data week, M1 has fallen by $1.1 billion and M2 by $1.2 billion on a seasonally adjusted basis.

If clients review our original M2 forecast made on April 24th . . . see your *Consumer Spending & Demand Report* #5 . . . it was forecast . . . based upon consumers' behavior plans to slow down their spending . . . it was forecast that the growth rate for M2 should peak out May 22nd and then decline --- and, this is exactly what happened.

Since our SFE forecasts for M2 have been more accurate on the non-seasonally adjusted figure --- let us review what has happened for the past 9 weeks --- in comparing the actual M2 with the forecast --- and remember the SFE lead time for M2 forecasts are made 36 weeks in advance . . . for that is the lead time for M2.

<table><thead><tr><th>Number of Weeks<br>From The April 24<br>Forecast on M2</th><th>Wednesday<br>Week Date</th><th>SFE Forecast<br>for M2<br>In Billions<br>Of Dollars</th><th>Annual*<br>Rate Of<br>Growth</th><th>Actual M2<br>As Reported<br>In Billions<br>Of Dollars</th><th>Annual*<br>Rate Of<br>Growth</th></tr></thead><tbody><tr><td>1</td><td>May 1, 1974</td><td>$ 594.9</td><td>10.0%</td><td>$ 590.8</td><td>9.0</td></tr><tr><td>2</td><td>" 8</td><td>597.2</td><td>10.3</td><td>590.3</td><td>9.1</td></tr><tr><td>3</td><td>" 15</td><td>597.7</td><td>10.2</td><td>592.3</td><td>9.0</td></tr><tr><td>4</td><td>" 22</td><td>599.0</td><td>10.4 High</td><td>590.4</td><td>9.1 High</td></tr><tr><td>5</td><td>" 29</td><td>599.5</td><td>10.3</td><td>589.2</td><td>8.7</td></tr><tr><td>6</td><td>June 5</td><td>599.5</td><td>10.0</td><td>596.4</td><td>8.9</td></tr><tr><td>7</td><td>" 12</td><td>599.5</td><td>9.7</td><td>598.0</td><td>8.8</td></tr><tr><td>8</td><td>" 19</td><td>599.5</td><td>9.4</td><td>598.6</td><td>8.8</td></tr><tr><td>9</td><td>" 26</td><td>600.4</td><td>9.4</td><td>594.2</td><td>8.7</td></tr><tr><td>10</td><td>July 3</td><td>601.3</td><td>9.4</td><td></td><td></td></tr><tr><td>11</td><td>" 10</td><td>601.8</td><td>9.4</td><td></td><td></td></tr><tr><td>12</td><td>" 17</td><td>611.8</td><td>9.3</td><td></td><td></td></tr><tr><td>13</td><td>" 24</td><td>602.2</td><td>9.2</td><td></td><td></td></tr><tr><td>14</td><td>" 31</td><td>603.6</td><td>9.3</td><td></td><td></td></tr></tbody></table>

*Annual rates are calculated on the basis of this year's week with last year's comparable week.

The above reports a nine-week test for the forecasts.

[LC]

Page 1249

* The peak out for the growth rate in M2 was forecast for May 22 (36 weeks prior) ... and, that was the week for the actual peak out.

* For the past nine weeks the actual M2 figures have come in with accuracy greater than the 1.8 percent margin of error allowed.

* But note that the June 26th M2 figure came in with a fall of $4.4 billion from the previous week which was right on target with the forecast that was made on April 24th data.

* Where the previous eight weeks were right on target with a declining growth rate ... the week of June 26th was $6.2-billion below the forecast and $4.4 billion below the previous week.

This one-week decline in M2 may be or may not be significant --- but, if this decline continues for a few more weeks --- then, what we fear we are measuring --- is a new phenomena.

## FURTHER NOTE

* Prior to June 19th there were no clues from any of our data that consumers were making bank withdrawals based upon fear alone.

Our first clue that consumers were making withdrawals based upon "fear" started to develop about the 20th of June ... which prompted the starting of this special study on July 1st.

## THE SOURCE OF THE CLUE AND CONCERN

Here is the question (since July 1st) that is the source of our clue and concern: *And, one last question --- and I do so much want to thank you for your time --- have you read or heard anything about any big companies or banks --- that are in financial trouble?*

* During July 1 and 2 only about 2 in every 10 said "yes" to this question.

* By the 3rd and 4th... the "yes" was up to more than 4 in 10.

* On Friday and Saturday the "yes" response was up to more than 6 in 10... that represents over 60 percent of all adults in the nation.

When we probe the "yes" on what they have read/or heard --- about half --- pass it off --- with no concern --- just that they know about it... and they all have incomes under $7,500.

* From the other half... which represents 30 percent of the adult population... we do not have the words to describe the fear and panic that this open end question is delivering.

On Saturday, a farmer in Minnesota told us how on Friday he drove 250 miles --- when he said he should have been in his fields --- to Minneapolis to draw his money out of the Franklin National Bank there... he said he heard it was going to go bust.

Page 1250

* ... It is utterly amazing how sophisticated this 30 percent of the population is on interest rates ... and, how they are damming the banks for speculating with their money.

* ... The futility of listening to the building fear on what the stock market will do this week ... is simply panic.

**Back to the open-end questions:** Since July 1st --- not only one respondent --- but a significant number --- cite their knowledge of history on the French Revolution --- they say --- *how rising prices for food by those who cornered the market created riots in Paris over the price of bread.*

On July Fourth --- not only one respondent --- but many in various parts of the nation cracked how *today we are celebrating American independence from the revolution which is only two years away from a bi-centenial. . .and if they don't solve inflation soon --- in 1976 we will be celebrating the second American revolution.*

## NOBODY HANGS UP

This special question sequence adds twenty minutes to our interviewing time. . .and, nobody hangs up. . .consumers talk and talk and talk about their frustrations. . .their fears over their financial future. . .how their savings are being lost by inflation. . .people are just afraid. . .they are crying. . .and some women actually do. . .FOR LEADERSHIP --- FOR SOMEBODY JUST TO DO SOMETHING --- and the wrath is now moving to Congress.

We are endeavoring to use self-restrain and self-discipline as we write to report what we have been hearing since July 1st. . . and, if anyone questions our concerns --- please come to Swarthmore and listen for yourself.

The right thing --- said soon --- and we have some ideas --- could turn this panic around --- or at least check it. . .in 15 minutes.

COPYRIGHT 1974: Sindlinger & Company, Inc., Harvard & Yale Avenues, Swarthmore, Penna. 19081

[LC]

Issue #272

SMTWTFS

Issued: July 17, 1974

Again, your Friday Report in this series is prepared and mailed on Wednesday, July 17th. The following diary will explain why this and other client reports are late. All Consultation Clients had personal coverage last Friday...and we use this report to update all clients until we can get back to regular daily reporting.

### CHRONOLOGY OF RECENT EVENTS

Remember it was
in April 1973
that we forecast
the 1974 recession
because we were the
first to pick up
"hedge buying".

In our July 8th issue of *The President's Summary* we presented consumer data, tabulated through Sunday, July 7th, which included the July 4th holiday --- when we found more people at home on a holiday than at anytime in twenty years --- that is why traffic deaths were off by several hundred. So many were home because they did not want to spend the money to go out.

In last week's *Summary* with latest July 7th data --- a confidence collapse since June 26th* was developing --- and we stated that 12 more days like the consumer depression of the past 12 days --- would turn the word depression to its true economic meaning. **We are now close to this.**

### STEIN STARTS THE TIME BOMB TICKING

As a consumer:
...how do you
react when
you are told
in these times
of no confidence
in anything
...that the
problem
IS
YOUR
FAULT!

While our data were most depressing prior to Sunday, July 7th --- when our consumer sample on Monday digested what Herbert Stein had said on Sunday --- and, following the network evening news on Tuesday --- when the President's new economic counselor, Kenneth Rush, was interpreted by our respondents as saying that there was "no plan"...to solve the inflation problem...our Consumer Confidence components took another sharp nose-dive **OVER THIS PAST WEEK...** see page 1254.

As confidential background: On Tuesday, July 2nd, I invited Kenneth Clawson of the White House to come to Swarthmore to hear consumer response to the special question sequence we added on July 1st...to hear for himself how consumers were lauding the President on international affairs and tearing him apart on inflation...to hear how uptight a small segment of the population is on the safety of their money in the bank (among which were those who connected the Cologne Bank closing with 1929).

And, I understand that Clawson did a good reporter's job in reporting what he heard...within the White House...it set up last Thursday's meeting.

But, what Clawson heard on July 2nd was nothing like what I heard on Monday/Tuesday following the TV/press coverage of Stein and Rush.

*Date of the closing of the Herstatt Bank of Cologne, Germany.

(OVER)

[LC]

The President's Summary, Issue 272

Page 1252

The timing of the Stein and Rush statements...with the consumers' interpretation of what they said... which should have been confined to private meetings and not over national television...produced this response... excerpted from these two divergent newspaper columnists.

## James Reston:

MEANWHILE, there is confusion here over who is in charge of the economy — Kenneth Rush, the President's new economic counsellor, William E. Simon, his new secretary of the treasury, or Roy L. Ash, director of the Office of Management and Budget — but Dr. Herbert Stein, the chairman of the Council of Economic Advisers, at least claims to have found the real culprit for the inflation. The American people are to blame, he said, because they didn't want the tax increases over the last 10 years that the nation needed.

## Carl Rowan:

MAYBE there is no feasible solution short of a worldwide depression, with this country and others then trying to rebuild economies out of the wreckage.

On the other hand, it may simply be that this administration never has had the foggiest notion of what it was doing —and that most of its time has been devoted to flam-floozling the public.

Perhaps the most sickening example of this occured last Sunday when Dr. Herbert Stein, chairman of Mr. Nixon's Council of Economic Advisers, told a nationwide TV audience that the public is to blame for inflation because it would not accept necessary tax increases.

The Nixon administration has resolutely opposed tax increases. In fact it cut taxes in 1969 and 1971, bringing on huge budget deficits. A grand part of Nixon's re-election strategy in 1972 was to oppose a tax increase—and to promise that he would not raise taxes in his next four years.

Stein has been one of the most pathetic personalities in a disgustingly botched up, hokumed up, wishy-washy effort to deal with the U.S. economy. But that Sunday performance was incredible, even for Stein.

When the stock market plummets while prices soar, we might expect the people who are to blame to look for scapegoats. But to try to blame "the American people" for the mess our economy is in is to add crass cynicism to stupidity.

What James Reston and Carl Rowan did not know when they referred to the above in their columns last week, was, what consumers were saying to our interviewers, like: *What kind of clowns do we have in Washington... we have got to vote the bastards out, including Congress...* (space limits the other comments)...you know what you think.

When we observed how far all confidence components had fallen on Monday and Tuesday, and made a new forecast for the S & P 425 Industrial Stock Index on Wednesday AM...we had a further 20 to 25 percent decline for the stock market...we decided to act, as the time bomb was ticking.

As clients know from our weekly reporting... for the past seventeen weeks prior to June 26th... all data were saying that an S & P 425 Index under 104 was a time to buy...as that was the level for the stock market for the recession we were in...and we had no odds for the stock market to fall below 98.0 for the 425 Index. Such a level below 98.0 would be a depression.

*And our calculations were for a good 4 quarter recession.

Page 1254

## THE SEED FOR A NEW FAR RIGHT GOVERNMENT

Our nationwide daily and continuous interviewing technique is so extensive and sensitive that about a year and a half ago... in one week... three bank officials fell into our random sample... two were clients... the other knew of our firm... and that we also had Washington clients.

We are so close to violence over inflation --- there will not be enough reporters available to cover it.

Each asked our interviewer that I contact "him" --- which I did and each expressed "his" concern that "his" bank was loaning money at high interest rates to speculators who were making money on "devaluating the dollar" with American savings.

Wilbur Mills on Thursday reminded me that I had reported this to him then, as we did to the White House and the Treasury. In fact, during the past year and a half... many more in our sample made such mentions.

You will soon start to see it on your tube.

From June 20-25, prior to the closing of the Herstatt Bank of Cologne... sample respondents in Seattle, Minneapolis, Atlanta, Houston, Philadelphia, St. Louis, Dallas, Nashville, Westchester, New York, Long Island, Boston, Chicago, Detroit and in about 20 other areas raised the subject of their banks being involved in some over seas losses and this was the first time there was more than the isolated response which we had picked up over the last year and a half.

By the evening of June 26th and following the TV and press announcement of the Herstatt Bank failure --- too many in our sample (about 20 percent) are reporting "history" to our interviewers to make the situation "uncomfortable and alarming."

Note: Remember this is a confidential copyrighted client report... for our clients only... and what we report above is not for press release.

## THE EXTENT OF OUR LATEST CONFIDENCE COLLAPSE

For today's *Summary*, key consumer data for the past 7 days through the weekend of Sunday, July 14... have been tabulated for the following comparisons:

This fall is sharper than the energy crisis fall!

<table><thead><tr><th></th><th>7 Days<br>July<br>8-14</th><th>7 Days<br>July<br>4-10</th><th>4 Days<br>July<br>4-7</th></tr></thead><tbody><tr><td>Percent With<br>Consumer Confidence</td><td>47.2</td><td>47.9</td><td>48.4</td></tr><tr><td>Current Income Index</td><td>113.8</td><td>117.8</td><td>120.6</td></tr><tr><td>Expected Income Index</td><td>88.2</td><td>94.1</td><td>101.0</td></tr><tr><td>Expected Job Index</td><td>95.1</td><td>105.0</td><td>100.2</td></tr><tr><td>Expected Business Index</td><td>123.9</td><td>128.1</td><td>131.6</td></tr><tr><td>Forecast Confidence<br>Index (FCI)</td><td>103.8</td><td>109.1</td><td>111.0</td></tr></tbody></table>

[LC]

Page 1255

And, to show what has happened with latest data on an accumulative basis, this is the situation:

<table><thead><tr><th></th><th>7 Days<br>July<br>8-14</th><th>14 Days<br>June 30-<br>July 14</th><th>21 Days<br>June 23-<br>July 14</th><th>28 Days<br>June 16-<br>July 14</th><th>28 Days<br>Ending<br>June 26</th></tr></thead><tbody><tr><td>Percent With<br>Consumer Confidence</td><td>47.2</td><td>50.6</td><td>52.0</td><td>52.7</td><td>54.8</td></tr><tr><td>Current Income Index</td><td>113.8</td><td>119.7</td><td>121.0</td><td>121.5</td><td>124.0</td></tr><tr><td>Exoected Income Index</td><td>88.2</td><td>99.2</td><td>102.9</td><td>104.7</td><td>108.4</td></tr><tr><td>Expected Job Index</td><td>95.1</td><td>105.4</td><td>108.0</td><td>108.7</td><td>113.2</td></tr><tr><td>Expected Business Index</td><td>123.9</td><td>130.7</td><td>132.7</td><td>133.4</td><td>136.9</td></tr><tr><td>Forecast Confidence<br>Index (FCI)</td><td>103.8</td><td>111.8</td><td>114.6</td><td>115.7</td><td>119.5</td></tr></tbody></table>

Since June 26th...in less than a month

* Consumer Confidence has declined by 7.6 points for a decline of 13 percent.

* The Current Income Index has declined from 124.0 to 113.8... down 10.2 points for a drop of 8.2 percent. This is the sharpest 3-week decline for this index in 20 years --- even sharper than during the December/January energy crisis. Remember, our Current Income Index is not based upon anticipations --- it's real... now.

Remember
the June 26th
figures were
for a
deep recession
--- the new
figures
say
depression.

* The Expected Income Index has plummeted from 108.4 to 88.2... a decline of 20.2 points for a decline of over 18 percent.

With the Expected Income Index at 88.2... this is almost 10 points below the energy crisis low --- which was the 20-year low.

* The Expected Job Index fell from 113.2 to 95.1... for a fall of 18.1 points.

* The Expected Business Index fell from 119.5 to 103.8... a drop of 15.2 points for a decline of 12.7 percent. In 20 years, this is the sharpest 3-week plus fall ever.

## THE FULL IMPACT

The following comparison table presents confidence components data for the last seven days --- July 8-14... with the seven days June 20-26 prior to the Herstatt Bank failure.

Page 1256

The period of time between this comparison is less than three weeks.

<table><thead><tr><th rowspan="3"></th><th colspan="2">FOLLOWING STFIN<br>STATEMENT</th><th colspan="3">PRIOR TO THE CLOSING<br>OF THE COLOGNE,<br>HERSTATT BANK</th></tr><tr><th colspan="2">7 DAYS<br>JULY 8-14</th><th colspan="2">7 DAYS<br>JUNE 20-26</th><th rowspan="2">CHANGE<br>Percent<br>Points</th></tr><tr><th>Percent</th><th>Number<br>(000)</th><th>Percent</th><th>Number<br>(000)</th></tr></thead><tbody><tr><td>UNIVERSE OF TOTAL SAMPLE<br>PROJECTED TO ALL HOUSEHOLD<br>HEADS --- 18 YEARS &amp; OLDER...</td><td>100.0</td><td>117,754</td><td>100.0</td><td>116,913</td><td>100.0 + 841</td></tr><tr><td>WITH CONSUMER CONFIDENCE.....</td><td>47.2</td><td>55,582</td><td>52.9</td><td>61,860</td><td>- 5.7 -6,278</td></tr><tr><td>A. CURRENT INCOME STATUS</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>1. INCOME IS UP...........</td><td>28.7</td><td>33,836</td><td>32.6</td><td>38,166</td><td>- 3.9 -4,330</td></tr><tr><td>2. INCOME IS DOWN........</td><td>26.0</td><td>30,581</td><td>22.2</td><td>26,002</td><td>+ 3.8 +4,579</td></tr><tr><td>3. INCOME IS SAME........</td><td>44.4</td><td>52,264</td><td>44.8</td><td>52,393</td><td>- 0.4 - 129</td></tr><tr><td>4. DON' KNOW/REF........</td><td>0.9</td><td>1,073</td><td>0.4</td><td>352</td><td>+ 0.5 + 721</td></tr><tr><td>UP/DOWN BALANCE ........</td><td>+ 2.7</td><td>3,255</td><td>+10.4</td><td>12,164</td><td>- 7.7 -8,909</td></tr><tr><td>B. HOUSEHOLD INCOME FORECAST</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>1. EXPECT UP...............</td><td>32.3</td><td>38,052</td><td>37.6</td><td>43,996</td><td>- 5.3 -5,944</td></tr><tr><td>2. EXPECT DOWN...........</td><td>19.8</td><td>23,285</td><td>12.7</td><td>14,855</td><td>+ 7.1 +8,430</td></tr><tr><td>3. EXPECT SAME...........</td><td>44.2</td><td>52,071</td><td>46.5</td><td>54,524</td><td>- 2.3 -2,453</td></tr><tr><td>4. DON'T KNOW/REF........</td><td>3.7</td><td>4,346</td><td>3.1</td><td>3,538</td><td>+ 0.6 + 808</td></tr><tr><td>UP/DOWN BALANCE ........</td><td>+12.5</td><td>14,767</td><td>+24.9</td><td>29,141</td><td>- 12.4 -14,374</td></tr><tr><td>C. EMPLOYMENT FORECAST</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>1. WILL BE MORE JOBS ....</td><td>24.3</td><td>28,565</td><td>28.3</td><td>33,135</td><td>- 4.0 -4,570</td></tr><tr><td>2. WILL BE FEWER JOBS ....</td><td>27.7</td><td>32,571</td><td>23.3</td><td>27,202</td><td>+ 4.4 +5,369</td></tr><tr><td>3. SAME AS NOW ...........</td><td>44.7</td><td>52,611</td><td>44.7</td><td>52,276</td><td>-- + 335</td></tr><tr><td>4. NO OPINION ............</td><td>3.3</td><td>4,007</td><td>3.7</td><td>4,300</td><td>- 0.4 - 293</td></tr><tr><td>MORE/FEWER BALANCE .......</td><td>- 3.4</td><td>4,006</td><td>+ 5.0</td><td>5,933</td><td>- 8.4 -9,939</td></tr><tr><td>D. BUSINESS FORECAST</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>1. WILL BE BETTER .......</td><td>27.7</td><td>32,663</td><td>31.3</td><td>36,564</td><td>- 3.6 -3,901</td></tr><tr><td>2. WILL BE WORSE .......</td><td>23.0</td><td>27,117</td><td>18.6</td><td>21,783</td><td>+ 4.4 +5,334</td></tr><tr><td>3. SAME AS NOW ...........</td><td>45.3</td><td>53,299</td><td>46.6</td><td>54,502</td><td>- 1.3 -1,203</td></tr><tr><td>4. NO OPINION ............</td><td>4.0</td><td>4,675</td><td>3.5</td><td>4,064</td><td>+ 0.5 + 611</td></tr><tr><td>BETTER/WORSE BALANCE ....</td><td>+ 4.7</td><td>5,546</td><td>+12.7</td><td>14,781</td><td>- 8.0 -9,235</td></tr></tbody></table>

Each quarter, our universe base is corrected for population change... and 841,000 household heads are added to the 3rd quarter of 1974, as shown above.

The significant figures to observe from the preceding table is the balance... i.e., the net difference between the gain and the loss as indicated by ►.

## A. ON CURRENT INCOME

* Three weeks ago 12 million more consumers were reporting their income up over those reporting it down.

* Now, only 3 million are in this category... i.e., the shift to lower Current Income in three weeks involves nearly 9 million consumers.

## B. ON EXPECTED INCOME

* Three weeks ago 29 million more consumers expected an income gain than expected an income loss.

* Now, this figure has been cut nearly in half --- only about 15 million more expect a gain in six months hence over those who expect a loss.

[LC]

Page 1257

## C...ON EXPECTED JOBS

* Three weeks ago the Expected Job Balance was on the plus side by nearly 6 million.

* Now, the Expected Job Balance has turned negative where 4 million more expect fewer jobs than more jobs --- this switch involves almost 10 million in 3 weeks.

## D...ON EXPECTED BUSINESS

* Three weeks ago nearly 15 million more expected improved business over those who expected worse business.

* Now, this figure is cut by nearly two-thirds. . .as only 5.5 million have a positive balance on Expected Business.

## SUMMARY

The confidence fall for the Job and Business Indexes is mostly psychological --- but the fall for the two Income Indexes is not.

The President has announced he will soon address the nation. Saying the right thing. . .may save much trouble. . .the wrong thing. . .might change our entire way of life. . .we are working on this.

Issue #273

[LC]

SMTWTFS

Issued: July 19, 1974

Later next week we hope to get back to our regular report schedules. . . and will utilize this series for all client communications in the meantime.

CLIENT SURVEY: Returns are coming in on our client survey concerning our reporting. Early returns show that about 65 percent want capsulized fast-reading reporting. . . with 25 percent desiring all the details. . . and 10 percent in between.

Here is the capsule for the 65 percent:

* By July 17th all confidence data are down to the point where we change our April 1973 recession forecast to depression.

* If Nixon's Economic Advisers would take off their rose colored glasses and read their own data the way it is, and not the way he wants to hear it. . . he would take the proper actions.

* To reverse the further 20 percent decline for the S & P 425 Index Forecast. . . from where it is now, based upon July 17th data. . . he would act on the suggestions offered.

* The stock market moves up on any hair of good news. . . because it wants to go up. . . it's afraid to go down.

* We hope the President acts before the stock market does.

* What has turned the recession to depression is the current sharp fall in our two income components — both falling to 20 year lows together. Never have these two components fallen together with such speed.

## THE LOGIC FOR CHANGING OUR FORECASTS FROM — RECESSION TO DEPRESSION

On Wednesday, July 17th. . . Sindlinger & Company completed its 999th week of daily and continuous interviewing of U.S. consumers for our various confidence components and indexes.

Since April of 1973, our Indexes on consumer behavior have been saying recession. . . following is the logic on why we now move this to depression.

Page 1260

The President's Summary Issue 273

LATEST KEY COMPARATIVE DATA

<table><thead><tr><th></th><th>A</th><th>B</th><th>C</th><th>D</th><th>E</th></tr><tr><th></th><th>7 Days<br>Latest Week<br>July 17th</th><th>28 Days<br>Prior To<br>Latest<br>Confidence<br>Slide<br>Jun.26,'74</th><th>Low<br>Point Of<br>Energy Crisis<br>Jan.16,'74</th><th>Prior To<br>Junking Of<br>Wage-Price<br>Freeze On<br>Jan.11,'73</th><th>Recession<br>Level</th></tr></thead><tbody><tr><td>Percent With<br>Consumer Confidence</td><td>46.9</td><td>54.8</td><td>37.0</td><td>74.7</td><td>64.0</td></tr><tr><td>Current Income Index</td><td>113.8</td><td>124.0</td><td>132.0</td><td>140.0</td><td>134.0</td></tr><tr><td>Expected Income Index</td><td>87.3</td><td>108.4</td><td>98.4</td><td>122.2</td><td>118.1</td></tr><tr><td>Expected Job Index</td><td>98.5</td><td>113.2</td><td>49.1</td><td>130.2</td><td>124.2</td></tr><tr><td>Expected Business Index</td><td>123.3</td><td>136.9</td><td>93.2</td><td>158.9</td><td>138.3</td></tr><tr><td>Forecast Confidence<br>Index (FCI)</td><td>103.1</td><td>119.5</td><td>80.2</td><td>137.0</td><td>126.9</td></tr></tbody></table>

On Consumer Confidence...it is now down to 46.9 percent (A). Only 9.9 points above the January Energy Crisis low (C). 17.1 points below or 26.7 percent under our recession (E) level.

Prior to the January 11th, 1973, blunder of junking the wage-price controls when they were working...when the rate of inflation was just over 3½ percent...and consumers knew it...Consumer Confidence was at 74.7 percent (D) and this means that the decline of Consumer Confidence from then (D) to now (A) is for a 27.8 point fall which represents a decline of 37 percent.

To put this figure in focus:

Prior to January 11, 1973 --- following Nixon's landslide election because he stopped the 1971 panic over inflation...84 million U.S. consumer household heads (74.7 percent) had Consumer Confidence.

Now (July 17th) only 55 million have Consumer Confidence and it is still falling...which means that 29 million U.S. consumers have lost confidence during the past eighteen months.

THE FORECAST CONFIDENCE FALL IS JUST AS BAD

Prior to January 11, 1973, our Forecast Confidence Index (FCI) was up to 137.0...this was within two points of the 1968 all-time high. An index of 137.0 at that time represented 80.2 percent or 96,562,000 U.S. consumers...and peace and prosperity --- something the world has never known...was at hand.

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[LC]

► Now (July 17th) our FCI is down to 103.1 (A)...and still falling... which is:

... down 33.9 points or by nearly 25 percent from the junking of Phase II (D),

... down 23.8 points below the recession level (E),

... down 16.4 points from June 26 on the day the Herstatt Bank of Cologne fell, and it is...

... only 22.9 points above the energy crisis low (C).

In terms of number of consumers...this FCI fall means that now (July 17th) only 75,231,000 (64.3 percent) have Forecast Confidence for the six months ahead.

That says that in 18 months, 21,331,000 U. S. consumers have lost Forecast Confidence for a decline of 22 percent.

## BUT HERE IS WHERE THE DEPRESSION NOW COMES IN

► ... Now (July 17th) our Current Income Index is down to 113.8 (A)... down by 10.2 points or 8.2 percent from June 26th (B).
... " " 18.2 " " 13.7 " " the energy crisis low (C).
... " " 20.2 " " 15.0 " below the recession level (E).
... " " 26.2 " " 18.7 " from when Phase II was holding the rate of inflation to 3½ percent.

At no time in 20 years has our Current Income Index fallen with this magnitude...so fast...especially since June 26th.

In fact, during the 1960-61 recession --- and during the 1966 mini-recession --- our Current Income Index hardly fell at all...for the 1970 recession it declined only 12.6 points from 139.1 in January to 126.5 in May...and then shot up within a month.

## THE DEPRESSION IS COMING FROM AN EXPECTED INCOME COLLAPSE

■ Our Expected Income Index...the most telltale and the smoothest curve of all our confidence components over the past 20 years...has collapsed now to an all-time dangerous low.

... Now (July 17th) our Expected Income Index is 87.3, to fall off the chart (see your next Tuesday report). Referring to the left page table.

Page 1262

## EXPECTED INCOME (continued)

* Our July 17th Expected Income Index. . . now measuring consumers' judgments of what their income status will be between now and next January -- tells this depression story:

  * Since (B) June 26th, Expected Income Index has declined by 21.1 points for 19.4 percent.

  * Since (C) January 16th, Expected Income Index has declined by 11.1 points for 11.2 percent.

  * Since (D) January 11, 1973 Expected Income Index has declined by 34.9 points for 28.5 percent.

and . . . our Expected Income Index is now down 30.8 points or 26.0 percent BELOW THE RECESSION LEVEL.

## WE ARE NOT SAYING DEPRESSION -- THE CONSUMER IS

During the 1970 recession the low point for our Expected Income Index was 99.6 during August 17, 1970, and rebounded within a month.

Thus, then this index was only 18.5 points under the recession level. . .
NOW IT IS 30.8 points under THE RECESSION LEVEL.

**CONCLUSION:** For all recessions including the 20 previous confidence declines over the past 20 years . . . the two Income Components have never moved down together so low, so fast . . . as they are now.

With the current FCI decline, our SFE Forecasts for our Current Income Index is now giving over 9 to 1 odds that the Current Income Index for the next 13 weeks is due for a further 10 to 15 percent fall.

Corollary data show that 68 percent of all consumers now say inflation for the things they buy is over 20 percent.

Remember that it takes from four to nine months for the confidence decline to work its way through the economic system.

Remember also, that when we forecast back in March that GNP would be "no growth" for all of 1974 . . . both of our Income Components were not as deep in the recession level as they are now. Thus, there are now three more quarters of "no growth" GNP coming up.

Any unauthorized use of any part of this report is forbidden -- and such a person will be billed for the top purchase fee.

This is a Xeroxed Copy

[LC]

S T W T F S

Sindlinger's Economic Service

Harvard and Yale Avenues, Swarthmore, Pennsylvania 19081 215/544-9000

STOCK MARKET & MONEY

July 29, 1974

Part I M-253 - M-256

Client Note: The report which was prepared for this date has been scrapped. By July 24th it appeared that the sharp confidence decline which started on June 26th was slowing down and was leveling off.

However ---

... Since President Nixon's disastrous economic talk to the nation on Thursday (July 25th) ---

... counted with the impact of the "Roman Arena on The Tube"

... we are now in another confidence crisis ... worse than during the energy crisis.*

AN ABC SUMMARY:

A. In our *Stock Market & Money* Report for June 10th we outlined why we had a 17 week countdown for the stock market from Bear to Bull.

And, we said --- ONLY A MAJOR CATASTROPHE CAN STOP IT.

WE NOW HAVE THE MAJOR CATASTROPHE!

Make no mistake about it!

B. In today's Monday Report which we junked... we were documenting, that if our confidence components were to hold at the July 24th low level --- and,

as we said in our last issue of the *President's Summary*...
this would make six quarters of "no growth" recession (we
already have two of them) bordering on depression ---

then our S & P 425 Industrial Stock Index low
for the next 15 weeks, was:

...9 to 1 odds for a 425 Index low at 85.0.

...8 to 2 " " " " " " 80.0.

...no odds under 80.0.

Had this forecast held --- the 9 to 1 odds would have been for a decline of 18 percent from the 104.0 Index which held throughout the energy crisis. ...and, the 85.0 Index forecast with 9 to 1 odds, would have been 13 percent below the 98.0 lowest odds prior to June 26th.

*See tomorrow's Tuesday, Consumer Confidence Report.

- OVER -

C. With the confidence fall since last Wednesday, July 24th. . we junk the above bad news.

Assuming that our confidence since July 24th stays where it was yesterday (Sunday) a preliminary forecast made as this is written. . . now has the 9 to 1 odds for the next fifteen weeks at near 80.0 for the S & P 425 Index.

That would be down nearly 14 percent from Friday's S & P 425 Index close of 92.8.

NOTE: This does not provide a full report for this week, since we junked the one that was prepared.

A full report will be resumed next Monday.

Any unauthorized use of any part of this report is forbidden - and such a person will be billed for the top purchase fee.

FRO
FOR
(WIT)

With PHILLIPS SURVEY for Monday, May 20, 1974

PHILLIPS-SINDLINGER POLL

Public Rates Kissinger Over Nixon in Foreign Policy

1117 Interviews, May 9-12, 1974

"Now, thinking of Kissinger as Secretary of State, how would you rate the overall kind of job he is doing?"

Excellent ............ 48%
Pretty Good ............ 35%
Only Fair ............ 10%
Poor .................... 7%
No Opinion ............ 0%

1677 Interviews, April 29-May 4, 1974

"Now, thinking of President Nixon only on an international basis, how do you rate him?"

Excellent ............ 23%
Pretty Good ............ 35%
Only Fair ............ 27%
Poor .................... 12%
No Opinion ............ 3%

King Features - Bender

THE PHILLIPS-SINDLINGER SURVEY

BY KEVIN P. PHILLIPS AND ALBERT E. SINDLINGER

PUBLIC RATES KISSINGER AHEAD OF NIXON ON FOREIGN POLICY

With 83 percent of the American people favorable to the job he is doing as Secretary of State, Henry Kissinger is the most admired, most closely-watched and most approved public figure in the United States today.

These and other public attitudes toward Secretary Kissinger emerged in a May 9-12 Phillips-Sindlinger nationwide telephone poll of 1,117 persons.

Here are the principal findings:

+ 83 percent of the American people approve of Kissinger's performance as Secretary of State, while only 17 percent are negative.

+ 84 percent of those questioned reported that they had read or heard about Kissinger within the last week — a very high level — and an extraordinary 63 percent were able to tell our interviewers where Kissinger was on the day they were interviewed.

+ Kissinger's foreign policy approval rate is now considerably higher than President Nixon's.

Perhaps because of the contrast Kissinger's international diplomacy offers to the squalor of Watergate, a growing number of Americans are paying close attention to the well-publicized activities of the Secretary of State.

Our interviewers asked people, "When was the last time you read or heard about Secretary of State Henry Kissinger?" These were the replies: Sixty-three percent said today or yesterday, 21 percent said 3-7 days ago, 4 percent said a week to a month, and 3 percent said over a month ago. This high attention rate — a striking 84 percent had read or heard of Kissinger within the week — is the sort normally reserved for Presidents, not Cabinet officials.

They Knew Where He Was

Even more surprisingly, 63 percent of those persons questioned were able to tell us where Kissinger was on that particular day — Syria, Jerusalem, Cairo or whatever. This is indicative both of the extreme interest in Kissinger and the intensity of his coverage in the media. Among the 37 percent who could not give our interviewers Kissinger's correct whereabouts, a number volunteered that he was still honeymooning in Acapulco, Mexico.

An extremely favorable portrait of Kissinger emerged when people were asked, "Now, thinking of Kissinger as Secretary of State, how would you rate the overall kind of job he is doing?" Forty-eight percent described his performance as excellent, 35 percent characterized it as pretty good, 10 percent rated his efforts as only fair, and just 7 percent described his performance as poor.

(MORE)

FOR RELEASE MONDAY, MAY 20, 1974

xx poor.

Only 58 percent for Nixon

According to these figures, the public rates Kissinger's international capability more favorably than they rate the President's. Whereas Kissinger's good and excellent ratings total 83 percent, the President's foreign policy job gets a positive rating of only 58 percent. Thirty-nine percent of those questioned gave the President a negative rating, while just 17 percent said they were similarly critical of Kissinger.

Those respondents who described Kissinger's performance in office as "only fair" or "poor" were then asked to elaborate on their negative feelings. Our interviewers then coded the responses into different groups. About one-third of the Secretary's critics mentioned their belief that he was "too social," that he was "a show-off," that he was always "looking for the limelight," or that he was "a playboy." Another third made some reference to his deals with Russia, either singling out the Wheat deal or criticizing close U.S.-Russian ties in general. A smaller group regretted that Kissinger had involved us with Red China. Another small minority mentioned that Kissinger had spoken too soon about peace in Vietnam because the United States was still involved. It should be noted that these persons criticizing Kissinger represent only one-sixth of the total sample.

Implicit in our findings is further testimony to the extraordinary power of the U.S. media to shape the image of a public official through the intensity and outlook of their coverage. Public fascination with Kissinger, and strong approval of his job, is closely related to heavy, favorable media attention.

© King Features Syndicate, Inc., 1974.

(MP-FV)

University of Michigan

December 1975

POLITICAL SCIENCE 667 - FINAL EXAMINATION

(Analysis and Prediction In Foreign Policy)

This is a 48-hour, take-home, open-book examination. Pick it up at your convenience, log it out in Rm. 2013, and return it there no more than two days later; students whose first language is not English may take three days.

Select any three of the items, and interpret them in any fashion that seems consonant with the objectives and assumptions of the course, and articulate that interpretation (i.e., tell the reader what problem or question or mission you're addressing), before turning to your discussion. Use no more than 6 or 8 double-space typed pages for each. As you know, any source of information or insight may be used in preparing your brief essays, etc., but be sure that, after consulting the books, journals, files, and people that seem most relevant, you actually compose the statements yourself. Be fairly profligate in your citations, but don't worry about full citations; exact author and exact or approximate titles are OK and should be inserted into text. No footnotes, either for citations or for obiter dicta. Concentrate on tight and explicit organization, using plenty of sections and sub-sections (named, not merely numbered or lettered) and also attend to semantic precision as well as to details of grammar, punctuation, and spelling. Papers that are deficient on any of these mechanical dimensions will be returned for revision; unless your reader can figure out what you're saying, he/she cannot evaluate it.

1. Assume that you are a consultant for a foreign ministry's training institute, and prepare a one-week course designed to introduce mid-career officers to the more relevant social science work in world politics and foreign policy.

2. In light of the many models and divergent variables that have been offered in order to account for foreign policy decisions in the 20th century, outline a model that you find most compelling. Feel free to borrow and adapt from any sources, and to combine verbal and graphic representations.

3. What have been the major continuities and the major changes in the global system over the past century and what do we know of their effects on the conduct of foreign policy?

PS 667 Final
December 1975

4. What are the major differences between post-diction and pre-diction in world politics, and what are the implications of these differences for the decision-maker?

5. A recurrent issue in all the social sciences concerns the relative potency of deterministic, probabilistic, and voluntaristic factors in accounting for social outcomes. Using this, or some comparable differentiation, examine the question as it pertains to foreign policy decision-making.

6. The post-hoc explanation of outcomes in inter-nation interactions can be expected to vary within and between such groups of interpreters as practitioners, historians, operations researchers, and social scientists. What are the dominant explanatory themes of these (or other relevant groups) and why would you expect to find them articulated by each such type of interpreter?

7. Identify and discuss the pros and cons of utilizing the global system concept in the study and/or practise of foreign policy decision-making.

8. Summarize and evaluate the factors that best account for the very modest impact to date of social science knowledge upon the foreign policy decision process.

9. There are, of course, many knowledge bases from which one may attempt to make forecasts about social phenomena. Identify the main types of such knowledge, indicate the sorts of forecasts they permit, explain why these limitations (if any) obtain, and then compare their relative utility for the foreign policy decision-maker.

10. A fair number of world politics scholars have shifted their research, teaching, and policy priorities in a variety of ways during their careers. Compare any two of the more visible scholars in terms of such shifts and the alternative explanations thereof.

11. Having read and--if you've been alert--also seen and heard both Alice Rivlin and Karl Deutsch, compare and evaluate their respective approaches to analysis and prediction in the formulation, execution, and evaluation of social policy.

POLITICAL SCIENCE 667

PROSEMINAR ON ANALYSIS AND PREDICTION IN FOREIGN POLICY

Fall Term (I) 1975--6

Tuesday, 7:30-9:30 p.m.
2055 MHRI

J. David Singer

2012 MHRI: 4-9548 or
6634 Haven: 3-3250

BACKGROUND AND RATIONALE

This course, offered this year for the first time, rests on four assumptions:
a) that the foreign policies of the nations (and other actors) have been far
from successful in promoting the interests of their citizens;
b) that the
knowledge base utilized by foreign policy decision makers is inadequate;
c) that there may be some connection between points a and b; and d) that, therefore,
graduate education in world affairs might profitably look at that connection.
To put it another way, most world politics scholars agree that there is a
large and possibly dangerous gap between today's practitioners and researchers,
but we have rather different notions as to why that gap exists and how it might
best be bridged. These differences rest on issues of epistemology, ethics, and
praxiology, but remain far from clear and explicit, and thus one of the objec-
tives of the course is to clarify the elements that make for, and might help
to bridge, that gap.

In pursuit of that objective, we will try to focus on the role of knowledge in
the formulation and execution of foreign policy, and will address the following
sets of questions:

a) What are the procedures followed and criteria applied in the making of foreign policy in the contemporary system?

b) What are the major flaws in those procedures and criteria?

c) To what extent might these flaws be remedied?

In partial response to those questions, we will examine the extent to which
our knowledge of world politics is accurate and complete and the extent to
which that knowledge is actually utilized by those who behavior constitutes
the essence of world politics. This intersection is, for all of the social
sciences, a complex one, with murky boundaries between actor and observer, and
with rather ambiguous feedback loops. One of the more obvious of the several
complexities is the fact that the decision maker, in the very process of apply-
ing knowledge, will generate events whose outcome may well require a change in
that knowledge.

Worth bearing in mind is the fact that this course is aimed at two slightly
different groups: a) those Ph.D. students whose careers are likely to be in
teaching and research; and b) those in the M.A. and Lavand World Politics
programs who are likely to end up in governments, law firms, IGC's, the media,
etc. This dual audience exemplifies the importance of undergraduate education that

PS 667

Page 2

can bridge the gap between the theorist and the practitioner, and increase the professional competence of each. While the academically oriented student will probably take a number of other scientifically oriented courses and go on to acquire a fair amount of research ability, this may be the only such course for the others; I trust that it will satisfy the needs of both groups.

For those of you who are relatively unfamiliar with modern methods, there are quite a few basic texts, but a more general and very useful volume--because it unfolds in the context of substantive questions--is Ted Robert Gurr, *Politimetrics: An Introduction to Quantitative Macropolitics*, Englewood Cliffs, N.J.: Prentice-Hall, 1972.

## READINGS

Before turning to the outline, a few words regarding general procedure might be appropriate. This reading list, I should note, will be briefer than those I usually prepare because a long-standing project of mine is now complete; reference is to the LaBarr and Singer *Bibliography of International Politics* (ABC-CLIO, in press, with an advance copy on the graduate shelf). In it you will find an extensive guide to the general literature, which provides the essential background and framework for specialized courses such as this one: journals, texts, anthologies, special monographies, data sources, yearbooks, other bibliographies, etc.

While the overall reading pattern for the term as a whole is more important, you should nevertheless follow a fairly regular weekly routine. This is essential to both your cumulative mastery of the literature and to profitable discussion at-and between--weekly meetings of the seminar. The reading list is intended to guide but not constrain you in pursuit of that mastery. For each topic, then, there will be a few required items (articles, chapters, and papers) that everyone will read. Then there will be few items (books and papers) that are high priority; you should read part or all of some of these items, depending on your interests and the knowledge brought to the course. Third, there will be some low priority books and papers some of which you'll want to examine in the light of your current research policy interests; others you'll turn to later on in your career. Finally, perhaps most important--are the articles and papers that you'll find on your own, browsing through the more relevant journals, anthologies, and files of unpublished papers.

To facilitate your reading, there will be four physical sources of material. First, there are the books, anthologies, and journals below. Next there are those items on overnight reserve in the Grad Library, much of this will be the high priority material. To the extent feasible, these should be read in the library so as to maximize their availability others. Then there are the many items in the library stacks, reference room, reading room; most of that will be in the low priority category. Finally, the Correlates of War Project has set up an excellent collection of unpublished papers, reports, press releases, clippings, and other fugitive materials in the World Politics area,

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and these are available in my assistant's office in 2013 MHRI. His hours
will be posted at the beginning of the term. Also, a special collection of
reserve materials, which includes looseleaf binders with my published articles
and those of the Correlates of War Project--as well as materials specific to
this course--are available in the MHRI library: its hours are 8 a.m. to
5 p.m.

For those who've not yet made the discovery, an excellent place to begin
any new inquiry is the *International Encyclopedia of the Social Sciences*;
a copy of its Table of Contents is on the MHRI World Politics shelf.

In order to achieve a balance between a common core of materials that all
will read and the need to explore and browse according to your own pro-
clivities, each of you will, for each topic, search out, read, and write an
abstract of one or two data-based studies dealing more or less directly with
that topic. As far as possible, follow the format used in Susan Jones and
Singer, *Beyond Conjecture in International Politics: Abstracts of Data-Based
Research*, Itasca, Illinois: Peacock Publishing Company, 1972. These will be
distributed to the others as they come in, to maximize our collective
efficiency.

Despite efforts to the contrary, a course such as this can become rather
provincial, largely because most of the research and writing (even by non-
Americans) focuses on U.S. foreign policy. To partially mitigate this bias,
be sure to browse in the bibliographies, library stacks, card catalog,
and the periodical reading room, etc. And if you have a foreign language
competence, keep it alive by reading a fair amount of work in that language;
see me if you need some guidance into the non-English literature.

## WRITTEN ASSIGNMENTS

In addition to the abstracts that you'll be preparing from time to time, there
are two other written assignments. One is the final examination, which will
be of the 48-hour take-home type, due about 15 December. The other is a
policy memorandum of about 10-12 pages, due 11 November, as follows:

In a recent address (1 March 1975) U.S. Secretary of State Kissinger stated
that "the foreign policy of the U.S. has one overriding goal: to help shape
a new structure of international relations which promotes cooperation rather
than force, negotiation rather than confrontation, and the positive aspira-
tions of peoples rather than the accumulation of arms by nations." Assume
for the moment that this *is* indeed the dominant goal of U.S. foreign policy
in 1975 and that you're on a task force whose assignment is to suggest the
types of foreign policy moves by the U.S. (or another state, if you prefer)
that would so change the "structure" of international relations. Take any
sector of world affairs, spell out the ways in which the structure and/or
culture of today's global system induces dysfunctional behavior, and then
indicate the policy moves on the part of the U.S. that might be expected to
improve those characteristics of the system. Be sure to make very explicit
the "causal" sequence (and time lag required) that might connect the policy
moves to the system changes and to summarize-and evaluate-the evidence on
which your scenario rests.

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# TENTATIVE OUTLINE

## 1. (9 and 16 September) Empirical and Epistemological Assumptions.

The first two weeks are aimed at an examination of the course's assumptions, and will therefore concentrate on: a) the extent to which there is room for improvement in foreign policy performance; b) whether knowledge can make a difference. To that end, each of us should become familiar with a given body of literature, certain historical facts (or interpretations thereof), and some of the central issues surrounding the course's objectives and payoffs.

While it is never too soon to begin browsing in the relevant literature (and the Labarr-Singer *Bibliography of International Politics* would be the place to begin) the emphasis during the first few weeks will be on a common core of material.

As to the basic argument regarding need for improvement and the general possibilities, see David V. Edwards, *Creating a New World Politics: From Conflict to Cooperation* (New York: McKay, 1973). Read also as much diplomatic and military history as you need to fill in your grasp of the major events and trends of the recent and more remote past. Three useful summaries are:

*   Charles Robertson. *International Politics since World War II*. New York: Wiley, 1966, and 1975.

*   F.S. Northedge and M.J. Grieve. *A Hundred Years of International Relations*. New York: Praeger, 1971.

*   Pierre Renouvin and Jean-Baptise Duroselle. *Introduction to the History of International Relations*. New York: Praeger, 1967.

Prudent, as well as intellectually useful, is getting a sense of the in-
structor's basic orientation to the course you are taking. To that end, let
me recommend two items:

Singer. *The Scientific Study of Politics: An Approach to Foreign Policy Analysis*. Morristown, N.J.: General Learning Press, 1972. (This is a 32 page module, costs under $2.00, and should be purchased and read by 16 September.)

Singer. *Science and Conscience: Papers on World Politics and Peace Research*. (This is a collection of my papers dealing with the role of knowledge in foreign and military policy over the past 15 years or so. Not yet published, but available in manuscript form on grad reserve shelf. Glance through it early, and then return to specific parts of it as appropriate.)

The nearest thing to an appropriate and high quality text is Raymond Tanter
and Richard Ullman (eds.), *Theory and Policy in International Relations*.

Princeton: Princeton University Press, 1972 (Also a special issue of *World Politics*, Vol. 24, 1972.)

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A sharp exchange of views may also be found in the papers by Bull and by Singer in Klauss Knorr and James Rosenau (eds.), *Contending Approaches to International Politics*, Princeton: Princeton University Press, 1969.

## 2. (23 and 30 September) Some Historical Cases.

With a general overview of the problem(s) in front of us, it is now profitable to examine some representative case studies of important foreign policy decisions in international history. Few of us will already be familiar with more than a few such cases, and the more we know of: a) the relevant facts, and b) the extant interpretations, the more competently we can generalize across the cases. [After examining some of these cases we will turn to a systematic look at: a) the variables that are alleged to be critical in determining the decisions and outcomes, and b) some models that attempt to put those variables together and to explain the resulting decisions.]

The case study literature is massive, and while most of these studies are on the pre-operational side, a few rest on fairly reproducible data. During the next two weeks, select and read one or more of the traditional case studies (in book or article form) and one of the more data-based ones. Write a precis of the first and an abstract of the second, and be prepared to discuss both at the seminar meetings.

Among the many traditional case studies of foreign policy decision making are:

Bernard C. Cohen. *The Political Process and Foreign Policy: The Making of the Japanese Peace Treaty, 1957.*

Richard F. Fagen. "Calculation and Emotion in Foreign Policy: The Cuban Case," *Journal of Conflict Resolution*, 6/3 (1962).

Herman Finer. *Dulles over Suez: The Theory and Practice of His Diplomacy*. 1964.

Robert Dallek. *1898: McKinley's Decision*. 1969.

Pacific War Research Society. *Japan's Longest Day*. 1968.

Nobutaka Ike. *Japan's Decision for War*. 1967.

Allen Whiting. *China Crosses the Yalu*. 1960.

Alexander George. "American Policy-Making and the North Korean Aggression," *World Politics*. (1955).

Charles McClelland. "Decisional Opportunity and Political Controversy: The Quemoy Case," *Journal of Conflict Resolution*, 6/3 (1962).

John W. Spanier. *The Truman-MacArthur Controversy and the Korean War*. 1959.

Arnold L. Horelick, "The Cuban Missile Crisis: An Analysis of Soviet Calculations and Behavior," *World Politics* (1964).

Klaus Knorr, "Failures in National Intelligence Estimates: The Case of the Cuban Missiles," *World Politics* (1964).

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David Larson. *The "Cuban Crisis" of 1962: Selected Documents and Chronology.*
1963.

Henry Pachter. *Collision Course: The Cuban Missile Crisis and Coexistence.*
1963.

Roberta Wohlstetter, "Cuba and Pearl Harbor," *Foreign Affairs* (1965).

Graham Allison. *The Essence of Decision: Explaining the Cuban Missile Crisis.*
1971.

W. Philipps Davidson. *The Berlin Blockade*. 1958.

Leslie Gelb, "Vietnam: The System Worked," *Foreign Policy* (1971).

Bernard Fall. *Anatomy of a Crisis*. 1969.

Alexander George and Richard Smoke. *Deterrence in American Foreign Policy.*
1975.

James Barros. *The Corfu Incident of 1923: Mussolini and the League of Nations.*
1965.

George W. Baer. *The Coming of the Italian-Ethiopian War*. 1967.

John Dugard. *The South West Africa/Nambia Dispute: Documents and Scholarly
Writings on the Controversy between South Africa and the United Nations.*
1973.

Donald N. Lammers. *Explaining Munich: The Search for Motive in British
Policy*. 1966.

Robert J. Butow. *Tojo and the Coming of the War*. 1961.

E.J. Czerwinski and Jaroslaw Piekalkiewicz (eds.) *The Soviet Invasion of
Czechoslovakia: Its Effects on Eastern Europe*. 1972.

Ross Gregory. *Origins of American Intervention in the First World War*. 1971.

Arthur G. Rubinoff. *India's Use of Force in Goa*. 1971.

Charles B. Marshall. *Crisis over Rhodesia: A Skeptical View*. 1967.

Sara R. Smith. *The Manchurian Crisis, 1931-32: A Tragedy in International
Relations*. 1948.

David Halberstam. *The Best and The Brightest*. 1972.

Robert Batchelder. *The Irreversible Decision, 1939-1950*. 1962.

Richard Neustadt. *Politics*. 1970.

Stephen Pelz. *Race to Pearl Harbor: The Failure of the 2nd London Naval
Conference and the Onset of World War II*. 1974.

Warner R. Schilling, Paul Y. Hammond, Glenn H. Sargent. *Strategy, Politics,
and Defense Budgets*. 1962.

Jacques Freymond. *The Saar Conflict, 1945-1955*. 1960.

Stephane Bernard. *The Franco-Moroccan Conflict, 1943-1956*. 1968.

I.F. Stone. *America's First Vietnam: The Hidden History of the Korean War*.
1952.

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Eli Abel. *The Missile Crisis*. 1966.

Warren Cohen. *Intervention 1917: Why America Fought*. 1966.

Glenn Paige. *The Korean Decision*. 1968.

Charles Mees. *Meeting at Potsdam*. 1975.

Barbara Tuchman. *The Zimmerman Telegram*. 1966.

Hugh Thomas. *Suez*. 1967.

Brad Perkins. *Prologue to War: England and the U.S., 1805-1812*. 1961.

Chester Cooper. *The Lost Crusade: America in Viet-Nam*. 1970.

Jerome Slater. *Intervention and Negotiation: The United States and the Dominican Revolution*. 1970.

Ernest May. *The World War and American Isolation, 1914-1917*. 1959.

Len Giovannitti and Fred Freed. *The Decision to Drop the Bomb*. 1965.

David M. Pletcher. *The Diplomacy of Annexation: Texas, Oregon, and the Mexican War*. 1973.

Harold K. Jacobson and Eric Stein. *Diplomats, Scientists, and Politicians: The United States and Nuclear Test Ban Negotiations*. 1966.

## Data-Based Case Studies.

Most of the data-based case studies are of article length only. Some have been published or reprinted in Patrick McGowan's *Sage International Yearbooks of Foreign Policy Studies* (1973 and 1974); James N. Rosenau, *Comparing Foreign Policies, 1974*; and in Charles W. Kegley III (eds.), *International Events and the Comparative Analysis of Foreign Policy, 1975*. Most of the above, as well as additional articles, will have appeared in the more behaviorally oriented journals. Those articles published up to 1970 are abstracted in *Beyond Conjecture*, and the "findings" that emerge from a mix of operational and pre-operational work are summarized in McGowan and Shapiro, *The Comparative Study of Foreign Policy: A Survey of Scientific Findings*, Beverly Hills: Sage Publications, 1973.

There are two books of comparative case studies that are semi-operational in method and well worth examining. They are: *Michael Brecher, Decisions in Israel's Foreign Policy*, New Haven: Yale University Press, 1974 and *Alexander L. George and Richard Smoke. Deterrence in American Foreign Policy: Theory and Practice*. New York: Columbia University Press, 1974.

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3 (7 and 14 October) Putative Factors in the Decision Process.

Having considered a number of case studies, let us shift from the specific to the general. But before examining some of the more plausible general models of how policy is formulated and executed, it might be useful to single out certain sets of factors that appear in many of the specific cases and that constitute the ingredients in the more general models. These might conveniently be classified as: a) ecological (material, structural, and cultural), and b) behavioral factors. In order to understand one possible way of differentiating among these sets of factors, and to place them into one possible organizing schema, read: Singer, *A General Systems Taxonomy for Political Science*, Morristown, N.J.: General Learning Press, 1971. (approximately $2.00)

The other core reading for this week is a short and very unconventional book: Leonard Lewin. *Report from Iron Mountain*. New York: Dell, 1967.

With that conceptual framework (or any other that you find useful) in mind, look into any two of the books listed in LaBarr-Singer *Bibliography of International Politics* (hereinafter referred to as BIP), section IIIA, bearing in mind that some focus on the decision setting and process, some on the policy outcomes, and some on the effects of one on the other. Then be prepared to orally summarize/compare (on 7 October) the two studies you select, focusing on the differences/similarities in the authors' views as to the key explanatory variables that lie behind the policies of the nations (and periods) studied. Attend explicitly to the extent to which reproducible knowledge is thought to be an important element in the decision process.

Since the BIP items tend to be fairly general, let me add here a few more specialized studies, most of which will take a more explicit explanatory position. If you prefer to select items from this list, feel free to do so.

Henry A. Kissinger. *American Foreign Policy*. Rev. ed., 1974.

Holbert Carrol. *The House of Representatives in Foreign Policy*. 1958.

David Wilkinson. *Comparative Foreign Policy*. 1969.

I.M. Destler. *Presidents, Bureaucrats, and Foreign Policy*. 1972.

Cornelius Cotter (ed.), *Political Science Annual, Vol. 6* (1975) [Special issue on decision making]

Robert L. Gallucci. *Neither Peace nor Honor: The Politics of American Military Policy in Viet-Nam*. 1975.

George Liska. *Beyond Kissinger: Ways of Conservative Statecraft*. 1975.

Bruce L. R. Smith. *The Rand Corporation*. 1966.

Nils Orvik et al. *Departmental Decision Making*. 1972.

Coral Bell. *The Conventions of Crisis: A Study in Diplomatic Management*. 1971.

Stanley Hoffman. *Gulliver's Troubles or the Setting of American Foreign Policy*. 1968.

John C. Donovan. *The Cold Warriors: A Policy-Making Elite*. 1974.

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Gene M. Lyons. Schools for Strategy: Education and Research in National Security Affairs. 1965.

Henry A. Kissinger. A World Restored: Metternich, Castlereagh, and the Problem of Peace, 1812-22. 1957.

Fred Ikle. How Nations Negotiate. 1964.

Robert Elder. The Policy Machine: The Department of State and American Foreign Policy. 1960.

Walter Lippman. The Stakes of Diplomacy. 1915.

Thomas Franck and Edward Weisband (eds.). Secrecy and Foreign Policy. 1974.

Theodore Abel. "The Element of Decision in the Pattern of War," American Sociological Review, 6 (1941).

Bernard C. Cohen. The Influence of Non-Governmental Groups on Foreign Policy-Making. 1959.

Bernard C. Cohen. The Press and Foreign Policy. 1961.

Robert A. Dahl. Congress and Foreign Policy. 1950, 1964.

Roger Hilsman. "The Foreign Policy Consensus: An Interim Research Report," Journal of Conflict Resolution, 3 (1959).

Roger Hilsman. "Intelligence and Policy-Making in Foreign Affairs," World Politics. 1952.

Samuel P. Huntington. "Strategic Planning and the Political Process," Foreign Affairs, (1960).

Lloyd Jensen. "Soviet-American Bargaining Behavior in the Postwar Disarmament Negotiations," Journal of Conflict Resolution, 7 (1963).

Henry A. Kissinger. "The Policymaker and the Intellectual," The Reporter (March 5, 1959), reprinted in Rosenau (1961).

James A. Robinson. "Process Satisfaction and Policy Approval in State Department Congressional Relations," American Journal of Sociology (1961).

Richard Barnet. Roots of War. 1972.

Revisionist Interpretations:

Virtually every historical epoch is first treated in a fairly consistent fashion by the scholarly community--if not by the participants--only to be challenged by a later generation of observers and analysts. The interval can be long or short, and the revisionist interpretation can often become the new consensus (at least within a single nation or cluster of similar nations) to be challenged by a later generation of revisionists. While such trends and/or cycles seldom add up to anything much in the sense of cumulative knowledge, they do have the virtue of making explanations increasingly explicit.

Among these revisionist studies, largely U.S. oriented, are:

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Noam Chomsky. *American Power and the New Mandarins*. 1969.

Gabriel Kolko. *The Roots of American Foreign Policy*. 1969.

D.F. Fleming. *The Cold War and Its Origins, 1917-1960*. 1961.

Gar Alperovitz. *Atomic Diplomacy: Hiroshima and Potsdam: The Use of the Atomic Bomb and the American Confrontation with Soviet Power*. 1965.

David Horowitz. *The Free World Colossus: A Critique of American Foreign Policy in the Cold War*. 1965.

Robert J. Maddox. *The New Left and the Origins of the Cold War*. 1973.

Gabriel Kolko. *The Politics of War: The World and United States Foreign Policy, 1943-45*. 1968.

Gar Alperovitz. *Cold War Essays*. 1970.

David Horowitz. *Yalta to U.N.: American Foreign Policy in the Cold War*. 1969.

William Appleman Williams. *From Colony to Empire: Essays in History of American Foreign Relations*. 1972.

William Appleman Williams. *The Shaping of American Diplomacy, 1750-1955*. 1956.

Diana Shaver Clemens. *Yalta*. 1970.

Lloyd C. Gardner. *Architects and Illusions: Men and Ideas in American Foreign Policy 1941-49*.

Gaddis Smith. *American Diplomacy During the Second World War*. 1965.

William Appleman Williams. *The Tragedy of American Diplomacy*. 1959, 1962.

Harry Magdoff. *The Age of Imperialism: The Economics of U.S. Foreign Policy*.

Tom Paterson. *The Origins of the Cold War*. 1970.

Tom Paterson. *Soviet-American Confrontation: Postwar Reconstruction and the Origins of the Cold War*. 1973.

Tom Paterson. *Cold War Critics: Alternatives to American Foreign Policy in The Truman Years*. 1971.

Another important group of studies are those listed in Part IIB of *Beyond Conjecture*; these are all data-based articles published in English up to 1970. For 14 October, select any one of these articles plus another from the post-1970 literature that has a relevant similarity to the one selected from *Beyond Conjecture*, and then: a) write an abstract of the latter one, and b) compare the two studies.

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4. (21 October) Explanatory Factors as Seen by Participants.

Whereas most of the analyses examined in the last two weeks are the effort of academic observers (some of whom later became participants) and thus might be expected to be fairly objective in terms of factional or ideological arguments over the sources of the nations' policies, the analyses below are the work of people who were close to the decision process itself. We can expect them not only to defend, but to express in very explicit terms their views on the key factors in the cases they've experienced and perhaps even to generalize to a larger population of cases.

Take any two of these insiders' works and be prepared to compare their explanations to the extent they are visible or inferable. But this time, go beyond the substance of their explanatory models and the role of scientific knowledge as a key variable in those models, and consider the ways in which the models could be put to the empirical test.

The core readings for this session are: Graham Allison and Morton Halperin, "Bureaucratic Politics: A Paradigm and Some Policy Implications," in Tanter and Ullman, *Theory and Policy in International Relations*. 1972, and George Kennan, "The Sources of Soviet Conduct," *Foreign Affairs* (July 1947 and reprinted often).

Some suggested memoirs ("kiss and tell" or otherwise), largely by Americans, are:

Sherman Adams. *Firsthand Report: The Story of the Eisenhower Administration*. 1961.

James Byrnes. *All in One Lifetime*. 1958.

James Forrestal. *The Forrestal Diaries*. 1957.

Cordell Hull. *The Memoirs of Cordell Hull*. 1948.

Robert Sherwood. *Roosevelt and Hopkins: An Intimate History*. 1948.

Anthony Eden. *Full Circle. The Memoirs of Anthony Eden*. 1960.

Harold Macmillan. *The Blast of War, 1939-45*. 1967.

Harold Macmillan. *Pointing the Way, 1959-1961*. 1972.

Nikita S. Khrushchev. *Khrushchev Remembers*. 1970.

Nikita S. Khrushchev. *Khrushchev Remembers: The Last Testament*. 1974.

Harold Macmillan. *Winds of Change, 1914-1939*. 1966.

Harold Macmillan. *Riding the Storm, 1956-1959*. 1971

Harold Macmillan. *Tides of Fortune, 1945-1955*. 1969.

Theodore C. Sorenson. *Decision-Making in the White House: The Olive Branch or the Arrows*. 1963.

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Theodore C. Sorenson. *Kennedy*. 1965.

Winston S. Churchill. *The Second World War*. Six Volumes. 1948-54.

Dwight D. Eisenhower. *Waging Peace, 1956-1961: The White House Years*. 1965.

Dwight D. Eisenhower. *Crusade in Europe*. 1948.

Harry S. Truman. *Years of Trial and Hope, 1946-1952*. 1956.

Harry S. Truman. *Memoirs*. 1955-

Lyndon Baines Johnson. *The Vantage Point. Perspectives of the Presidency*. 1971.

Dwight D. Eisenhower. *The White House Years: Mandate for a Change, 1953-56*. 1963.

Arthur Schlesinger, Jr. *A Thousand Days*. 1965.

Robert Murphy. *Diplomat Among Warriors*. 1964.

Townsend Hoopes. *The Limits of Intervention*. 1969.

George F. Kennan. *From Prague after Munich: Diplomatic Papers, 1938-40*. 1968.

George F. Kennan. *Memoirs, 1925-1950*. 1968.

William Fulbright. *The Arrogance of Power*. 1966.

Dean Acheson. *Present at the Creation: My Years in the State Department*. 1969.

Joseph Jones. *Fifteen Weeks (February 21-June 5, 1947)*. 1955.

James Byrnes. *Speaking Frankly*. 1947.

Edward Stettinus. *Roosevelt and the Russians: The Yalta Conference*. 1949.

Abram Chayes. *The Cuban Missile Crisis: International Crises and the Role of Law*. 1974.

Robert F. Kennedy. *Thirteen Days: A Memoir of the Cuban Missile Crisis*. 1971.

Dean Acheson. *The Korean War*. 1971.

Roger Hilsman. *The Politics of Policy Making in Defense and Foreign Affairs*. 1971.

James A. Donovan. *Militarism, U.S.A.* 1970.

Lewis L. Strauss. *Men and Decisions*. 1962.

George F. Kennan. *American Diplomacy, 1900-1950*. 1952.

Arthur H. Vandenberg, jr. (ed.). *The Private Papers of Senator Vandenberg*. 1952.

George F. Kennan. *Realities of American Foreign Policy*. 1954.

Sumner Welles. *The Time for Decision*. 1944.

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5. (28 October) Explanatory Factors as Seen by Behavioral Scientists.

By now, it is evident that foreign policy and military policy decisions are essentially similar to many other forms of collective behavior under conditions of risk and/or uncertainty. That larger class of decisional activity has been examined not only by historians and political scientists, but by other social scientists, engineers, mathematicians, etc. The insights, frameworks, and methods brought to bear by these scholars may eventually turn out to be quite powerful in helping us to: a) better understand the decision setting and process, and b) improve the performance of foreign policy decision units; for the moment, we will sidestep the question of how we evaluate that performance.

The core readings for this week are: Singer, "Escalation and Control in International Conflict: A Simple Feedback Model," *General Systems, Volume XV*, 1970, 163-173; and Karl W. Deutsch. *The Nerves of Government: Models of Political Communication and Control*. New York: Free Press, 1966. Chapters 11 and 12.

Among some of the more useful studies of an interdisciplinary sort are those found in the behaviorally-oriented journals (*Journal of Conflict Resolution*, *Journal of Peace Research*, *Peace Science Society* (International) Papers, etc.) and in such anthologies as James N. Rosenau (ed.), *Comparing Foreign Policies*, New York: Halsted Press, 1974 and the Patrick McGowan (ed.) *Sage International Yearbooks of Foreign Policy Studies*. Beverly Hills: Sage Publications, 1973 and 1974.

Also useful are:

Davis B. Bobrow. *Weapons System Decisions: Political and Psychological Perspectives on Continental Defense*. 1969.

Chris Argyris. *Some Causes of Organizational Ineffectiveness within the Department of State*. Department of State, 1967.

Edward Quade (ed.). *Analysis for Military Decisions*. 1964.

Daniel Ellsberg. "The Crude Analysis of Strategic Choices" in John Mueller (ed.), *Approaches to Measurement in International Relations*. 1969.

J. David Singer. "The Strategic Dilemma: Probabilities versus Disutilities," *Journal of Conflict Resolution*, 5/2 (1961).

Masakatsu Kato. "A model of U.S. Foreign Aid Allocation: Application of a Rational Decision Making Scheme" in Mueller (ed.), *Approaches to Measurement in International Relations*. 1969.

Karl Mannheim. *Freedom, Power, and Democratic Planning*. 1951.

Louis Cheskin. *Problem-Directed Men*. 1964.

B.E. Collins and Harold Guetzkow. *A Social Psychology of Group Process for Decision-Making*. 1964.

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John Steinbrunner. *A Cybernetic Theory of Decision-Making*. 1974.

William Riker. *The Theory of Political Coalitions*. 1962.

John McDonald. *Strategy in Poker, Business, and War*. 1950.

Steven Brams. *Game Theory and Politics*. 1975.

Nigel Howard. *Paradoxes of Rationality: Theory of Metagames and Political Behavior*. 1971.

Morton Davis. *Game Theory: A Non-technical Introduction*. 1970.

Irving Janis. *Victims of Groupthink*. 1972.

Charles Hermann (ed.), *International Crisis: Insights from Behavioral Research*. 1972.

Davis Bobrow and Schwartz. *Computers and the Policy-Making Community: Applications to International Relations*. 1968.

Peter Blau. *Bureaucracy in Modern Society*. 1956.

Irwin Bross. *Design for Decision*. 1953.

Herbert C. Kelman (ed.). *International Behavior*. 1965.

J. David Singer. *Human Behavior and International Politics*. 1965.

James March and Herbert Simon. *Organizations*. 1958.

Raymond Bauer and Kenneth Gergen (eds.), *The Study of Policy Formation*. 1968.

Peter Bachrach and Morton Baratz. "Decisions and Non-Decisions: An Analytical Framework." *American Political Science Review* (1963).

Bruce Russett (ed.). *Economic Theories of International Politics*. 1968.

Donald Warwick. *A Theory of Public Bureaucracy: Politics, Personality, and Organization in the State Department*. 1975.

James L. Price. *Organizational Effectiveness: An Inventory of Propositions*. 1968.

David Davis. *How the Bureacracy Makes Foreign Policy: An Exchange Analysis*. 1972.

James March and Richard M. Cyert. *A Behavioral Theory of the Firm*. 1963.

Joseph de Rivera. *The Psychological Dimension of Foreign Policy*. 1968.

James N. Rosenau (ed.). *Domestic Sources of Foreign Policy*. 1967.

C.F. Carter and J.L. Ford (eds.). *Uncertainty and Expectation in Economics: Essays in Honour of G.L.S. Shackle*. 1972.

Martin Shubik (ed.). *Game Theory and Related Approaches to Social Behavior*. 1964.

Anatol Rapoport. *Fights, Games, and Debates*. 1960.

Anatol Rapoport. *Two-Person Game Theory*. 1970.

Anatol Rapoport (ed.). *Game Theory as a Theory of Conflict Resolution*. 1974.

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6. (4 and 11 November) Bases of Prediction.

Up to this point, our concern has been to discover how foreign and military policies are (and have been) made, how various observers try to explain the decision process, and the role of scientific knowledge in that process. But we have virtually ignored several crucial issues: a) how much scientific knowledge there is on the subject of world politics; b) how such knowledge is generated; c) how its quality is evaluated; and d) how it is or might be applied in the decision process. The balance of the course will attend to these issues.

We begin this new set of investigation by examining the various bases from which foreign policy predictions might be made. If decision makers and analysts have to make predictions, and there is little hard knowledge about world politics and they have access to or faith in only a fraction of that limited amount, what do they use? Leaving aside tea leaves, chicken entrails, and court astrologers (all of which remain in limited use) there are three general options: common sense and conventional wisdom, systematic history, and analogies and empirical inputs from other systematically studied social settings. We have already looked at a fair fraction of the traditional common sense work, and have sampled the efforts to analogize and/or borrow from the related disciplines, and will review that material briefly here.

After that, we will concentrate on the role of systematic historical research. While some contend that history never repeats itself and/or that history has nothing to teach us about the future, there is increasing evidence that these views are unduly pessimistic (or, if you prefer, optimistic). Here, we examine some of the problems and some of the possibilities of generating from diplomatic and military history the sort of knowledge upon which reasonably confident predictions about world politics might be made.

Among the relevant works are:

Bruce M. Russett (ed.). *Peace, War, and Numbers*. 1972.

Michael Haas. *International Conflict*. 1974. Part II.

Ernest May. *Lessons of the Past: The Use and Misuse of History in American Foreign Policy*. 1973.

J. David Singer. "The Historical Experiment as a Research Strategy in the Study of World Politics." *Political Inquiry*, 2/1 (1974).

J. David Singer. *Quantitative International Politics: Insights and Evidence*. 1968.

Peter Wallensteen. *Structure and War: On International Relations 1920-1968*. 1973.

Nazli Choucri and Robert C. North. *Nations in Conflict: National Growth and International Violence*. 1975.

Robert Berkhofer, Jr. *A Behavioral Approach to Historical Analysis*. 1969.

David S. Landes and Charles Tilly. *History as Social Science*. 1971.

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Ole Holsti, Terrence Hopmann, John D. Sullivan. *Unity and Disintegration in International Alliances: Comparative Studies*. 1973.

William A. Gamson and Andre Modigliani. *Untangling the Cold War: A Strategy for Testing Rival Theories*. 1971.

Jean de Bloch. *The Future of War*. 1899.

Geoffrey Blainey. *The Causes of War*. 1973.

Lewis F. Richardson. *Statistics of Deadly Quarrels*. 1960.

Lewis F. Richardson. *Arms and Insecurity*. 1960.

William Debbins (ed.). *Essays in the Philosophy of History: R.G. Collingwood*.

Richard Rosecrance. *Action and Reaction in World Politics: International Systems in Perspective*. 1963.

Quincy Wright. *A Study of War*. 1945, 1965.

While the number of excellent "historical experiments" is increasing, the frequency with which they are expressly conducted for policy purposes is rare. One of the few is the CASCON project, conducted at M.I.T. by Bloomfield and his colleagues, and we will use their work as our core reading for this topic. Look, therefore, at either their book *Controlling Small Wars: A Strategy for the 1970's*, New York: Alfred Knopf, 1969 or at their three-part report to the U.S. Arms Control and Disarmament Agency. *The Control of Local Conflict* (June 1967) on the MHRI shelf.

7. (18 November) Predicting Short-Run Events.

For this topic, we will go back to the case studies and each student will select one of the traditional cases for closer analysis. In that case, identify the major and minor predictions that were made by the participants, identify the empirical generalizations on which it rested, evaluate the quality of the evidence available in support of those generalizations, and then ascertain how well the predictions turned out in reality. Be prepared to give a five-minute, highly specific oral report, working from 1 or 2 pages of notes that will be turned in and circulated.

8. (25 November) Predicting Middle and Long-Run Conditions.

While some decision makers may not appreciate it, the state of the global system or any of its regional sub-systems can exercise an appreciable impact on the behavior of the nations and other actors that operate in the system, and thus affect the accuracy of predictions regarding that behavior. Unfortunately most forecasting--even before the futurologists descended upon

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us--has been extremely primitive in method and weak in empirical foundation,
but a look at some of these efforts can be instructive.

In addition to the file of papers on the MHRI shelf, examine parts of some
of the following. No core reading this week.

Richard A. Falk. *A Study of Future Worlds*. 1975.

Dennis L. Meadows et al. *The Limits to Growth*. 1972.

Seyom Brown. *New Forces in World Politics*. 1974.

Louis Beres and Harry Targ. *Reordering the Planet: Constructing Alternative World Futures*. 1974.

Ervin Laszlo. *A Strategy for the Future; The Systems Approach to World Order*. 1974.

George Lakey. *Strategy for a Living Revolution*. 1968.

Jagdish N. Bhagwait. *Economics and World Order: From the 1970's to the 1990's*. 1972.

Rajni Kothari. *Footsteps into the Future: Diagnosis of the Present World and A Design for an Alternative*. 1974.

Cyril Black et al. *A New World Order*. 1975.

B. Landheer, J.H.M.M. Loenen, Fred L. Polak. *World Society*. 1971.

Klaus Heiss, Klaus Knorr and Oscar Morgenstern. *Long-Term Projections of Power: Political, Economic, and Military Forecasting*. 1973.

David Sullivan and Martin J. Sattler (eds.). *Change and the Future International System*. 1972.

Albert Somit (ed.). *Political Science and the Study of the Future*. 1974.

Warren Wager. *Building the City of Man*. 1971.

Lester Brown. *World Without Borders*. 1972.

Victor Ferkiss. *Future of Technological Civilization*. 1974.

Pestel and Mesaravic. *Mankind at the Turning Point*. 1974.

Karl W. Deutsch. *Nationalism and its Alternatives*. 1969.

Raymond Vernon. *Sovereignty at Bay*. 1971.

Adda Bozeman. *Future of Law in a Multicultural World*. 1971.

Harold and Margaret Sprout. *Toward a Politics of the Planet Earth*. 1971.

John Platt. The Step to Man. 1966.

Richard Falk. *This Endangered Planet*. 1971.

Grenville Clark and Louis Sohn. *World Peace through World Law*. 1958 and 1973.

Jay Forrester. *World Dynamics*. 1971.

Alvin Toffler (ed.). *The Futurists*. 1972.

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Olaf Helmer. *Social Technology*. 1966.

Daniel Bell (ed.). *Toward the Year 2000: Work in Progress*. 1967.

Herman Kahn and B. Bruce-Biggs. *Things to Come: Thinking About the '70's and '80's*. 1972.

George Orwell. 1984. 1949.

Richard Rosecrance (ed.). *The Future of the International Strategic System*. 1972.

9. (2 and 9 December) Putting Knowledge into Practice.

The two final sessions will be devoted to integrating: a) our understanding of the policy process, and b) our appreciation of the existing knowledge about world politics. There is a considerable body of literature that addresses this integration problem directly or by implication, some of which follows.

The core readings are: William Coplin and Michael O'Leary, *Final Report of Project Quest*, Syracuse: Maxwell School of Government, 1974; and Lincoln Bloomfield, *The Foreign Policy Process: Making Policy Relevant*. Beverly Hills: Sage Publications, 1974.

Also, review the relevant chapters in the Tanter and Ullman *Theory and Policy* book and in Norman Palmer (ed.). *A Design for International Relations Research: Scope, Theory, Methods, and Relevance*. Philadelphia: American Academy of Political and Social Science, Monograph #10, 1970.

There will be no written work for these two sessions, on the assumption that your time should be devoted to filling in the gaps in your command of the literature and to making sense of the course as a whole.

A list of some of the relevant work follows, but it should be noted here that we have a large and growing literature on "evaluation research"-- meaning methods for evaluating the efficacy of alternative policies--but little of it is cited here. This reflects my impression that it is of rather low quality so far, and when otherwise it is seldom relevant to our concerns.

Robert Rothstein. *Planning, Prediction, and Policy-Making in Foreign Affairs*. 1972.

Elisabeth Crawford and Albert Biderman (eds.), *Social Scientists and International Affairs*. 1969.

Alice Rivlin. *Systematic Thinking for Social Action*. 1971.

*Social Science Research and Public Policy* (special issue of *Journal of Applied Behavioral Science*, 11/1 (1975)).

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[LC]

H.A. Hornstein et al. (eds.). *Social Intervention: A Behavioral Science Approach*. 1971.

Harold Wilensky. *Organizational Intelligence: Knowledge and Policy in Government and Industry*.

Amitai Etzioni. *The Active Society*. 1968.

John Watkins. "Social Knowledge and the Public Interest," in William Robinson (ed.). *Man and the Social Sciences*. Beverly Hills: Sage Publications, 1972 and 1974.

Barbara Wootton. *Testament for Social Science: Application of Scientific Method to Human Problems*. 1950.

George Lundberg. *Can Science Save Us?* 1947, 1961.

Donald Campbell. "Reforms as Experiments." *American Psychologist* (April, 1969).

Fisher Howe. *The Computer and Foreign Affairs*. 1966.

James Coleman. *Policy Research in the Social Sciences*. 1972.

L.A. Zurcher and C.M. Boujean (eds.). *Planned Social Intervention: An Interdisciplinary Anthology*. 1970.

Stanislav Andreski. *Social Sciences as Sorcery*. 1972.

Irving L. Horowitz and James E. Katz. *Social Science and Public Policy in the United States*. 1975

Irving L. Horowitz (ed.). *The Use and Abuse of Social Science: Behavioral Science and National Policy Making*. 1971.

Stephen J. Cimbala (ed.). *Policy Science and Foreign Policy: Process and Outcome*. Special issue of *Policy Sciences* journal, vol. 4 (1973).

Department of Political Science/The University of Michigan

5601 Haven Hall
Ann Arbor, Michigan 48104

13 December 1976

To: QIP Community
From: J. David Singer
Subject: Early Warning Indicators in Inter-State Conflict

1. As most of you know, I've long cautioned that our basic research is unlikely to have very much policy relevance in the short run, and that our primary social mission is a middle- and long-range one. But more than a few of us have also emphasized that some types of spinoff from our basic work could play a useful short-term role. One such spinoff can take the form of early warning (and timely assurance) indicators.

2. Although the usefulness and the credibility of such indicators would be enhanced were they to rest on well-substantiated theories--and the development of such theories continues to represent our primary scientific and/or social objective--there is much that we can do with a more modest product. Indicators whose post-dictive power has been ascertained can, with prudent interpretation, play a constructive role in pre-diction.

3. Thus, several of us in the U.S. and abroad have made the design, construction, and application of these indicators a dominant concern of such groups as the IPSA Research Ctee on Peace and Conflict, the International Studies Association, and an occasional Pugwash committee. In keeping with that concern, the Peace and Conflict panels at the 1979 IPSA Congress in Moscow will be largely devoted to this and the related theme of quality of life indicators, as will a special panel at the upcoming ISA meetings in St. Louis (16-20 March 1977).

4. The purpose of this letter, addressed to those social scientists working in the area of international conflict, is to solicit papers (and a discussant) for that ISA panel and to encourage the sort of research that could later make the Moscow sessions a great success. It also has an intermediate objective: to encourage and solicit papers for an anthology on such indicators, with publication in mid-1978 and thus a ready-for-press date of late 1977 (i.e. exactly one year from now).

5. Both the ISA panel and the anthology will carry a title such as "The Design and Use of Early Warning Indicators in Inter-State Conflict." While the latter may include a paper or two that is programmatic, speculative, etc., the ISA panel will not. For that purpose as well as for the bulk of the anthology, we seek papers that meet most or all of these criteria:

-2-

a) identify a particular condition, event, or syndrome (e.g. crisis) whose social undesirability (or desirability) in the context of inter-state conflict can be reasonably demonstrated;

b) measure with high reliability, and a reasonable degree of validity, the presence, absence, or strength of that condition or event;

c) identify and measure one or more predictor conditions or events that might be expected, in the relevant future, to regularly precede the outcome condition or event;

d) demonstrate the extent to which such an association has obtained (or has not, given the need to know which indicators do not work!) in the international system of the past, or in any other spatial and temporal domain whose similarity to the system of the relevant future can be reasonably argued;

e) clearly articulate the ways in which some or all policy makers could, if they chose, utilize such predictive indicators to reduce the incidence of inter-state war;

f) clearly articulate the normative and pragmatic considerations that might, at the same time, make the utilization of such indicators detrimental to the interests or needs of any affected parties.

6. To reiterate, theories that are well-substantiated on inductive and deduc-
tive grounds remain our prime scientific and/or social concern, but there
may be some death-defying spinoff that can be derived from our work in the
short run. Thus, I hope that members of the scientific world politics
community (should we shift from QIP to SWP?) will take a close look at
their basic research from the policy perspective and see whether there
is some "redeeming social value" to be found there. If so, please jot
down and mail to me a rough statement of what you'd like to do for the
proposed anthology, and telephone me if you think you can have something
ready for the ISA panel (i.e. 10 March at latest). Either way, please
send me any reprints or preprints that report on work that already does,
or readily could, contribute to the development of a repertoire of useful
indicators.

7. In that vein, two recent papers of mine that might be suggestive--but clearly are not illustrative of what I have in mind--are: "Foreign Policy Indicators in History and the State of the World Message" Policy Sciences 5 (1974), 271-296, and "The Peace Researcher and Foreign Policy Prediction" The PAPERS of the Peace Science Society (International) 21 (1973).

8. The best address and phone is:
Mental Health Research Institute
205 Washtenaw Place
Ann Arbor, Michigan 48104
(313) 764-9548

JDS/hj'l

Walter A. Singer
17 Marguerite St.
Keene, New Hampshire 03431

June 7, 1974

Honorable
Dr. Henry A. Kissinger
Secretary of State
State Department
Washington, D.C.

Dear Dr. Kissinger :

On arriving at the Hotel Intercontinental in Geneva April 29, our large group of vacationers were met by newsmen, T.V. commentators and police seemingly clamoring for our views of the world situation. Marvin Kalb offered a C.B.S. special the N.B.C. cameraman took my picture, entering through the revolving doors, guaranteeing to have it on the 6 o'clock news. We almost accepted the situation and hastily prepared notes, when we learned that you and a bunch of Russians were also vacationing in Geneva, in fact it seemed you had our rooms. That gave us the idea to tell the media people to interview you and Tovaritsch Gromyko as our substitutes and get you out of our rooms in the process.

Being freed from lecturing to a world wide audience I had the chance to do what I came for, namely to flash lights into the faces of the average man and woman of Geneva, such as yourself and the Mrs. one which I know you will treasure forever.

Should you on your next trip be in urgent need of german interpreters, my wife and I would be available on short notice, viennese accent and all.

THE VIKING PRESS INC • PUBLISHERS

625 MADISON AVENUE, NEW YORK, N. Y. 10022

Cable: VIKPRESS Telex: 233776 Telephone: (212) PLAZA 5-4330

August 25, 1975

Secretary of State Henry Kissinger
State Department
Washington, D.C.

Dear Mr. Secretary:

Samuel Gallu and I thought you might be interested in an early peek at these advance proofs for "GIVE 'EM HELL HARRY", which we will be publishing next month. Since you undoubtedly already know more about Harry S. Truman's career and policies than I could ever hope to, I am not trying to educate you about the importance of this extraordinary man; quite frankly, I am hoping that you will help us spread the word to the public about him (and about this book, of course). We would be delighted if you'd care to give us a quote we could use to promote this book; if you'd prefer not to make your comments public, I know the author would love to hear your reactions privately, anyway.

I know you have a busy schedule, and I appreciate any time you may be able to devote to this. I hope you enjoy reading it.