You may be aware that I've got my own independent insurance agent, Jim Norris, a member of your California association. And I'm hoping I'll have to call on Jim about including our present residence on the homeowner policy on our ranch for about, say, another 4 years. [Laughter] But I appreciate this opportunity to be with you at this national legislative conference.

I understand some of you were briefed last night at the White House on economic and national security questions. And this morning you got another point of view from Congressman Jim Jones. One of the great cornerstones of our way of life is our right to disagree, to openly and critically discuss the policies of government.

You know, there's a story about a Russian and an American that were talking about the relative freedom in their countries. And the Yank proudly stated, ``In our country, everyone is free to speak.'' And the Russian said, ``That's true in the Soviet Union as well; the only difference is, after you speak, you're still free.'' [Laughter]

You'll be hearing many points of view during your visit to Washington. And we can all thank the Lord that we live in a country where citizens like yourselves can come, examine the facts, hear the arguments, make judgments, and then use your influence to be part of the decisionmaking process.

You make your living providing people with insurance for their lives and property. But the only insurance of good government is the involvement of solid citizens. For far too long, while you were focusing on your jobs and families and communities, special interests were hard at work in Washington. A political coalition of these interests and well-intentioned politicians of a liberal persuasion brought this country to the edge of economic catastrophe. They gave us out-of-control spending, oppressive taxation, near runaway inflation, sky-high interest rates, and economic stagnation. There was an adversary relationship between government and the business community.

The same people who created that mess now have the gall to lecture us about compassion and fairness. Well, the only thing fair about their policies is that they didn't discriminate; they made everybody miserable. [Laughter]

In these last 3 years, we've done our best to reverse the policies of tax and spend and inflate that wrought such havoc on our country. At first, we were told that turning the situation around would be impossible. We were told, for example, that it would take 10 years to wring inflation out of the system. Well, I just kept in mind something President Coolidge reportedly once said. ``I have found it advisable,'' he said, ``not to give too much heed to what people say when I'm trying to accomplish something of consequence. Invariably they proclaim it can't be done. I deem that the very best time to make the effort.'' Well, now, contrary to some reports on my age, Cal didn't tell me that personally. [Laughter] I read it.

We didn't let the pessimists hold us back, and today I'm proud to report that we've taken inflation from double digits, eating away at our standard of living, and brought it down to about 4 percent. It was under 4 percent for the last year.

They said there was no way to get control of spending. It tripled during the decade of the seventies and was growing at 17 percent annually when we got here. We've cut that in half. And more progress can still and must be made on this front.

The prime interest rate was 21\1/2\ percent just before we got to Washington. It can be expected to fluctuate up or down a point, but it's way down from the outrageous prime rate we inherited. In the long run, if we go forward with our program, the prime will come down further.

I've often said that our country was in trouble because government was spending too much and taxing too much. Well, our 25-percent, across-the-board reduction in the tax rates have prevented the people from being further sapped by built-in tax increases. And we've indexed those rates so that starting next year government will no longer make a built-in profit off the taxpayers' misery.

You may have noticed that there's been considerable pressure to back away from our tax rate reductions. Clearly, the deficits remain a problem. But the answer is not undercutting economic recovery with higher and higher taxes. Recently we offered a balanced budget amendment, and we offered a 3-year deficit reduction package providing for a $150 billion cut in the projected deficit. The proposal is realistic and a good first step. We've started the process moving, but I have no intention of giving in to those whose only answer is taking the American people back into the poorhouse. We must have meaningful cuts in spending. As we look to the future, we can balance up with tax increases and lock ourselves into economic bondage, or we can balance down with lower tax rates and spending, permitting our economy to break free.

This is no time to go back to the failed policies of the past. It took time to put our program in place, and it took time for it to take effect. But we're now in the beginning phase of an economic renaissance that will touch the lives of all Americans.

I've been hearing from some pretty renowned economists lately, and they've criticized me for talking anymore about economic recovery. They said we've passed that stage; we are now in expansion.

So, from the ashes of pessimism, a stronger and more vibrant America is emerging. Productivity, after falling for 2 years before we took office, rose 3\1/2\ percent last year. The gross national product was up a healthy 6 percent, and it appears that the first quarter growth this year was even stronger -- 7.2 percent. Unemployment is dropping faster than anyone predicted. Housing starts, auto sales, and retail shopping are all up. Venture capital, which lays the foundation for a better tomorrow, rose less than $1 billion in 1980. It shot up over $4 billion last year.

And lo and behold, the deficit, which all the pessimists predicted would keep going up, is now coming down -- and is being brought down by economic growth. I might say that in this same hotel just a few nights ago, we had the famous and traditional Gridiron in which you're supposed to say outrageous things. So I said one. I said that all this talk about the deficit, I just wasn't going to worry about it, that it's big enough to take care of itself. [Laughter] But I do worry about it.

In 1983 almost 600,000 new businesses were incorporated. That's an alltime high in our history. Now, most of those represent small business ventures, spearheaded by individuals like yourselves, proud and independent, taking risks and putting in long, hard hours to earn a living and be your own boss. Each one is just a minuscule part of our economy. But, taken together, small business represents a dynamo of energy and creativity that is catapulting our country toward new levels of opportunity and freedom.

John Naisbitt, futurist and author of ``Megatrends,'' is saying that ``1984 has arrived just in time to witness an explosion of bottom-up entrepreneurialism and the dawn of an era that may offer our best hope yet. . . .'' Well, all of this is no accident. Instead of channeling an increasing percentage of working people's paychecks to Washington, we're letting people keep more of what they earn. Instead of centralizing power in the Federal bureaucracy, we're giving more autonomy to State and local government, transferring programs and resources to them in the form of block grants. We're freeing people from hundreds of millions of hours required to process needless Federal regulations and redtape, unleashing them for more productive endeavors.

In short, we're altering the basic direction of government. Ironically, historians may record that 1984 was the year Americans turned away from ``big brother'' and put their faith back in the people. And the American people are meeting the challenge, just as they have every time they've had a government that believes in them.

We've come a long way. Our next step is putting in place fundamental reforms that will prevent us from sliding back into the pit from which we've just emerged -- reforms that will enable all Americans of every age, race, creed, and color to go forward together to build a true opportunity society. The first thing we need, which would take us a long way toward responsible spending, is what I mentioned earlier, a constitutional amendment requiring a balanced Federal budget. Now, many States already have such a requirement for their own budgets.

Along with a constitutional requirement for a balanced budget, we need to give the Chief Executive a line-item veto, so porkbarrel projects can't be attached to needed legislation. Now, this, too, is a tool that's available to many Governors that could be put to use in Washington. I had it when I was Governor of California. And I know that during those 8 years, I vetoed several hundred, almost a thousand, of those items in line-item veto and was never overridden once. They could vote for them when they were concealed in another package of legislation. When they had to vote to override the veto on that particular item, no one would stand up and vote to override, or not enough to override the veto.

At long last, we need to overhaul, also, our tax system. We need to make it more fair and provide greater incentives for everyone to work, save, and invest by broadening the base and bringing income tax rates down, not up. I'm not just suggesting minor changes. What is needed is a sweeping, comprehensive reform, but certainly not like the proposed new tax form that was sent to me the other day. It had two lines on it. The first line said, ``What did you make last year?'' And the second line says, ``Send it in.'' [Laughter]

Now, much of what we've done has been simply making up for the nonsense of the last few decades. Putting our economy back on the right track was priority number one. But there are other life or death issues confronting us.

Today, far too many of our citizens feel unsafe in their own neighborhoods and even in their own homes. Now, instead of just a lock, many of our citizens peer out of their dwellings, relying on bolts, chains, and even metal bars propped grotesquely against their door. They hire private security guards to patrol near their homes. They have dogs and burglar alarms. They find themselves behind barred windows. And even with all this, they do not feel safe. It's about time the American people start asking who's to blame for this.

The crime epidemic we suffered in the last two decades was no more a result of an uncontrollable cycle than were the inflation and stagnation that ravaged our people. It can be traced to policies that make it ever more difficult to convict the guilty, but have nothing to do with protecting society. The headlines in newspapers throughout the country tell the story. Our criminal justice system is long overdue for reform. It is about time we take the handcuffs off law enforcement and put them on the thugs and murderers where they belong.

The Senate has passed a package of criminal justice reform which, if enacted, will toughen up the system and make it more efficient and capable of getting vicious criminals off the streets. The liberal leadership of the House, ignoring the cries of victims throughout this country, has yet to move on this legislation. I think in this election every candidate, for whatever office, should be on record as far as this legislation is concerned. This is not a peripheral issue. People's lives are at stake, and politicians and the media should not dismiss it lightly. We must never reach the point in this country where Americans feel they have no alternative but to take the law into their own hands. So, maybe it's time to move some politicians out of office in order to get criminals off the streets. [Laughter]

Our national security is no less vital than our citizens' personal security and was no less ill managed in the last decade. Defense spending in real terms was permitted to erode by over 20 percent in the 1970's. Weapons systems were unilaterally canceled. The real pay of our military personnel dropped as inflation took off. The CIA was gutted, as longtime agents were let go. Those in charge seemed to be operating under the notion that a weaker America is a more secure America. Well, I don't buy that, and I don't think you do, either. Peace through strength is not a slogan; it's a fact of life.

But let's not kid ourselves, national security has a price tag. It's an expensive proposition, and it's been made even more so because we've been playing catchup -- making up for the irresponsibility of the past. The ones you hear yelling the loudest these days are the ones who put us behind the eight ball in the first place. Many of them publicly oppose the modernization of our strategic systems, while at the same time loudly proclaiming their intent to negotiate arms control agreements with the Soviet Union. Well, it's about time to get serious and ask these would-be leaders what they expect to use as incentives with the Soviet Union. Good will and sincerity will get them a smile and a glass of vodka -- [laughter] -- and you can guess why the Soviets will be smiling.

We had two treaties -- the SALT treaties -- the SALT Treaty I, SALT Treaty II. And SALT Treaty II was not ratified by the Senate, I'm pleased to say. No one has paid any attention to the fact that under those two treaties -- the Soviet Union under SALT I, from that time on, added 7,950 nuclear warheads to its arsenal, and 3,850 of those were added after everyone signed SALT II.

I recently agreed to scale down our planned increase in defense spending. It's played heavily on my mind. It was done only after great thought and regard to all factors. I've looked into the faces of the young people in our military, and as long as I'm President, we're not going to ask these brave young men and women who defend this country to put their lives on the line using obsolete weapons and bargain-basement equipment. We as a people must have the courage to stand behind them.

Now, let me also -- you have seen and heard for quite some time now a drumbeat about wrenches costing $12,000 or bolts that could be bought for 15 cents costing $3.50 and things of that kind. Now, all of that is true, but no one has added in the stories that we're the ones that have provided those figures. It is our Defense Department that has found this out and that it was going on and has gone to work to change it and so far has gotten back hundreds of millions of dollars in rebates and hundreds of convictions for fraud in this type of operation. And the rebates are still coming in, many voluntarily now, from businesses that have found out what was going on.

Our administration has proposed a modest investment promoting economic growth and the development of democratic institutions in Central America, as well as providing our friends the means to protect themselves against the attack of Soviet-backed insurgents. Being in the business you're in, I hope you can appreciate what we're asking the Congress to approve: Our program is an insurance policy to protect against the chaos that would result from allowing anti-American Marxists to shoot their way to power in Central America. We must not permit that to happen.

Like any insurance policy, there's a premium to pay, but it's cheaper now than to wait for a crisis, and there's no time to lose. The National Bipartisan Commission on Central America clearly warned that our own national security is at stake in this struggle.

And this last weekend, we witnessed dramatic confirmation by the people of El Salvador of their commitment to democracy. Intimidation and threats by Marxist guerrillas couldn't keep these brave, these courageous people from casting their vote for democracy. Many of them walked as far as 20 miles and stood in the hot sun for hours, braving the wrath of guerrillas to vote. The El Salvadorans are worthy of our support.

Let me just interject that yesterday the committee of observers in that election, consisting of Democratic and Republican Congressmen and Senators, added to them people from the private sector -- from ranks of labor, ranks of business, a clergyman -- had gone down to observe these elections. And yesterday they came into my office to report on what they had seen. Many of them admitted they went there with a different idea that maybe we were wrong about what we were doing there. They came back, all of them, totally converted.

They talked to the people who were waiting for hours, the sweat streaming from them in a hot sun, in line to go in and vote. You know how easy it is to vote here. How would you like it if your neighbor said to you, ``If you vote, we're going to shoot you''? And then you had to go down and stand in the sun for several hours and then maybe find out you were in the wrong line and have to go someplace else for several hours. But they did it.

And over and over these observers asked, and they said, ``Well, why? Why are you doing this?'' And a little elderly lady standing in line said, ``I'm voting for democracy.'' And another one said, ``I'm voting for God and peace.'' And it went on this way. They found out that these people -- there was nothing going to stop them. They frankly admitted, maybe this election alone won't do it -- this is the second election -- but we've been trying for democracy for a long time. We'll keep on having these until we have democracy. Everything that they heard down there convinced them: These are people that deserve the help and support of people that are as fortunate as we are.

Now, for the last 3 years we've been trying to build a strong America, not just militarily but economically and, yes, spiritually. We all appreciate the necessity of maintaining the military power to deter aggression and to prevent war. Yet we must also acknowledge that the greatest source of our strength is not weapons or laws, but, instead, the character of our people -- our standards as individuals and our recognition of those values that transcend the politics of the moment.

Four years ago, a cloud of pessimism hung over this land. A negative and cynical attitude, totally inconsistent with our traditions, like a wet blanket, smothered that resilient spirit so long associated with America and Americans. I'm proud that this, too, is something else we've helped change. And I say ``we'' because this kind of transformation can't be from the top. It reflects a change of heart, not just a change of politics [policies].

I'd like to take this opportunity to thank each of you for what you've done, and continue to do, to keep this blessed land the good and decent place God intended it to be. And I want to congratulate you as an association. Your national, local, and State boards are, for example, in the forefront of the campaign against drunk driving, and at the same time, you're promoting highway safety programs throughout the country. You've also been involved in anticrime programs, especially concerning arson. But this doesn't even scratch the surface.

Independent insurance people are active in veterans and service clubs, in churches and PTA's, in charitable and community programs, in cities and towns across the width and breadth of America. Your own president-elect, Fred England, was designated an ``Angel'' last year by the Association of Retarded Citizens. The Massachusetts Independent Insurance Agents sponsor the ARC. The Insurance Women of Denver sponsor the Special Olympics, something in which my wife, Nancy, as you know, is also deeply involved.

Your vice president, Richard Taylor, is a national board member of the National Society for the Prevention of Blindness and speaks on their behalf across the country. Your national State director from Hawaii, Norm Westly, has, for years, devoted his personal time to drug rehabilitation programs. I know that these individuals are not unique. They represent thousands of people in your profession.

More than a century ago, a French philosopher came to this country, as he said, to find out the secret -- then, a hundred years ago -- of our greatness. And he said that he had looked everywhere, in our business, in our busy harbors, in our factories and industries, and then, he said, he discovered that America is great because she is good. And if she ever ceases to be good, America will cease to be great. You are helping America to live up to its potential. Together we can keep America the shining light of liberty God intended it to be.

Thank you, and God bless you.

Note: The President spoke at 10:46 a.m. in the Presidential Ballroom at the Capital Hilton Hotel. In his opening remarks, he referred to Richard D. Teubner, president, Frederick J. England, Jr., president-elect, Frank J. Patterson, chairman of the Federal Affairs Committee, and Lawrence E. Hite, chairman of the NAPAC board of trustees, Independent Insurance Agents of America.