December 19, 1973
Page 42380
ECONOMIC DECISIONS FOR 1974
Mr. MUSKIE. Mr. President, I am pleased to join with my distinguished colleagues in this discussion of the economy. For despite the recent public preoccupation with the energy crisis, the crisis of consumer economics of 1973 is still with us – and demands the continued attention of Congress. I commend Senator BENTSEN for bringing us together this morning for that purpose.
This discussion is important now because in the coming weeks the Nixon administration will be making decisions critical for our economic health in the coming year. Those decisions may create a new structure of wage and price controls: Phase V. Or they could follow the pattern of past administration errors by abandoning any effective effort to keep a lid on inflation.
There is little doubt that controls should be relaxed, since retaining them in their current form will cause more harm to the economy – in the farm of unnatural shortages of key materials, and other dislocations and inequities – than any salutary effect they can have on inflation. But some kind of controls policy must be maintained. To be effective, the policy must allow increased freedom for economic decision making in the private sector while maintaining the potential for firm administrative action to roll back inflationary price and wage increases.
This optimum policy will require great sophistication, judgment, and leadership – none of which this administration has yet demonstrated on economic matters.
The year we are just finishing, of course, has itself been one of dramatic crisis in the American economy. The figures available for the latest 12-month period show inflation in consumer prices of 9.6 percent. Inflation in food prices was 19 percent over the same period. Unemployment averaged 4.9 percent. And the real value of average weekly earnings actually declined by more than 1 percent. Throughout this crisis, the erroneous predictions of the administration, and its failure to take decisive action, eroded the confidence of the American people in economic actions of the Federal Government.
In the months ahead the American people will feel the effects of the energy crisis – caused in part by the Middle East oil embargo, but also caused in part by the administration's failure to foresee the possibilities of the shortages which are now all too evident. Finally, the executive branch may be ready to take firm action on energy matters, and Congress is this week providing the necessary authority far that action. We all have hope that the forthcoming administration action on energy will minimize the overall effects and inequities of the shortages of petroleum products. But there has been no evidence that dramatic recent price increases in such petroleum products as gasoline, diesel fuel, and heating oil have been justified. The first priority of the new Federal Emergency Energy Administration must be to mitigate the petroleum price squeeze, and insure that the consumer's pocketbook does not bear the brunt of the energy crisis.
Even assuming, however, that decisions on energy in the next few months will be wise and effective, the energy crisis will certainly cause major disruptions in our economy. Some economists now estimate that there may be no real growth of the American gross national product in 1974. Estimates of the inflation rate next year range from 8 to 10 percent. And the estimates for unemployment next year are in excess of 5 percent – again, assuming effective energy action.
These estimates about our economic condition next year – which many would call optimistic – will translate into real hardship for the American people. Not only will there be shortages of gasoline for our automobiles, and fuel to heat, light, and power our homes and factories, but also more families will be out of work and without paychecks. For them, the inevitable price rises in food, petroleum-related products, and many other items will be especially cruel.
But even before the worst economic effects of the energy crisis are felt, the administration is now considering relaxing or abandoning the wage and price control structure. Serious inequities and dislocations have appeared in the economy during the current phase IV. Some products are not available because controls have made them unprofitable to sell. Shortages on some supplies, caused by controls or petroleum scarcity, threaten to bring some businesses and industries to a standstill. And some consumer and business purchasers are unfairly prevented from recovering, through their own wage or price increases, the rising costs they are forced to pay. But when controls are lifted, pent up inflationary pressure could be turned loose with disastrous consequences.
So although a relaxation of controls is needed, abandoning them would be a mistake. A year ago the administration was faced with a similar problem – and decided to relax controls too swiftly in phase III, bringing us the rampant inflation of last spring. When they admitted their mistake, inflation was so bad that a freeze and a tightened control system was needed.
If President Nixon and his advisers choose to heed recent history and retain controls while relaxing them in a new phase V, they will still be faced with a great challenge. They must develop a policy which will allow the economy to make adjustments in wages and prices to correct shortages and inequities, but at the same time protect the public from a new round of uncontrolled inflation.
The essential condition of that policy must be a convincing mix of fairness and firmness. Phase V must give the public confidence that unjustified inflationary wage and price increases will not be permitted, that those who seek to take advantage of relaxed controls to increase disproportionately high profit margins or wage levels will be required to justify their actions in detail, and that administrative wage and price decisions will be tempered by understanding.
That policy must include, for instance, "rollback authority" – the ability of the Government to force a retraction of an unjustified increase. I hope that phase V will include such a provision, and other tools to allow Government action to be effective.
But more important even than the detailed procedures and authorities included in phase V will be its credibility – in other words, whether the American people believe it will be administered with fairness and firmness. And the credibility of the policy will be determined by the way it is formulated, announced, and administered.
If the administration's forthcoming economic decisions are weak, arbitrary, or confusing, 1974 could be a disaster for the American economy. I hope instead that 1974 will begin with the economic leadership we so desperately need.