April 29, 1974
Page 12197
AMENDMENT NO. 1229
Mr. MUSKIE Mr. President, pursuant to the discussions and negotiations that have taken place during the last few days, at this point I send an amendment to the desk on behalf of myself, Senator STEVENSON, and Senator JOHNSTON.
The PRESIDING OFFICER. The amendment will be stated.
The legislative clerk proceeded to read the amendment.
Mr. MUSKIE. Mr. President, I ask unanimous consent that further reading of the amendment be dispensed with, and that it be printed in the RECORD, together with a fact sheet.
The PRESIDING OFFICER. Without objection, it is so ordered; and, without objection, the amendment and fact sheet will be printed in the RECORD.
The amendment is as follows:
At the end of the bill, add the following: TITLE II: COST OF LIVING ACT OF 1974
SEC. 201. This title may be cited as the "Cost of Living Act of 1974".
FINDINGS AND PURPOSES
SEC. 202. It is hereby determined that inflation poses a danger to the economic well-being of the Nation, and that in order to constrain domestic inflation, the Federal Government should have a continuing concern with the rate of inflation, supply, industrial capacity and means of increasing productivity. To contribute to the moderation of inflation, it is the purpose of this title to authorize the President to monitor public and private economic activity, and stabilize prices, rents, wages, salaries, dividends, and interest while providing for the orderly termination of economic stabilization controls and enforcement of decontrol commitments.
PRESIDENTIAL MONITORING AUTHORITY
SEC. 203. To carry out the purposes of this title, the President shall–
(1) review the programs and activities of Federal departments and agencies and the private sector which may have adverse effects on supply and cause increases in prices and make recommendations for changes in such programs and activities to increase supply and restrain prices;
(2) review industrial capacity, demand, and supply in various sectors of the economy, working with the industrial groups concerned and appropriate government agencies to encourage price restraint;
(3) improve wage and price data bases for the various sectors of the economy to improve collective bargaining and encourage price restraint;
(4) conduct public hearings when appropriate to provide for public scrutiny of inflationary problems in various sectors of the economy;
(5) focus attention on the need to increase productivity in both the public and private sectors of the economy;
(8) monitor the economy as a whole, including such matters as wages, costs, productivity, prices, sales, profits, imports, and exports; and
(7) conduct a continuing review of the effect of economic concentration and anti-competitive practices on price and wage inflation and recommend legislation and other appropriate action to reduce the impact of such concentration or practices on inflation.
ENFORCEMENT OF DECONTROL COMMITMENTS
SEC. 204. Notwithstanding the expiration of the Economic Stabilization Act of 1970, as amended,
(1) any commitment made or given as a condition of, in connection with, in exchange for, or in the course of decontrol or the grant of other relief from or under such Act, prior to May 1, 1974, shall continue in full force and effect; and
(2) the authority and provisions of sections 203 (relating to Presidential control authority), 208 (relating to sanctions), 209 (relating to injunctions and other relief), and 211 (relating to judicial review) of that Act (as in effect on April 30, 1974) may be invoked against, and shall apply to, any person who violates any commitment made or given as a condition of, in connection with, in exchange for, or in the course of decontrol or the grant of other relief to such person from or under such Act, prior to May 1, 1974.
ORDERLY DECONTROL AND STANDBY CONTROL AUTHORITY
SEC. 205. (a) The President is authorized to issue such orders and regulations (hereinafter "controls") as he deems appropriate, accompanied by a statement of reasons for such orders and regulations, to
(1) stabilize prices, rents, wages, and salaries at levels not less than those prevailing on April 24, 1974, except that prices may be stabilized at levels below those prevailing on such date if it is necessary to eliminate windfall profits or if it is otherwise necessary to carry out the purposes of this title; and
(2) stabilize interest rates and corporate dividends and similar transfers at levels consistent with orderly economic growth. Such orders and regulations shall provide for the making of such adjustments as may be necessary to prevent gross inequities, and shall be consistent with subsections (b) through (k) of this section.
(b) The President may in his discretion impose controls pursuant to this section or any person who violates a decontrol commitment.
(c) (1) The President may not impose controls pursuant to this section on any person unless the President first makes and publishes in the Federal Register the following findings, together with the reasons therefore:
(1) that there is serious inflation in the economy as a whole;
(ii) that there is serious inflation in an economic sector, which, in the absence of such controls, would lead to severe hardship or deprivation; and
(iii) that the need for such controls to moderate such hardship or deprivation outweighs the possible adverse supply consequences of such controls.
(2) In making the findings required under this subsection, the President shall consider, inter alia, the following:
(A) the extent to which such inflation can be moderated by such controls without the imposition of controls over other sectors;
(B) the extent to which competition in the relevant sector moderates inflationary pressures;
(C) the extent to which such controls will limit supply in the affected sector–
(i) by causing curtailment of production or productivity or impairment of capital formation, productive capacity, or resource availability, or
(ii) by stimulating an increase in foreign demand sufficient to create or exacerbate any domestic shortages; and
(D) the anticipated period of time required for market correction of any inflation or shortage, measured in light of the seriousness of such hardship or deprivation.
(d) Orders and regulations issued under this section shall–
(1) be generally fair and equitable;
(2) provide for the making of such general exceptions and variations as are necessary to foster orderly economic growth and to prevent gross inequities, hardships, serious market disruptions, domestic shortages of raw materials, localized shortages of labor, and windfall profits;
(3) take into account changes in productivity and the cost of living, as well as such other factors consistent with the purposes of this title as are appropriate;
(4) provide for the requiring of appropriate reductions in prices and rents whenever warranted after consideration of lower costs, labor shortages, and other pertinent factors; and
(5) call for generally comparable sacrifices by business and labor.
(e) In determining the wage increases to be permitted under economic stabilization controls, or fashioning commitments under subsection (e) of this section, the President shall give consideration to the need for real earnings to keep pace with increases in the cost of living.
(f) Notwithstanding any other provisions of this title, this title shall be implemented in such a manner that wage increases to any individual whose earnings are substandard or who is a member of the working poor shall not be limited in any manner, until such time as his earnings are no longer substandard or he is no longer a member of the working poor. The President shall prescribe regulations defining for this purpose the term "substandard earnings," but in no case shall such term be defined to mean earnings less than those resulting from a wage or salary rate which yields $3.50 per hour or less.
(g) Whenever the authority of this title is implemented with respect to significant segments of the economy, the President shall require the issuance of regulations or orders providing for the stabilization of interest rates and finance charges, unless he issues a determination, accompanied by a statement of reasons, that such regulations or orders are not necessary to maintain such rates and charges at levels consonant with orderly economic growth.
(h) The authority conferred by this section shall not be exercised to preclude the payment of any increase in wages–
(1) required under the Fair Labor Standards Act of 1938, as amended (29 U.S.C. 201 et seq.), or effected as a result of enforcement action under such Act; or
(2) required in order to comply with wage determinations made by any agency in the executive branch of the Government pursuant to law for work (A) performed under contracts with, or to be performed with financial assistance from, the United States or the District of Columbia, or any agency or instrumentality thereof, or (B) performed by aliens who are immigrants or who have been temporarily admitted to the United States pursuant to the Immigration and Nationality Act, as amended (8 U.S.C. 1101 et seq.) or
(3) paid in conjunction with existing or newly established employee incentive programs which are designed to reflect directly increases in employee productivity.
(1) For the purposes of this section the term "wages" and "salaries" do not include reasonable contributions by any employer pursuant to a compensation adjustment for–
(1) any pension, profit sharing, or annuity and savings plan which meets the requirements of section 401(a), 404 (a) (2), or 403(b) of the Internal Revenue Code of 1954 (Title 26 U.S.C.) ;
(2) any group insurance plan; or
(3) any disability and health plan, unless the President determines that the contributions made by any such employer are unreasonably inconsistent with the purposes of this title. Employees in all industries subject to controls under this title shall be treated equally for the purposes of this title.
(j) No State or portion thereof shall be exempted from any application of this title with respect to rents solely by virtue of the fact that it regulates rents by State or local law, regulation or policy.
(k) Nothing in this title may be construed to authorize or require the withholding or reservation of any obligational authority provided by law or of any funds appropriated under such authority.
ACQUISITION, CONFIDENTIALITY, AND DISCLOSURE OF INFORMATION
SEC. 206. (a) For purposes of carrying out this title, the President may by regulation, order, or otherwise obtain such information from, require such reports and the keeping of such records by, make such inspections of the books, records and other writings, premises, or property of, and take the sworn testimony of, and administer oaths and affirmations to, any person as may be necessary or appropriate. The authority to obtain information under this subsection or section 208 of this title does not extend to copies of disclosures to departments or agencies of the United States excepted from disclosure under subsection (b) of this section.
(b) For purposes of carrying out this title, the President may request from any department or agency of the United States, and that department or agency shall provide him, economic information except:
(1) information, the disclosure of which to another Federal agency is expressly prohibited by law, or
(2) trade secrets, commercial, financial, or demographic information which is privileged or confidential and obtained by an agency from a person for statistical or law enforcement purposes, the disclosure of which to another Federal agency would frustrate development of accurate statistics or proper law enforcement.
(c) For purposes of carrying out this title, the President may request economic information from State and local governments, including agencies and instrumentalities thereof.
DELEGATION
SEC. 207. The President may delegate the performance of any function under this title to such officers, departments, and agencies of the United States as he deems appropriate.
SUBPOENA POWER
SEC. 208. The head of an agency exercising authority under this title, or his duly authorized agent, shall have authority, for any purpose related to this title, to sign and issue subpoenas for the attendance and testimony of witnesses and the production of relevant books, papers, and other documents, and to administer oaths. Witnesses summoned under the provisions of this section shall be paid the same fees and mileage as are paid to witnesses in the courts of the United States. In case of refusal to obey a subpoena served upon any person under the provisions of this section, the head of the agency authorizing the subpoena, or his delegate may request the Attorney General to seek the aid of the United States district court for any district in which such person is found to compel that person, after notice, to appear and give testimony, or to appear and produce documents before the agency.
PERSONNEL
SEC. 209. (a) Any agency or officer of the Government carrying out functions under this title is authorized to employ such personnel as the President deems necessary to carry out the purposes of this title.
(b) The President may appoint five officers to be responsible for carrying out functions of this title, one of whom shall be appointed by and with the advice and consent of the Senate and who shall be compensated at the rate prescribed for level II of the Executive Schedule (5 U.S.C. 5313) one of whom shall be compensated at the rate prescribed for level III of the Executive Schedule (5 U.S.C. 5314) and three of whom shall be compensated at the rate prescribed for level V of the Executive Schedule (5 U.S.C. 5316). Appropriate titles and the order of succession among such officers may be designated by the President.
(c) Any member of aboard commission or similar entity established by the President pursuant to authority conferred by this title who serves on less than a full-time basis shall receive compensation from the date of his appointment at the rate equal to the per diem equivalent of the rate prescribed for level IV of the Executive Schedule (5 U.S.C. 5315) when actually engaged in the performance of his duties as such member.
(d) (1) In addition to the number of positions which may be placed in GS-16, GS-17, and GS-18, under section 5108 of title 5, United States Code, not to exceed twenty positions may be placed in GS-16, GS-17, and GS-18, to carry out the functions under this title.
(2) The authority under this subsection shall be subject to the procedures prescribed under section 5108 of title 5, United States Code, and shall continue only for the duration of the exercise of functions under this title.
(e) The President may require the detail of employees from any executive agency to carry out the purposes of this title.
(f) The President is authorized to appoint, without regard to the civil service laws, such advisory committees as he deems appropriate for the purpose of consultation with and advice to the President in the performance of his functions under this title. Members of advisory committees, other than those regularly employed by the Federal Government, while attending meetings of such committees or while otherwise serving at the request of the President may be paid compensation at rates not exceeding those authorized for individuals under section 5332 of title 5, United States Code, and, while so serving away from their homes or regular places of business, may be allowed travel expenses including per diem as authorized by section 5703 of title 5, United States Code, for persons in the Government service employed intermittently. Committees established under this title which are composed of members representative of labor and management or labor, management, and the general public to provide advice on methods of improving labor-management relations or the collective-bargaining process or assuring wage and salary settlements consistent with gains in productivity and the goals of stabilizing the economy and facilitating development of the Nation's energy reserves are exempt from the provisions of section 10 of the Federal Advisory Committee Act.
(g) (1) Under such regulations as the President may prescribe, officers and employees of the Government who are appointed, without a break of service of one or more workdays, to any position for carrying cut functions under this title are entitled, upon separation from such position, to re-employment in the position occupied at the time of appointment or in a position of comparable grade and salary.
(2) An officer or employee who, at the time of his appointment under paragraph (1) of this subsection, is covered by section 8336(c) of title 5, United States Code, shall continue to be covered thereunder while carrying out functions under this title.
EXPERTS AND CONSULTANTS
SEC. 210. Experts and consultants may be employed, as authorized by section 3109 of title 5, United States Code, for the performance of functions under this title, and individuals so employed may be compensated at rates not to exceed the per diem equivalent of the rate for grade 18 of the General Schedule established by section 5332 of title 5, United States Code. Such contracts may be renewed from time to time without limitation. Service of an individual as an expert or consultant under this section shall not be considered as employment or the holding of an office or position bringing such individual within the provisions of section 3323 (a) of title 5, United States Code, section 872 of the Foreign Service Act of 1946, or any other law limiting the re-employment of retired officers or employees.
REPORTS
SEC. 211. (a) In transmitting the Economic Report required under section 3(a) of the Employment Act of 1946 (15 U.S.C. 1022) the President shall include a section describing the actions taken under this title during the preceding year and giving his assessment of the progress attained in achieving the purposes of this title. The President shall also transmit quarterly reports to the Congress not later than thirty days after the close of each calendar quarter describing the actions taken under this title during the preceding quarter and giving his assessment of the programs attained in achieving the purpose of this title.
(b) In carrying out his authority under this title, the President shall study and evaluate the relationship between excess profits, the stabilization of the economy, and the creation of new jobs. The results of such study shall be incorporated in the reports referred to in subsection (a) of this section.
(c) The President shall review and appraise the programs and activities of the departments and agencies of the United States in light of the policies set forth in section 202 of this title for the purpose of determining the extent to which those programs and activities contribute to the achievement of those policies and shall report his conclusions to the Congress in the reports required by subsection (a) of this section.
FUNDING
SEC. 212. (a) There are authorized to be appropriated to the President to remain available until expended, such sums as may be necessary to carry out the provisions of this title.
(b) The President may accept and use in furtherance of the purposes of this title money, funds, property, and services of any kind made available for such purposes by gift, devise, bequest, grant, or otherwise.
EXPIRATION
SEC. 213. The authority under this title expires at midnight April 30, 1975, but such
expiration shall not affect spy action or pending proceeding, civil or criminal, not finally determined on such date, nor any action or proceeding based upon any act committed prior to May 1, 1975.
ADMINISTRATIVE PROCEDURE, SANCTIONS, AND JUDICIAL RELIEF AND REVIEW
SEC. 214. Sections 207 (relating to Administrative procedure), 208 (relating to sanctions), 209 (relating to injunctions and other relief), 210 (relating to suits for damages and other relief), and 211 (relating to judicial review) of the Economic Stabilization Act of 1970 as in effect on April 30, 1974, shall apply to actions taken under this title.
EFFECT ON PETROLEUM ALLOCATION ACT OF 1973
SEC. 215. For purposes of administering and enforcing the Emergency Petroleum Allocation Act of 1973, nothing in this title alters the Economic Stabilization Act of 1970 as incorporated by reference in the Emergency Petroleum Allocation Act.
EFFECTIVE DATE
SEC. 216. This title takes effect May 1, 1974.
SEVERABILITY
SEC. 217. If any provision of this title or the application of such provision to any person or circumstances is held invalid, the remainder of this title, and the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby.
MUSKIE-STEVENSON-JOHNSTON COST OF LIVING ACT
FACT SHEET
Provisions
Directs and authorizes the President to monitor inflation, and allows for the continuation of COLC-type structure.
Allows enforcement of decontrol commitments entered into under Economic Stabilization Act.
Allows imposition or reimposition of controls only if a decontrol commitment has been violated, or upon findings by the President of (1) serious inflation in the economy, (2) serious inflation in a sector which otherwise would lead to severe hardship or deprivation, and (3) a need for controls to moderate hardship or deprivation which outweighs the possible adverse supply consequences of controls.
Does not affect control authority on petroleum under Emergency Petroleum Allocation Act of 1973.
Other authority and direction to President:
Discretion to require reports and record keeping from private sector;
Discretion to hold public hearings;
Review and recommend changes in programs and activities of federal government and private sector;
Review and work with industry and government to encourage price restraint;
Improve economic data bases;
Focus attention on need for increased productivity; and
Review and make recommendations on economic concentration and anti-competitive practices.
Administrative and other provisions:
Delegation of functions by President;
Subpoena power;
Personnel: employment, appointment and detail;
Employment of experts and consultants;
Reports by President quarterly and in annual Economic Report;
Funding authorized "as may be necessary";
procedural and other safeguards for control authority as in Econ. Stab. Act; and
Requires that any wage controls take into consideration cost-of-living increases.
Danger of inflation
Inflation continues to increase:
March CPI was 10.2 % over its level one year ago, the highest twelve-month increase since 1948.
First quarter CPI increase was at a 13.3 % annual rate.
Average real wage earnings dropped 0.9% in March, a decrease of 4.7 % in the past twelve months.
Abandonment of authority to deal with inflation could produce even worse results:
Phase IV controls still cover 12% of the Consumer Price Index, 32% of the Wholesale Price Index, and 24% of the labor force.
Under Phase II inflation was 3.6%, but under Phase III prices escalated so fast a freeze was required.
Congress must take responsible and prompt action.
Importance of standby control authority, enforcement of decontrol commitments, and
economic monitoring
Standby control authority (Section 5 of the Act) is necessary to avoid an inflationary bulge after April 30th, and to meet special serious inflationary problems which might arise in the next year.
The findings required under the Act protect against reimposition of controls except when inflation is in fact serious, or to enforce decontrol commitments. Other provisions protect against unfair wage controls. This Act would promote an orderly transition to a free-market economy, and help to avoid the need for reimposition of comprehensive wage and price control.
Enforcement of decontrol commitments (Section 4 of the Act) would allow the Cost of Living Council (or any successor agency) to hold industry to agreements as to future pricing and policies which were entered into as a condition of decontrol under the Economic Stabilization Act.
Economic monitoring alone (Section 3 and the remainder of the Act) can provide alert to special inflation and shortage problems, long-run study of inflation and shortages, and a beneficial psychological effect on economy. No existing agency has the specialized mission or capacity for dealing with these problems.
Mr. MUSKIE. Mr. President, this amendment is the product of joint effort on the part of the distinguished Senator from Illinois (Mr. STEVENSON), the distinguished Senator from Louisiana (Mr. JOHNSTON), and myself. It is based in large part upon the legislation which they developed in the Committee on Banking, Housing and Urban Affairs for the purpose of dealing with the whole question of the transition from the economic control authority contained in the Economic Stabilization Act.
Because they have devoted this kind of attention to this issue and because this is largely their handiwork, I should like to yield at this point to the distinguished Senator from Louisiana, and the floor manager of the bill, S. 2986, to discuss it; and I will follow his discussion with appropriate comments of my own.
Mr. JOHNSTON. I thank the distinguished Senator from Maine, whose efforts have alerted the Democratic majority to the need for this bill and to the urgency for this bill, and without whose sponsorship in the Democratic Caucus we never would have gotten to the point where we are.
Mr. President, in 1970 when inflation in the Consumer Price Index reached 4.4 percent, the response of the Congress was to provide the President with pervasive wage and price control authority. In 1974 when inflation in the Consumer Price Index has reached 14.5 percent – the highest rate of peacetime inflation in the history of the Republic – the response of many is to throw in the towel in the fight against inflation. Mr. President, it would be more than unwise to give up the fight against inflation; it would be downright irresponsible.
Mr. President. Senator MUSKIE, Senator STEVENSON, and I and other cosponsors have joined in introducing this amendment, the Cost of Living Act of 1974. There is no more important issue before the Congress this year than inflation.
Over a period of many weeks, the Subcommittee on Production and Stabilization which I chair has heard testimony from leading economists in the Nation and representatives of labor, business, consumer groups, and other interested parties. I wish that I could say, based upon their testimony and the economic indicators in recent days, that the end of inflation is in sight. But we cannot even see the light at the end of the inflationary tunnel. What we do see is a possible economic ambush lurking around the termination of controls – an ambush aimed at the earnings of the consumer to keep their earnings up with inflation. And, Mr. President, it is not too much to say that the danger of an ambush lurks for the free enterprise system as we know it.
If the first quarter inflationary rate of 14.5 percent in the Consumer Price Index is frightening, it is even more frightening to consider that during this same period of time the Wholesale Price Index increased at the staggering rate of 24.8 percent. The rate of inflation in the Wholesale Price Index is a forerunner of inflation in the Consumer Price Index. These wholesale price increases have not yet made their way to the supermarket. Increased prices in energy which affects most consumer products are not yet fully reflected in consumer prices. The same can be said for commodity prices. Thus it is, Mr. President, that inflation may, and probably will, get worse before it gets better. The end of serious inflation is not in sight.
Mr. President, the bill which I and my colleagues have introduced will perform three basic tasks.
First, it will provide the President with the duty and authority to monitor the economy. Second, it would provide for the enforcement of decontrol commitments previously given. And, third, it will provide standby wage and price control authority. Each of these functions is essential in the fight against inflation.
First, the act would require the President to perform a variety of data-gathering and economic monitoring activities. The authority to engage in these activities was requested by the administration in its proposed amendments to the Economic Stabilization Act. The act requires the President to review and recommend changes in the programs and activities of the Federal Government and in the private sector, review industrial capacity, demand and supply, and work
with government agencies and industrial groups to encourage price restraint. The act further requires the President to improve the wage and price data bases; to conduct public hearings; to focus attention on needed increases in productivity; to monitor the inflation in the economy; and to review anticompetitive practices bearing upon the rate of inflation.
There are several reasons why provision for these activities is essential. First, monitoring and data gathering may provide early warning for special inflationary and shortage problems in the economy. Second, these activities will inevitably provide us with greater understanding of the sources and structure of inflation in our economy. In short, Mr. President, to use an old baseball expression – "you can't hit 'em if you can't see 'em."
The second function of the Cost of Living Act of 1974 is critically important. It provides for the enforcement of commitments given by industry in the course of gradual decontrols carried out by the administration over the past several months. Mr. President, one of the most successful aspects of the Economic Stabilization Act of 1970 was the securing of such commitments. A very substantial portion of the economy has been decontrolled by the use of this very innovative commitment technique. These commitments represent bargains, fairly struck, in which the administration surrendered some of its direct control in exchange for anti-inflationary promises on the part of industry. These commitments had to do not only with prices but with exports, expansion of productive capacity and other factors which truly bear upon inflation. The commitments were practical, workable, specially tailored to each particular situation and, most important, Mr. President, are likely to be effective.
To abandon these commitments now is unthinkable. These bargains should be enforced.
Our bill makes it clear that commitments given during the decontrol process should be in full force and effect during their entire stated duration. If they are violated, the violators may be subject to recontrol, criminal or civil penalties, injunctive relief or other proceedings under the act. Enforcement of commitments is essential in the fight against inflation and is an integral part of the process of orderly decontrol of the economy.
Finally, Mr. President, I come to what may be the most controversial and certainly is the most misunderstood part of this proposal – namely, the bill's provision for standby controls authority.
The standby controls authority established in this act represents a major departure from the pattern of standby authority granted to the President in the Economic Stabilization Act of 1970 and extended since that time. The ESA gave the President carte blanche authority to establish wage and price controls on the Nation's economy. The effort of this bill, and my own efforts since I first began working on this problem in the Subcommittee on Production and Stabilization, has been to limit the President's discretion to impose controls to a very narrow band of special circumstances in specific sectors of the economy.
As witness after witness before our subcommittee testified, Mr. President, the time for comprehensive wage and price controls has passed. And the authority we provide in this bill does not contemplate that they will be reimposed.
Mr. President, the hallmark of this bill is the limiting nature of the standby controls authority. An across-the-board freeze of the economy or economy wide controls cannot be implemented under this bill.
I have already discussed the fact that controls may be imposed for violation of a commitment. Absent such violation, controls can be imposed only if the President makes and publishes in the Federal Register specific findings on three factors: First, in order to impose controls on any sector of the economy, the President would have to find that there is serious inflation in the economy as a whole; second, the President would have to find that there is serious inflation in the relevant economic sector, which, in the absence of controls would lead to serious hardships and deprivation; third, the President would have to balance the need for controls against their possible adverse impact on supply.
Thus, Mr. President, serious inflation in the whole economy is not enough; nor is serious inflation in the particular sector sufficient to trigger controls. The President must also find that in the absence of controls; such inflation would lead to serious hardship and deprivation. These factors recognize that some kinds of inflation cannot be cured by controls and that some inflation does not produce hardship and deprivation. For example, if the price of gold toothpicks goes through the roof, this would not invite controls, because of the lack of hardship.
Mr. President, this bill also recognizes that controls are not always appropriate even where inflation is producing hardship and deprivation, if the need for additional supplies through the market mechanism outweighs the hardship or deprivation. The President is required to make findings and to note the following factors:
First, the extent to which such inflation can be moderated by such controls without the imposition of controls over other sectors. Food is a classic example here because experience has shown the price of food in the supermarket cannot be effectively controlled when all the costs to the farmer continue to escalate.
Second, the extent to which competition in the relevant sector moderates inflationary pressures. The better the competition, the more effective the market mechanism, and, in turn, the less the need for controls.
Third, the President is required to determine the extent to which controls will limit supply in the affected sector by curtailing production or by stimulating foreign demand.
And we have plenty of examples of that happening under the ESA of 1970.
Finally, the President is required to determine the anticipated period of time required for market correction of the inflation or shortage measured in light of the seriousness of such hardship or deprivation. One month without filet mignon may be bearable, but one week in winter without heating oil is too much.
In sum, Mr. President, this bill contemplates, this bill authorizes, only selective controls where the need is acute and then only in such circumstances that their effectiveness can be demonstrated.
Mr. President, there has been much discussion about the psychological effect of controls or of standby controls. This bill is designed to create a psychology against inflation. To the industrialist, it warns that irresponsible price rises invite controls. It rewards responsible price activity by leaving off controls. It does not invite the kind of anticipatory inflation that was seen with the present act. That act encouraged price rises in anticipation of the freeze which was sure to come. This bill has the opposite effect.
The controls authority we have provided curtails substantially the President's broad discretion, under the Economic Stabilization Act, to impose wage and price controls throughout the economy. Under our bill the President could impose controls only on selected sectors of the economy and then only upon making the detailed written findings required in the bill.
Second, by limiting the President's discretion, I believe the bill will reassure businessmen and industrial decision makers that controls will not be reimposed lightly and that their reimposition will not be subject to mere political whim.
The third purpose of my bill is, at the same time, to cool the current inflationary psychosis afflicting the American consumer public by reassuring consumers that the President does possess standby authority to impose controls in any sector of the economy where there is truly serious inflation leading to serious hardship or deprivation.
Fourth, I believe that by setting clear standards in advance, governing the imposition of controls, we can avoid the lynch-mob atmosphere that inevitably accompanies even those substantial price increases which are highly justifiable on the basis of supply and demand. By establishing definite standards in advance for the imposition of controls, we can require the administration to consider at the front end of the controls process the economic distortions and dislocation which all too often during the past year have been dealt with after the fact.
Mr. President, I have been advocating a limited system of standby control authority for nearly 4 months now. Time and time again I have had to explain – and I want to do that again today – that those of us who support standby controls authority do not endorse economic controls per se. I am not here to defend or debate the success – vel non – of the economic stabilization program. I will leave that to those who engineered the original program in Congress or to those in the executive who ran it, but the distortions the programs produced are obvious and documented.
The case against controls is – in my judgment – overwhelming.
How then can we return to the free market as quickly as possible and with the least danger?
Both labor and business witnesses all say end controls. Completely. And now.
I believe that approach to be a great mistake. It carries a potential for danger of the severest dimensions to that same free enterprise system that we all want to protect and foster.
It is a paradox – perhaps even a contradiction in terms, but I believe it to be true – that the best way to a free market is through standby controls.
Let me explain.
The real danger of ending controls now and completely, as I see it, is that inflationary pressures coupled with the psychology of frustration will stampede the American people, and therefore the Congress, into a demand for controls that completely stop inflation. Is this possible? Can inflation be stopped? Yes. But consider the price.
First, freeze incomes. That is easy. We did it before. But really to freeze prices for more than a few weeks requires a system that must inevitably extend through allocation, rationing, and production and use controls to a fully planned national economy.
Then the questions: Who plans what and for whose benefit?
Such a system is, I submit, inherently inconsistent with freedom as we know it. How could this specter result from a total end to controls?
Consider the scenario. First, note the inflationary pressures for 1974. While the Consumer Price Index rose at the annual rate of 14.5 percent in the first 3 months of 1974, wholesale prices climbed at almost twice that rate – 24.8 percent. Wholesale prices must be reflected in consumer prices, and this is a clear indication that substantially higher consumer prices are on the way. Skyrocketing prices of basic commodities and spot and future markets are even more dramatic signals.
Wheat, soybeans, cotton, sugar, potatoes, and other commodity producer prices range from two to several times their levels of a year or two ago – and the end is not in sight. Middle Eastern crude has risen in price almost four times, bringing with it the price of both domestic petroleum and alternate energy forms. This dramatic rise in the price of energy will affect the cost of virtually everything from fertilizer to food, from steel to automobiles, from plastics to clothing. And the full effect in price has yet to come.
What is the rate of inflation for 1974? The economists approach that very question with trepidation. Consensus is found in the prediction that inflation will continue undiminished. When we began our subcommittee hearings in February, even the pessimist did not forecast a first quarter rate of 14.5 percent in the Consumer Price Index.
Next consider inflationary expectations. The rule is: That which people expect to happen in terms of inflation usually does. That is what happened in phase III. With the announcement of
broad decontrols, people expected inflation to soar and they raised their prices to keep up with the expected rise. This expectation is aggravated by the further expectation that broad controls will again be imposed in response to the problem. So prices are again raised to in order not to be caught with prices or profits down in the coming freeze.
Then consider the psychology of frustration inherent with the American people. The Gallup poll has measured it: Only 23 percent have confidence in the President; less than that, in Congress. Respect for our basic institutions – the Government, the church, and certainly big corporations – is at an alltime low. Perhaps Vietnam started it. Watergate has certainly aggravated it. Inflation brings this frustration home to every American. Free enterprise used to be well nigh sacred, or at least taken for granted. But a lynch mob psychology fueled by the inflationary fires of 1974 could, I fear, produce a comprehensive, radical, and unwise system of controls for the American economy.
So, Mr. President, I urge the Senate to adopt this amendment because I believe it is the best insurance policy we have against another round of comprehensive wage and price controls. I have heard this reasoning referred to as "doubletalk," but I do not think it is that at all. The fact is that a precipitate abandonment of all stabilization authority would loose a terrible inflationary psychology on the people of this country.
Mr. President, I said a few moments ago that our proposal for standby authority has been misunderstood. I would like to anticipate, if I may, several of the arguments we have heard time and time again.
The theme we hear over and, over again is that standby controls authority is inflationary in itself. Industry and labor, we are told, will push for all they can get in wages and prices so they would not get caught with their dollars down if controls are reimposed. Furthermore, it is usually said that controls will inevitably be reimposed, because the political pressure to apply statutory controls authority is irresistible.
In response, Mr. President, our bill provides controls authority very different from the authority under the ESA. We require the detailed findings to be made and made carefully before controls may be imposed. We intend for controls in any sector to be the rare exception and not the rule. Indeed, I think I can speak for all the cosponsors of this bill in saying that we would all prefer that it not be necessary to exercise this authority at all.
So we are not talking here about the usual wide open statutory authority. The act is modeled after the Export Administration Act – not a model of clarity, I admit – but a bill whose drastic control provisions have been invoked about as frequently as a new comet is sighted in the sky.
The controls authority we provide is not inflationary for another reason as well. Because we contemplate pinpoint controls – of a particular industry or a particular firm or union, if necessary – this bill creates a powerful incentive for responsible behavior. Nobody likes to be under economic controls. But if they leap irresponsibly to raise prices or wages, that is the surest way they will be brought back under controls, and any recontrol will be subject to a rollback to wage or price levels of April 24, 1974.
Perhaps comprehensive wage and price controls authority create anticipatory increases. Each person takes shelter in the knowledge that his fate will be the common fate. Under our bill responsible behavior will be rewarded and irresponsible behavior punished.
Finally, on the subject of "anticipatory inflation," I cannot resist saying, Mr. President, that we are talking about a self-fulfilling prophecy. If Senators who preach the inevitability of recontrol would instead join with us in emphasizing the highly restrictive nature of the authorization we proposed today, they would do much to reassure business and labor that there is no need to make hay while the sun still shines.
Mr. President, another major objection is that our bill is not in the best interests of the working man. The unions have been stung by the failure of wages to keep pace with inflation. So, they say, how can you again present this administration with the club to beat us over the head?
There is no question about it: Much of whatever success phase IV achieved was achieved at the expense of the working man. I have condemned that approach to controls and do so again today.
Our bill provides specific protection against further erosion of the workers standard of living, and we intend that that protection be honored.
I might also add that wages can be controlled only on a sector-by-sector basis and then only when the requisite findings are made. Wage orders issued prior to April 30, 1974, continue in effect for 30 days and then the unions, like industry, are given the chance to behave responsibly – at the peril of recontrol. We recognize that there is catching up to be done.
Finally, Mr. President, we hear the charge that this proposal is politically motivated.
It is said we are trying to appease the public with an insubstantial mechanism for fighting inflation. Or that we are simply trying to shift the blame for inflation to the Administration.
We do not pretend that the Cost of Living Act will provide a panacea for inflation. Indeed, the act is only a stopgap measure – to help us gain a further understanding of the inflation problem we are up against and to keep the lid on in the meanwhile – at least a little.
The act is also a stopgap in another way. I believe it will provide at least marginal restraint on inflationary forces and keep us from hurdling headlong into an inflationary panic and back into comprehensive wage and price controls.
Again, the issue is not controls. We are all against controls. The issue is limited controls authority, and the authority to engage in monitoring and orderly termination of the present program.
There is no attempt to pin the political blame for inflation on the administration. The causes of the present inflation are deeply rooted and, at least to a major extent, the result of international forces that no administration could gage or cage.
Let me say one word about the politics of this issue. We are told that this bill cannot pass because both business and labor are opposed to it. That is a powerful combination, I admit, and I do not like to find myself on opposite sides either of business or of labor. But the rank and file in labor are consumers, too. We will get no thanks from labor if by taking off controls we allow the rate of inflation to continue to accelerate at such a rate that any wage increases are eaten away as they have been this year.
We will get no thanks from business if we heed their present advice and allow all controls authority to expire so that inflationary pressures create an absolute demand in the latter part of 1974 for the reimposition of a system-wide arrangement of freezes and controls. I think that is the ultimate issue. Are we willing to have an ounce of prevention in April 1974, or do we want the whole cure in the latter part of 1974? The whole cure, I am afraid, would imperil our very free enterprise system.
If inflation gets too bad with a system of no controls, if it continues to accelerate; and if we in Congress do not do something about it in the latter part of 1974, we will be right back here considering not a modest restraint in a carefully limited grant of Presidential authority to control inflation, but a pervasive system of Government controls and allocations, under which the Government will decide who does what, for whom, and why.
I hope we will not have to find that inevitable conclusion. I hope that we will pass the bill this year, this month.
Mr. CASE. Mr. President, the administration and the Congress together must act positively to bring inflation under control. For that reason, I am pleased to cosponsor the amendment to add the Cost of Living Act of 1974, submitted by Senator MUSKIE, which provides for a 1-year extension of standby authority for wage and price controls.
Adoption of our amendment will not mean that new controls will be imposed. Certainly, we hope such action does not become necessary. But our economic situation is too serious to justify reliance on fiscal and monetary policy alone.
I am hearing every day from constituents who are caught in a double-digit inflationary spiral that, according to the Joint Economic Committee, has reduced the buying power of wage earners in manufacturing industries to a point lower than it was in 1972. Naturally,other wage earners are affected in much the same manner. In these circumstances, it would be irresponsible to allow the current authority for controls, as included in the Economic Stabilization Act, to expire at midnight Tuesday, April 30.
Mr. BROCK and Mr. MUSKIE addressed the Chair.
The PRESIDING OFFICER. The Senator from Tennessee is recognized.
Mr. JOHNSTON. Mr. President, I believe the Senator from Maine had yielded to me.
Mr. MUSKIE. I believe that is correct.
The PRESIDING OFFICER. The Senator from Maine had the floor.
Mr. MUSKIE. Mr. President, I was happy to yield to the Senator from Louisiana to explain his amendment, inasmuch as it has played such a large part in the work done in the Committee on Banking, Housing and Urban Affairs on this subject. At the same time, I wanted to explain my own views with respect to the amendment and why I have introduced it. I have introduced this amendment in behalf of myself, Senators STEVENSON and JOHNSON, and Senators CANNON, CASE, CHILES, HASKELL, HATHAWAY, HUMPHREY, JAVITS, MCGEE, MANSFIELD, RANDOLPH, and RIBICOFF.
Mr. President, before I get into the substance of the amendment, I would like to state the reason why I felt impelled to get involved in this whole issue.
Like all Americans and all Senators, I have been watching the economic indexes for recent weeks and months with great alarm and concern. I was aware of the effort initiated in the Senate Committee on Banking, Housing and Urban Affairs, by Senators STEVENSON, JOHNSTON, and BIDEN, and my own colleague from Maine (Mr. HATHAWAY) to deal with this problem of transition from the period of controls ending April 30.
As the evidence of inflationary pressures accumulated, my alarm grew. Two weeks ago, I saw the prospect of April 30 coming and going with all authority to deal with inflation disappearing, and with Congress sitting on its hands. In all candor, it seemed to me that was the mood of Congress, so far as I could discern. Everyone concerned seems unhappy with controls, the way controls have worked, and the problems controls have generated. Labor, business, and even the consumer all seem to have accepted with resignation the inevitability that on April 30 at midnight the Economic Stabilization Act would expire, and with it all authority to impose controls whatever unpredictable circumstances might arise. I simply could not bring myself to sit idly by and permit that to happen without raising my voice in protest.
As I read the sentiment in the Senate and the House of Representatives, it seemed very doubtful to me that the idea of standby control authority could be sold to Congress. So I at first limited my legislative initiative to the creation of a monitoring agency, which could be a continuation of the Cost of Living Council, simply to keep its finger on the economic pulse, gather data and information, and develop judgments as to what public policy ought to be implemented. When I presented this suggestion to the Democratic Conference last week, the surprising reaction was that such a measure would not be enough, and that we ought to do more than create a monitoring agency. I say that was a surprising reaction; I am not sure that it necessarily signified a willingness on the part of a majority of the Senate to do something more than that, or even that much; but the reaction of the caucus encouraged Senator STEVENSON, Senator JOHNSTON, and myself to at least present to the Senate today, with the cooperation of the Senate leadership, a proposal that includes both the monitoring function and standby control authority.
Our proposal is as simple and clearcut as that. The standby control authority could not be used except at the discretion of the President, and his discretion is limited, as the distinguished Senator from Louisiana has so well pointed out, by the guidelines set out in the amendment.
This amendment would add to S. 2986, the Council on International Economic Policy authorization bill, a new title, "The Cost of Living Act of 1974," drafted in response to the Senate Democratic Caucus resolution adopted last Wednesday.
But the Cost of Living Act is not a partisan measure. We are joined by two distinguished Senators from the other side of the aisle, Senators JAVITS and CASE, who applaud this effort. This is not, I repeat, a partisan effort. It is not an attempt to gain partisan advantage, as far as this Senator is concerned. I am simply concerned that Congress should not sit on its hands when the authority to deal with this problem expires tomorrow.
The purpose of the amendment and the purpose of the resolution adopted by Democratic Senators last week is to respond in a constructive way to the rapidly increasing rates of inflation, when wage and price controls, under the Economic Stabilization Act, expire tomorrow night at midnight.
This amendment, as the Senator from Louisiana has so well pointed out, is designed to provide for an orderly transition from the existing system of wage and price controls to an uncontrolled free market economy. It would give the President standby authority to impose controls in any economic sector, after making specific findings to justify such controls, until April 30, 1975. It would also allow enforcement of decontrol commitments made under the present law, and whose term would continue beyond April 30; and it would establish a successor agency to the Cost of Living Council to monitor the economy and to report periodically to Congress.
Phase IV controls, Mr. President, which will expire tomorrow, still cover 12 percent of the Consumer Price Index, 32 percent of the Wholesale Price Index, and 24 percent of the labor force.
I think it would be interesting to spell out the components of those figures. That 12 percent of the Consumer Price Index, for instance, includes petroleum, which accounts for 3.6 percent; health, which accounts for 5.6 percent; and autos, auto parts, and auto insurance, which account for 3 percent.