May 1, 1974
Page 12625
Mr. MUSKIE. Mr. President, I am not sure what amendments are going to be offered, but I will take 2 minutes of the time allotted to me on the amendment simply to say what I have been trying to find 2 minutes to say all afternoon, without success.
First, I should like to thank those Senators who voted to give me the right to speak on this amendment.
Second, I should like to take the remainder of the 2 minutes to read something that gives my reasons for offering this amendment. This is from an article that appeared in the Washington Post on April 20 written by Hobart Rowan. This is what he wrote in reporting on the highest inflation rate in 25 years:
"Another worrisome aspect of yesterday's news is that while the sharp recent rise in food prices abated. considerably in March, the price tag for non-food prices and services continued to escalate even faster."
In fact, the 1.5% increase in industrial prices for the month (an 18% annual rate) is the biggest in that category since the government began to keep such statistics in 1954.
All told, higher prices for gasoline and food – which until recently have been accounting for about two-thirds of the inflation, accounted for only 25% of it in March, which means that price rises have spread in a pervasive way to a wide range of other consumer goods and services.
There were notable increases in physicians' fees (up at a 20.4% annual rate), apparel, gas, electricity, postal rates, newspapers, textiles, new cars, city bus fares, and household durable goods.
The Washington Post on March 24 reported Dr. Dunlop's prediction that doctor bills could go up 9 percent during the next fiscal year, and hospital fees as much as 17 percent, without control authority. Under controls, doctor bills would go up only 4 percent and hospital fees between 10 and 11 percent.
The New York Times on April 22 reported that–
For millions of Americans, the ending of more than 32 months of wage and price controls next week is expected to bring another spasm of price increases that will further erode their already shrunken paychecks.
An official of a large food processing and distributing company was quoted as having the "feeling" that "everybody is busting to get out of the gate."
The Times article continued:
Interviews with executives in a variety of industries late last week disclosed that a number of price increases were expected in the weeks ahead.
Among other industries where consumers can expect to face price increases this year, according to industry officials, are automobiles, cigarettes, whiskey, a variety of processed foods, machinery, home furnishings, furniture, and the cans that contain everything from soy beans to shaving cream.
The Baltimore Sun on April 21 reported:
On April 30 most segments of American industry can be expected to heave a collective sigh of relief.... What cannot be expected on April 30 is that the sense of relief will extend to the consumer, for he faces an acceleration of price increases and continued rapid inflation. Whether he wants to buy a new house, car, or suit of clothes, it is going to cost him more ... How much more will prices go up? The industry is not talking. But Wall Street analysts, using their own data, come up with projections ranging from 15%-20% over the next twelve months.
These reports document that there is ample evidence that the fires of inflation are spreading from food and energy – and we are all aware of what their devastation has been there – into industrial commodities and into non-food items.
I protest the absence of a policy of this Congress to deal with it. What the Senate seems to be about to say is that with these inflationary forces boiling under the surface of the economy, and with all the unpredictable circumstances that one could envision in the next 6 months, we are going to leave our Government without a policy, without a tool, without an authority to deal with it. Anybody who can predict with assurance that in the next 6 months a need for control authority will not arise has a blind faith in our economic future.
It is for this reason that I have made these two simple, clear-cut proposals: First, a monitoring authority to continue the function of the Cost of Living Council to keep tabs on the economy, to look out for shortages, to signal the danger spots, to generate the data, as a base for whatever policy we may need to adopt in the next few months; second, standby by control authority – a fire extinguisher on the wall. We have had to use that authority before in the last 30 years in this country. It has worked. It has also failed. But in times of dire economic emergency, Presidents who have objected to it, including this President, have used it in circumstances when necessary, and with success.
I know the pressure which has been brought to bear against my proposal. Business and labor are lobbying to kill this measure.
But I disagree with their judgments. The Cost of Living Act which we have proposed to the Senate presents one of the most difficult public policy problems of current times – the control of inflation, the control of one of the most pervasive and destructive forces operating on the American people.
We have heard the statistics of inflation, their shock value depleted by repetition. And we know the reality behind those statistics – the elderly on fixed incomes who must choose between adequate food, adequate heat, or adequate medicine. And the businessmen staggered by cost increases or shortages of essential materials. And the wage earner who sees his paycheck shrinking weekly.
We know the reality of inflation and we have a responsibility to counter it with the best public policy tools we have.
The Cost of Living Act we consider today is the only constructive step available to Congress to meet the threat of inflation.
Double digit inflation in America is well-documented. The consumer price increase in the first quarter of this year, approaching 14 percent, represents, through a shorthand average, the millions of cases of hardship and instability experienced by Americans in the months just passed.
But the evidence also shows that we have cause for serious concern about continued and possibly more dramatic inflation in the months ahead. Part of the danger comes from total decontrol of the economy, except for petroleum, as of today. Yesterday, wage and price controls restrained 12 percent of the Consumer Price Index, 32 percent of the Wholesale Price Index, and 24 percent of the labor force. But 9 percent of the Consumer Price Index and 28 percent of the Wholesale Price Index were released from controls as of midnight last night – including health, autos and auto parts and insurance, metals and metal products, machinery and equipment, construction, and non-food consumer items.
The aftermath of decontrol in those sectors could present significant dangers down the road. The decontrol process may have been gradual, but those sectors left under controls to the bitter end would now be free from all restraint. The wage-price bulge we know occurs when controls are lifted could be far worse than a normal market correction, posing the danger of a new wage- price spiral. When phase II was prematurely ended, wholesale price increases went from a 6.9- percent annual rate to a 24.4-percent annual rate during the first 5 months of phase III, mandating another dollar devaluation and a new 60-day freeze. A similar escalation of inflation from its current high rates would certainly require a damaging return to across-the-board controls. But that event could be avoided if selected controls were available now.
Far more troublesome than the direct consequence of decontrol is the danger of stripping from the Federal Government a necessary tool to deal with drastic inflation. The evidence of dramatic inflation in the coming months shows up in reports of a new automobile price increase, and the 35 percent annual rate increase in industrial commodities prices last month which will soon be translated into consumer price increases. And evidence comes from the reports from business and labor that a no-holds barred, possibly irresponsible inflationary psychology is taking hold.
At best, the economic prognosis for the months ahead is uncertain. And unless we can count on the bland assurances of administration policy makers who have so often been wrong before, we must prepare for a year when double digit inflation, combined with a recession, will present the most grave economic conditions, upsetting even further the stability of employment, investment, production, and income.
Those who see the possibility of these economic dangers ahead would agree that Congress must provide the most effective public policy response available. That best response is the Cost of Living Act we will vote on today. The authority it provides – an economic monitoring agency, with authority to enforce decontrol commitments, and the residual authority to impose limited wage and price controls – provides the necessary tools for Federal Government action to meet inflation if a crisis develops.
The economic monitoring authority under the Cost of Living Act is essential to any reasoned Federal policy on inflation. Our current economic problems certainly need close observation.
And proper attention can only be provided through a separate institutional focus mandated by Congress.
Up-to-date and comprehensive monitoring of inflation requires attention to a variety of problems and government functions now distributed among many agencies: imports and exports; production of food, natural resources, and housing; labor relations; regulatory decisions; and budgetary decisions.
Understanding and forecasting inflation and shortages requires the collection and analysis of data beyond the normal function and capability of the Bureau of Labor Statistics or the Commerce Department.
And the special tasks of an effective anti-inflation agency – publicity, planning, and jawboning – are the responsibilities of no single office in the executive branch.
Only the Council of Economic Advisers has the potential economic overview required, and its small staff of only 46 professionals and clericals is far too small to perform the job adequately.
So the economic monitoring function, to be performed effectively, must have the congressional mandate contained in the Cost of Living Act.
One tool of this monitoring agency should be the authority to enforce decontrol commitments entered into under the now-expired Economic Stabilization Act. In the process of decontrol, Dr. Dunlop and the Cost of Living Council negotiated voluntary commitments with the leading firms in 17 industries calling for restraints on prices, profits, labor settlements, and exports, and agreements to improve production and capacity, price reporting, and customer allocation.
The enforcement of these commitments, provided in section 204 of the Cost of Living Act, will give the necessary authority to the economic monitoring agency, to hold industry to the responsibilities they have already accepted.
And one additional tool necessary to the effective control of inflation is a limited authority to control wages and prices. This standby control authority provided by the Cost of Living Act is available only to meet the most severe inflationary dangers the coming months might hold.
Economic controls could only be imposed under the Cost of Living Act if the President made three findings: that there is serious inflation in the economy as a whole; that there is serious inflation in an economic sector which, without controls, "would lead to severe hardship or deprivation"; and that the need for controls outweighs the possible adverse supply consequences they might bring about. These standards apply equally to all sectors of the economy. They protect against unjustified use of controls. But they make some controls available should they be needed in a real crisis.
There are three important points I wish to make about this limited control authority.
First, the limitations are an appropriaate and judicious congressional determination of when controls may be used. The precise application and administration of economic controls is a task only the executive branch can perform. In the Cost of Living Act, we place across-the-board restraints on that authority. We insure that the standards for using it are identical for all economic sectors. But beyond that we cannot go. We have but one President, and it is our responsibility to give him the tools as well as the direction for meeting the economic dangers we face.
Second, the control authority in the Cost of Living Act is far more limited, and far more precise, than the authority the President has exercised for the past 3 years under the Economic Stabilization Act. The findings require before controls could be imposed would make them far more predictable than the actions taken by the Cost of Living Council in the past. Indiscriminate, or arbitrary wage and price controls, would not be allowed. What is allowed is appropriate and firm Government response to an inflationary crisis down the road.
Third, this limited authority under the Cost of Living Act can be effective. Phase II told us that controls can work when properly administered. Even in 1973, according to Dr. Gardner Ackley, former Chairman of the Council of Economic Advisers, controls may have reduced the rate of inflation by between 1½ and 3 percent. And control authority is effective not only when direct restraints are applied. In addition, the fact that they are available to meet irresponsible inflationary action dampens inflationary psychology. Such a tool, which history teaches us can be effective, is essential to have available to the Federal Government.
Mr. President, the inflationary dangers we face demand a responsible congressional response. The Cost of Living Act provides an appropriate course: an economic monitoring agency to enforce decontrol commitments, with reserve authority to impose economic controls in limited, serious inflationary situations. It presents us with the best response to the economic dangers facing America.