April 29, 1974
Page 12207
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. CHILES. I yield.
Mr. MUSKIE. I would like to compliment the Senator on his statement. I think he has articulated well what is in the minds of his constituents.
I would like to complement what he has had to say by asking unanimous consent to include in the RECORD at this point an article which appeared in the Wall Street Journal of April 15, 1974, by Walter W. Heller, entitled "The Untimely Flight From Controls."
There being no objection, the article was ordered to be printed in the RECORD, as follows:
THE UNTIMELY FLIGHT FROM CONTROLS
(By Walter W. Heller)
Congress is about to outdo the White House in running away from the inflation problem
While correctly observing that business and labor are bitterly opposed to wage-price controls – and that consumer views range from skeptical to cynical – Congress is mistakenly sending such controls to the gas chamber rather than putting them in cold storage.
While correctly concluding that broadscale mandatory controls had outlived their usefulness in an excess-demand, shortage-plagued economy, Congress is mistakenly walking away from its responsibility to assert the public interest in price-wage moderation in an economy plagued by softening demand and rising unemployment.
While correctly observing that the White House has done its level worst to discredit controls, Congress is mistakenly refusing even to give John Dunlop and the Cost of Living Council the leverage they need to insure that the pledges of price moderation and supply increases made in exchange for early de-control by many industries will be redeemed.
Granting that controls are in ill repute, one wonders how Congress can explain to itself today – let alone to voters next fall – the discarding of all wage-price restraints in the face of record rates of inflation of 12% in the cost of living and 15% in wholesale prices (including an ominous 35% rate of inflation last month in industrial commodity prices). Is it the product of a growing "what's-the-use" attitude? Is it an implicit surrender to an inflation that is deemed in part to be woven into the institutional fabric of our economy and in part visited upon us by uncontrollable external forces like world food and material shortages and oil cartels? In short, is inflation now thought to be not just out of control but beyond our control?
MILTON FRIEDMAN'S STREAK
An affirmative answer to these brooding questions seems to underlie Milton Friedman's recent economic streak – one which evokes surprise, astonishment, and disbelief in the best streaking tradition – from Smithian laissez-faire to Brazilian indexation. At present, we use the cost-of- living escalator selectively to protect 32 million Social Security and civil service beneficiaries and 13 million recipients of food-stamps and to hedge inflation bets in wage contracts for 10% of the labor force. Mr. Friedman would put all groups – those who profit from inflation and those who suffer from it alike – on the inflation escalator and thus help institutionalize our present double-digit rates of inflation.
Meanwhile, interest rates are soaring as Arthur Burns and the Fed man their lonely ramparts in the battle against inflation. With wage-price control headed for oblivion in the face of seething inflation, the Fed apparently views itself as the last bastion of inflation defense. So it is adding to the witches' brew by implicitly calling on unemployment and economic slack to help check the inflation spiral.
In this atmosphere, and deafened by the drumfire of powerful labor and business lobbies, Congress seems to have closed its mind to the legitimate continuing role of price-wage constraints. What is that role in an economy relying primarily, as it should, on the dictates of the marketplace?
First are the important transitional functions of the Cost of Living Council for which Mr. Dunlop, with vacillating support from the White House, asked congressional authority. In its new form after April 30 the Council would have:
Enforced commitments made by the cement, fertilizer, auto, tire and tube, and many other de-controlled industries to restrain prices and/or expand supplies – commitments that would become unenforceable when COLC goes down the drain with the Economic Stabilization Act on April 30;
Protected patients against an explosion of hospital fees by keeping mandatory controls on the health-care industry until Congress adopts a national health insurance plan;
Prevented an early explosion of construction wages and the associated danger that housing recovery might be crippled;
Maintained veto power over wage bargains that are eligible for reopening when mandatory controls are lifted.
Beyond Phase 4's post-operative period, government needs to assert its presence in wage-price developments in several critical ways.
The first would be to continue the important function of monitoring other government agencies, of keeping a wary anti-inflationary eye on their farm, labor, trade, transport, energy and housing policies. The point is to protect consumers from the price consequences of the cost-boosting and price-propping activities of the producer-oriented agencies. The White House could continue this function without congressional authority, but a statutory base would give the watchdog agency much more clout.
Second would be the task of working with industry, labor, and government units to improve wage bargaining and relieve bottleneck inflation by encouraging increased production of scarce goods and raw materials.
Third, and by far the most important, would be the monitoring of major wage bargains and price decisions and spotlighting those that flout the public interest.
The trauma of Phases 3 and 4 has apparently blotted out memories of the painfully relevant experience of 1969-71:
The school's-out, hands-off policy announced by Mr. Nixon early in 1969 touched off a rash of price increases and let a vicious wage-price spiral propel inflation upward even while the economy was moving downward.
Only when Mr. Nixon finally moved in with the powerful circuit-breaker of the 90-day freeze was the spiral turned off.
Today, the urgent task is to see that it's not turned on again. In that quest, some forces are working in our favor:
Much of the steam should be going out of special-sector inflation in oil, food, and raw materials.
The pop-up or bubble effect of ending mandatory controls should work its inflationary way through the economy by the end of the year.
As yet, wage settlements show few signs of shooting upwards as they did in 1969-70, when first-year increases jumped from 8% to 16% in less than a year. Wage moderation in 1973 – induced in part by wage controls, but even more by the absence of inordinate profits in most labor-intensive industries and by the fact that the critical bottlenecks were in materials and manufacturing capacity rather than in labor supply – has set no high pay targets for labor to shoot at.
Thus far in 1974, the aluminum, can, and newly signed steel settlements won't greatly boost those targets. So the wage-wage spiral is not yet at work. Since, in addition, cost-of-living escalators apply to only one-tenth of the U.S. work force, the ballooning cost of living has not yet triggered a new price-wage spiral. Still, there is a distinct calm-before-the-storm feeling abroad in the land of labor negotiations.
A MODERATION IN INFLATION
With demand softening and shortages easing in large segments of the economy, the old rules of the marketplace would suggest that inflation is bound to moderate. And the odds are that it will – but how fast, how far, and how firmly is another matter. And that's where a price-wage monitor with a firm statutory base is badly needed. It could play a significant role in inducing big business to break the heady habit of escalating prices and in forestalling big labor's addiction to double- digit wage advances.
Industry after industry has gotten into the habit of raising prices on a cost-justified basis as energy, food, and raw material prices skyrocketed. De-control will reinforce that habit.
Once these bulges have worked their way through the economy, we tend to assume that virulent inflation will subside. Indeed, in some areas such as retailing, farm products, small business, and much of unorganized labor, competitive market forces will operate to help business and labor kick the inflationary habit.
But in areas dominated by powerful unions and industrial oligopolies, a prod is needed if habitual inflation – inflation with no visible means of support from underlying supply and demand conditions in the economy – is to be broken. If it is not, the threat of a wage break-out will loom large in upcoming wage negotiations in the construction, communications, aerospace, ship building, airlines, mining, and railroad industries. In those critical negotiations, the wage moderation of the past two years could go up in smoke if the ebbing of non-labor cost pressures is simply converted into profits rather than being shared with consumers in price moderation.
Congress and the White House are taking undue risks if they rely entirely on market forces to achieve this end, especially in those large areas of the economy where competitive forces are not strong enough to protect the consumer. To serve as his ombudsman and to help prevent the picking of his pocket by a management-labor coalition, the consumer needs a watchdog agency that will bark and growl and occasionally bite. Such an agency – which could accomplish a good deal by skillful exercise of the powers of inquiry and publicity and much more if it were able to draw, sparingly, on powers of suspension and rollback when faced with gross violations and defiance – could provide substantial insurance against inflation by habit.
CONTENTS OF AN ACTION PROGRAM
An action program to accomplish the foregoing would have included – indeed, given a miracle of courage, conviction and speed, could still include – the following elements:
A quick and simple extension of the standby powers of the Economic Stabilization Act.
Granting of the authority requested by John Dunlop for the transitional period.
The establishment of a monitoring agency – preferably by statute and equipped with last-resort suspension and rollback powers, but if that is not to be, then by White House action and relying mainly on instruments of inquiry and publicity – to look over the shoulder of big business and big labor on behalf of the consumer.
To declare open season on wage-price decisions under present circumstances – as we seem hell- bent to do in our disenchantment with controls and sudden revival of faith in the market system – would be one more example of the classic action-reaction pattern that excludes the middle way.
The Congress and the country may well rue the day when, largely at the behest of big business and organized labor, the government presence in their price and wage decisions was mindlessly liquidated, leaving the consumer to fend for himself.
Mr. MUSKIE. Mr. President, the Senator and I are non-experts in this field. I do not think that adjective can be attributed to Dr. Heller. So perhaps it would be useful to have the article in the RECORD so it can be read by our colleagues