April 29, 1974
Page 12202
Mr. PROXMIRE. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield for a question.
Mr. PROXMIRE. Is it not true that the petroleum segment would not be decontrolled, because the law would continue on the books until February 28, 1975?
Mr. MUSKIE. Petroleum is covered, of course, by the Emergency Petroleum Allocation Act, which has been enacted.
Mr. PROXMIRE. Is it not also true that this would represent, if controls expire tomorrow night, which I think all of us expect they will, the most gradual decontrol that this country has ever had with any kind of wage-price control system? We have had experience, of course, with World War II and the Korean war. Always before there was a much more precipitate decontrol than we have had in the last year.
Mr. MUSKIE. Yes, and a much sharper escalation of prices. It is that historical experience, may I say to the Senator, including the abandonment of phase II controls, which prompts me and my colleagues to join in sponsoring this legislation.
If the Senator can assure me that he has in his possession historical data that throws that fear into doubt, I would be glad to listen to it, but the historical experience, including that following World War II, is that the precipitate abandonment of controls does result in a surge of inflationary prices, and it is that expected surge which concerns us.
Mr. PROXMIRE. No, what I am saying to the Senator from Maine is that we have only 12 percent of the economy now under control in terms of the Consumer Price Index, 24 percent in terms of wages–
Mr. MUSKIE. And 32 percent of the wholesale price index.
Mr. PROXMIRE. Thirty-two percent in terms of the wholesale price index. This represents a much lesser area of decontrol, therefore, than we have had before and is a much more gradual decontrol process because we moved toward it over many months.
Mr. MUSKIE. I do not know how the Senator draws those judgments. I do not know of any historical parallel for this precise set of economic circumstances. In March, for example, industrial commodities escalated at the annual rate of 35 percent – that is wholesale price increases, which are inevitably going to be translated into retail price increases.
Unless I have figures presented to me comparable to those which measure the pending pressures, then I cannot accept a historical comparison. But from the data we have I am not prompted to reach the Senator's judgment which, of course, is his privilege to reach, when I see the dangers now lurking under the present surface of the economy.
Mr. PROXMIRE. I am simply asking the Senator if it is not true that much of the problem has already occurred, in view of the fact that much of the decontrol is already achieved and regardless of how we act on the Senator's bill or the proposal of the Senator from Louisiana, wholesale prices will be translated into higher consumer prices anyway. No one will argue that we will not have some kind of passthrough such as we had in the past. Control or no control would make no difference on this score.
Mr. MUSKIE. As I understand the Senator's argument, there is nothing we can do about it – so, because we cannot do anything about it, we should not try. We will not do anything to correct it, if we do nothing, and the Senator is quite accurate in that. But when he says that because of the phasing down of controls which has already taken place, the economy has absorbed all the heat, I would disagree with him. I disagree, not on the basis of my knowledge as an economist. I am not an economist, as the Senator knows; but such distinguished economists as Mr. Heller, Mr. Okun, Mr. Schultze, Mr. Pechman, and Mr. Perry, whose advice and analysis is worthy, tell me that it has not.
The Senator may, of course, be more of an expert in this field than I, and of course he is entitled to form an independent judgment on such matters. But these economists disabuse me of any notion that the heat has been taken out of the economy; that the "phasing down" which has taken place has solved the problem; and that on May 1 we need not fear that the inflationary pressures may be unleashed.
I do not buy that notion. I cite the 12 percent of the CPI, the 32 percent of the WPI, and the 24 percent of the labor force now under control, which represent the potential of inflationary pressures. And when we look at some of the components of these indexes still under control, we see that the problems could be serious, indeed.
Finally, what we are proposing here is not the reimposition of controls but the continuation of a monitoring function. No one will seriously argue that it is inflationary for a monitoring agency, with standby controls, to be available, if needed, to deal with an unpredictable economic future.
I suggest to the Senator that with the kind of ferment now boiling in the economy, the future is unpredictable, indeed. I would not undertake to predict what the picture will be 6 months from now. Maybe the Senator can. But it is the unpredictability of the future, not the reconstruction of the past 2 years, that we are concerned with here. We are talking about monitoring what happens, so that we can stay on top of it. We are talking about standby authority just in the event what the Senator regards as improbable happens, that economic circumstances develop that mandate controls.
May I say, if that happens, under those circumstances, the medicine that may have to be applied could be much more drastic than the medicine we are talking about here, or the medicine that has been applied over the past years.
Mr. PROXMIRE. If the Senator from Maine will yield just briefly, and I apologize for interrupting his presentation, I would agree with much of what the Senator has said regarding the inflationary pressures in the economy. No one is denying that. No one is disputing the eminence of the economists the Senator mentioned or the people who have been supporting the position taken by the distinguished Senator from Maine. There is considerable wisdom in it.
What I am saying, however, is that the proposals of the Senator from Maine and the Senator from Louisiana would not do very much about this situation. They would not prevent prices going up sharply. Further, our experience has been that we have given even the authority to be provided here today to the President and he has exercised the authority for the past 2½ years and the results have been disastrous. It is not as if we had good experience with price controls. But we started with an inflation of 4 percent and now after many months of inflation it is 14 percent. I am saying that more of the same medicine, which served us so badly before is not logical.
Mr. MUSKIE. I read history differently from the Senator. There was, first of all, a freeze in August 1971. In phase II, inflation went down to an annual rate of 3.6 percent from 4.5 percent, when we had meaningful controls. It was only when the meaningful controls were abandoned in January of 1972 that the economy began to run out of control. So I say to the Senator that the history of the past 2 years runs counter to his argument.
Let me give the Senator a summation of what is feared by those in a position to know what is to be feared. Interviews with business executives as reported in the New York Times, on April 22 of this year, indicate that the ending of all control authority would "bring another spasm of price increases that will further erode" already shrunken paychecks. In addition to health, increases were predicted in metals, automobiles, cigarettes, whisky, processed foods, machinery, home furnishings, furniture, and cans.
Mr. Dunlop has predicted that doctor bills could go up 9 percent during the next fiscal year, while under controls they would go up to only 4 percent. Hospital fees could go up 17 percent, whereas under controls the increase would only be 10 or 11 percent.
It is these kinds of prospects, added to the erosion already taking place in the paychecks of the average American worker, that causes me alarm.
The real income of the wage earner in America in the past year has gone down 4.7 percent. That was under controls. It was not the controls that caused that decrease in real income but the failure to control prices that ate away the real income.
I suspect I could make almost as eloquent an argument as the Senator from Wisconsin about mismanagement, but I do not take comfort in that. I would be pleased if the Senator has got another answer. I have heard him talking about the necessity to build up production of products such as food, and I support those programs. But I also believe it necessary to have at hand – not necessarily in use, but to have at hand – control authority to apply when circumstances justify, when nothing else will work.
I cannot understand this fear of making available the necessary authority to do a minimal job. It will not work miracles. The Senator does not have to argue that it will not. I will buy that argument of the Senator. But I am saying that we need some kind of policy, some kind
of authority, some kind of monitoring agency, as a minimal effort to meet our responsibilities in Congress. I do not see it as a cure-all.
Mr. PROXMIRE. In response to the latter part of the Senator's speech – and I intend to speak later on it – it indicated the vast amount of authority the President would have without taking further action. The President will still have great power to cope with inflation if he chooses to use it without extension of wage and price controls.
The second point is that the argument the Senator has made, that in the past few months we have had a very, very serious decline in real income by tens of millions of American workers, is exactly the point. That is the way wage and price controls have been administered and will be the way wage and price controls are administered since we are not going to have a new administration of people with different attitudes. The same people will be administering the standby controls, and they will be roughly of the same nature. Prices are not controlled, but wages are. The consequence is that the working people will suffer tremendous inequities. I see nothing in the legislation which would change that situation. We would continue to have an inequitable, unfair imposition of wage and price controls on the people of the country, which is so clear, and which the Senator himself has brought up.
Mr. MUSKIE. That authority is the kind which must be administered by the executive branch. What should we do, go out of session until we have a new President? We will have only one President for some time.
Blaming him or denigrating him does not dispose of our responsibility. As I read the Constitution, we still have a separate, well-identifiable responsibility, as the legislative branch, to make policy for the people of this country. The polls indicate that Congress is held in low esteem.
Among the reasons for this low rating is our failure to handle the economic and energy problems of this country in a way that makes itself felt to the average citizen's household.
I think we have a responsibility to act to meet inflation. I think there are some circumstances justifying controls in addition to other policies designed to get at the causes of inflation.
I was price administrator for my State at the time of the Korean war. When I got through with that year-and-a-half experience, no one was stronger against controls as a routine matter than I was, and I still am. But I still recognize their value during the time of the Korean war. They did make an impact, they were of value, and they helped to keep down the cost of living.
From August of 1971 until December of 1972, they were also of value. It. was only when they were abandoned precipitately that their value dissipated, and we find ourselves in the present economic chaos which confronts every American. Does that mean that we now should do nothing?
I wish we had a better answer than this, and if the Senator does I would be willing to listen. I am not talking just about the long-term programs to increase food production. We need that, too. I am talking about a better answer as to what might happen in the period of transition from April 30, within the next few months, to perhaps a year or more. What do we do in that period if things get out of control, if the fire really begins to blaze?
What do we do? Do we tell the people, "Our policies are designed to increase the food crop in 1976, and if you will wait until then, that will solve your problem"? Or that we are going to enact national health insurance? I do not know how long that is going to take. Perhaps the Senator has a good reading on the prospects and perhaps expects national health insurance to be enacted in the latter part of this year and to be implemented so rapidly that it will control inflation in the health sector. But that takes time. What do we do for emergencies in the months that lie immediately after May 1?
With respect to the workingman, it is not a control on wages that has eaten away at his income. It is the failure to control prices. We are urged to say here, as a Senate, that we are going to take controls off prices. That they have worked badly, so we are going to take them off. That there is no way we can make them work. The possible consequence, however, would be to unleash the very forces that have eaten away at the worker's income.
Mr. President, it is for this reason that we believe that standby control authority is necessary to avoid an inflationary bulge when these existing controls expire, to enforce voluntary decontrol commitments which have already been obtained, and to meet whatever special inflationary problems may arise in the next year.
Under this amendment, the President will be able to impose or reimpose controls if decontrol commitments are violated or if he makes three findings. First, that serious inflation exists in the economy; second, that serious inflation exists in a particular sector of the economy which would lead to severe hardship or deprivation if uncontrolled; and third, that there is a need for controls which outweighs any adverse supply consequences of such controls.
The amendment also gives the President discretion to require reports and record keeping from the private sector; the power to hold public hearings if necessary; authority to review and recommend changes in programs and activities of the Federal Government and the private sector; power to review and work with industry and Government to encourage price restraint: authority to improve economic data bases and to focus attention on the need for increased productivity; and power to review and make recommendations concerning economic concentration and anti-competitive practices.
The amendment provides that these functions may be delegated by the President as he chooses; that experts and consultants may be employed as necessary; that individuals and documents may be subpoenaed in the process of fact-finding; that the President will report to Congress quarterly and also in his annual Economic Report; and that funding will be authorized as necessary.
Mr. President, I hope that the standby control authority in this bill would not have to be used. But past experience does not cause me to be too optimistic. After periods of control, it is common for an inflationary bulge to develop in response to the lifting of restraints. This in itself might not be so serious if the bulge evens out before too many months. But many experts on the economy are especially concerned that, in this instance, price increases will soar even as the economy is in a period of recession. Continued "double digit" inflation combined with recession could present the gravest economic conditions, crippling the stability of employment, investment, production, and income.
For example, interviews with business executives reported in the New York Times on April 22 indicate that an end to all control authority would "bring another spasm of price increases" which would erode already shrunken paychecks. Increases were predicted in health, metals, automobiles, cigarettes, whisky, processed foods, machinery, home furnishings, furniture, and cans. As for health, Cost of Living Council Director John Dunlop has predicted that doctor bills could go up 9 percent during the next fiscal year and hospital fees as much as 17 percent without control authority.
But even without implementation of standby controls, the monitoring authority contained in this bill could have a useful effect in dampening inflationary pressures which will develop after April 30. The function of the monitoring agency authorized by this bill would be to collect data on the economy, identify potential shortages, and assess the impact of Government and private policies and decisions on the economic health of the Nation. It would also provide an economic "early warning system," to alert us to special inflationary and shortage problems.
The energy crisis provides a perfect example of the necessity for such an information system. Many people in and out of Government foresaw the development of fuel shortages years ago. But since there was no central, independent agency monitoring the development of the shortage, and because of the suddenness of the Arab oil embargo, it appeared to spring from nowhere. This in turn led to the spectacle of the Government scurrying in every direction at once, searching not only for information, explanations, and policies, but for scapegoats as well. That is not a course we can afford to repeat.
In addition, the agency established by the act would provide us with insight into the long-run problems of inflation and shortages in America. The inflationary trend of the past few years is too serious to ignore. There are no proposals which promise to cure it instantly or entirely.
But the absence of a cure does not preclude the need for diagnosis. Continued study could give us important understanding of how to fashion our long-run economic policy.
When the Economic Stabilization Act expires tomorrow, no other agency in the Federal Government will perform these functions. The Council of Economic Advisers, for instance, has a staff of 46 permanent positions. The Cost of Living Council, which has until now been charged with monitoring the economy and administering controls, has a total staff under its jurisdiction of about 900 persons. While far fewer would be needed to perform the monitoring functions under this amendment, a separate, competently staffed office would be needed.
Finally, Mr. President, the psychology of the American economy could only be helped if a monitoring agency, with reserve standby control authority, kept track of inflation. No one will ask for higher wages, or higher prices, merely because it exists. But its activities could help promote a responsible attitude toward inflation on the part of business, labor, and the public at large.
Mr. President, the provisions of this amendment, the Cost of Living Act of 1974, are a minimal response to the widespread concerns which are being expressed today by some of the most knowledgeable observers of our economic situation. Inflationary pressures could explode unless the resources of the Government are poised for action to deal with such an event. The Government must not abandon its determination to deal forcefully with intolerable inflation rates should they develop as some pessimistic analysts now believe. This amendment signals such a determination and a continued will to deal with the problems of our economy until we are over the present crisis.
Mr President I yield the floor.