goals, such as getting down to 2 percent inflation by 1980. There are many who look with scorn on suggestions to engage in jaw-boning and laws giving the Executive Branch the authority to delay large wage and price rises and to subpoena data from both unions and employers in order to afford opportunities for the public interest to manifest iself concerning adjustments which maintain or worsen high rates of inflation. I am entirely on the other side of this argument. It is urgent and surely in the public interest that the Government have all the authority it needs and for that authority to be exercised in a firm and intelligent and constructive manner to bring about reduced rates of increases in costs and prices. Those who are against such intervention refuse to recognize that there is a very considerable degree of latitude and sometimes just plain arbitrary, though not unlimited, power in making many wage and price determinations. The marketplace is not functioning so effectively that one can characterize Government intervention as disrupting a highly sensitive and delicately balanced mechanism for cost and price determinations. If the marketplace were really functioning reasonably effectively, the Government should stay out of the picture. But it isn't performing that well and we cannot wait for recessions and unemployment to bring down inflation because the virus of inflation seems to get embedded into costing and pricing processes and tends to perpetuate itself. We have waited too long already and paid too high a price for very little progress toward price stability to continue to do nearly nothing. President Ford would not criticize any price increase no matter how unreasonable, nor would he bring labor and management together to urge more modest and mutually beneficial wage settlements and price restraints. President Carter has yet to reveal how far he will go to intervene in clearly inflationary actions. On the wage front, many businessmen and some economists contend that if wages could be held down we would soon be rid of inflation. Labor properly will not buy such economic wishful thinking. Of course, wages are the major cost of production but wage restraints are by no means necessarily followed by price restraints. Over the past decade and more, wages tended to lag behind and not lead prices and labor seemed to be more a victim than a villain of inflation. The solution clearly does not lie in calling for unilateral action by either business or labor. Both need to be strongly involved in the war on inflation and the President of the United States should seek to bring moderation on both sides of the wage bargaining table and, importantly, must simultaneously achieve restraints in pricing practices. It is not necessary to elaborate the benefits of price stability to workers and employers. They both know as well as consumers the grave harm resulting from inflation. The task is to bring this awareness to bear on as many as possible factors that affect costs and prices. Dynamic and wise Government leadership is needed. Timidity will not pay off in lowered rates of inflation. The Council on Wage and Price Stability is the existing vehicle for helping the President and his top aides in this war on inflation and it should be given strong support, adequate staff resources, the authority it needs to do its job well and an overwhelming mandate by the Congress to go out and do the job that needs to be done. - - There is one final point I would make and that refers to frequent and repeated contentions by business spokesmen that they have raised prices in anticipation of controls. This is largely nonsense. There have been times when not a word about controls has surfaced for months on end and even a year or more and yet prices have risen steadily. Many prices are administered and do not reflect marketplace conditions. Those who set these prices are the principal complainants that they acted in anticipation of controls. This is too serious a matter for playing games or pointing fingers at each other to shift the blame for higher costs and higher prices. Irresponsible charges of threatening ghosts in dark closets will not serve to advance progress toward price stability. STATEMENT on THE COUNCIL ON WAGE AND PRICE STABILITY for submission to the SENATE BANKING, HOUSING AND URBAN AFFAIRS COMMITTEE for the CHAMBER OF COMMERCE OF THE UNITED STATES by Dr. Richard S. Landry* July 19, 1977 The Chamber of Commerce of the United States welcomes the opportunity to comment on the Council on Wage and Price Stability (CWPS) and wage and price controls. The Chamber last testified on these issues before the Subcommittee on Economic Stabilization of the House Committee on Banking, Finance and Urban Affairs, on April 26, 1977. There have been few changes since then, including inflation, which continues to be a serious problem. THE COUNCIL ON WAGE AND PRICE STABILITY The Chamber of Commerce of the United States recommends that the Council on Wage and Price Stability not be reauthorized, let alone expanded in personnel and authority. There is no place in a free and competitive society for wage, price, and rent controls or for an organization standing by to expand into a formal controls program. However, there are functions currently performed by the Council on Wage and Price Stability that should be continued within the Office of Management and Budget and the Council of Economic Advisers. Monitoring Government Actions The Council on Wage and Price Stability has been in operation for two years and has attracted some capable professionals. Its attempts to monitor government actions so as to reduce inflationary potential are laudable. Too little consideration is given to the inflationary potential of federal regulations and other policies. We strongly support expansion of this effort. The Council staff also reviews Inflationary Impact Statements required by Executive Order 11821, November 27, 1974. These were intended to be economic impact statements but were named to reflect the concern with rampant inflation *Administrative Director, Economic Policy Division, Chamber of Commerce of the United States at the time. Environmental Impact Statements were initially of poor quality and excessively time-consuming, and the same has been true of economic evaluation. Upgrading the quality and timeliness of these analyses would improve their usefulness. We recommend also that economic evaluations be legislatively required as are environmental evaluations. This is necessary information if the executive and legislative branches are to make informed decisions. All legislative and regulatory proposals should be accompanied by brief analyses of the anticipated effects of the major options on the private economy with respect to such things as freedom of choice for consumers, workers, and businessmen; inflation; the climate for investment, savings and incentive to save; international competition; and productivity and the incentive to work. Other Objectives Other objectives besides price stability are also important. Improvements in health and safety of workers, environmental quality for all Americans, preservation of unique wildlife or natural wonders, and more efficient use of public resources may require increases in federally influenced prices. Therefore, trade-offs must be made. Well-designed economic and environmental impact statementes will help. But a decision-maker must consider all of these objectives. The Council on Wage and Price Stability is unable to make such trade-offs, and therefore must work with agencies that are mandated by the Congress to consider other objectives, in particular the President's government-wide management arm, the Office of Management and Budget (OMB). The President relies on OMB to recommend a balancing of public objectives and should be able to rely on OMB for advice as to the best policy tools -- spending, taxing, and/or regulations. The monitoring of government actions that cause cause inflationary pressures should be effectively integrated within the OMB. It should be part of President Carter's zero-based budgeting process. Placing federal inflation monitoring within the OMB would reduce unnecessary bureaucracy and fragmentation, some ching the President has stated he wants to do. Therefore, we recommend that the studies of government-caused inflation be housed, and/or integrated within OME and with the zero-based budgeting process. Monitoring Private Sector Wage and Price Changes While some CWPS studies have been and are useful, other efforts have been counter-productive. The Council's seemingly innocuous comment earlier this year that some price increases were reasonable, based on cost increases, but should not be attempted because market demand likely will not support them, created apprehension that the government does not trust market forces even when they hold prices down. Moreover, the data for making such a judgment are far from conclusive. It would be far better to let market forces demonstrate that prices that are not supported by market demand cannot prevail. In the case of structural steel last Fall, the proposed price increase was not supported by market demand and prices did not increase. Useful Federal analyses of industry problems in other sectors of the economy should not be lodged in a "monitoring" agency established to second-guess competitive business decisions. The Executive Branch already has such analytical capabilities in several departments including Commerce, Interior, State, Environmental Protection Agency, Defense and others. The Federal government has no comparative advantage in forecasting economic shortages or other conditions in particular industries. Reliance upon a single government forecast which may be wrong could result in planning mistakes with far-reaching consequences. Continuing competition among decentralized forecasting efforts is preferable. In order to encourage confidence, so necessary for an economy to grow, wage and price monitoring of the private sector through a separate organization should be terminated. Disbanding the Council on Wage and Price Stability would enhance confidence. Economic studies should be conducted by the Council of Economic Advisers, which was established by the Congress for this purpose. The existence of CWPS and its staff supports apprehension that government may choose the political expedient of imposing formal wage-price controls later. This fear is strengthened by the clear indications that controls already are being extended on a sectoral basis in energy and health care. Until the Council is terminated, we recommend that resources be shifted to monitor government-caused inflation and to recommend how government policies could be changed to reduce inflation. (See Attachment 1.) Therefore, we recommend: (1) Reliance on market prices and wages and collective bargaining; (2) That the Council on Wage and Price Stability be allowed to expire |