Statement of the Machinery and Allied Products Institute to the Senate Committee on Banking, Housing and Urban Affairs on Proposed Extension of Authority for the Council on July 25, 1977 In connection with the Committee's hearings on the future of the Council on Wage and Price Stability, we are pleased to offer the views of the Machinery and Allied Products Institute. MAPI, which represents the capital goods and allied product manufacturers of the United States, is convinced that extending the life of the Council on Wage and Price Stability would be a mistake. We take this position for the reasons spelled out below. "Mission Impossible" The Council on Wage and Price Stability was created by law on August 24, 1974 (Public Law 93-387), shortly after the termination of the wage and price control authority of the Cost of Living Council. Its life was extended in 1975 until September 30, 1977. Its mission is staggeringly broad and includes, among other things: Monitoring the entire economy--sector-by-sector, industry-by-industry--by acquiring reports on wages, Reviewing and appraising the various programs, policies, Indeed, the Administration as a part of its 19-point anti-inflation program intends to broaden the Council's mission by calling upon it to oversee the establishment of an "early warning system" to detect potential supply bottlenecks and propose ways to relieve them before shortages and price increases result. On July 15, 1977, however, the President in announcing his plan to reorganize the Executive Office approved a cut in the staff level of the Council of about 25 percent. Clearly, an expanded assignment with less staff presents the Council a "Mission Impossible." The reality is obvious; the Council's charter is too broad and it has not and with less staff will not accomplish either its statutory tasks or the new ones that the Administration has assigned to it. For example, The Council can, however, create some negatives. its very existence lends plausibility to the following myths: 1. Government can establish proper standards and guidelines for measuring what is "in fact" inflationary wage and price behavior. 2. Government intervention--even in a limited way through 3. Monitoring (which is all the Council has authority to units. As we see it, a clear danger in extending the life of the monitoring agency is the gradual acceptance of these myths as a way of economic life. We believe to the contrary that a highly useful first step of an anti-inflation program would be a recognition that government interference --even in the most limited way, except in serious national emergency situations--in the free enterprise system is theoretically, as well as practically, unsound. In short, the law of supply and demand is not repealable and prices and wages are the mainsprings of our free enterprise system. should be noted that Andrew J. Biemiller, Director, Department of Legislation, American Federation of Labor and Congress of Industrial Organizations, came to the same conclusion regarding extending the life of the Council, although we concede on somewhat different grounds. His testimony was presented to the Committee on July 19. An "Inflationary" Creation It As the Institute pointed out in the past when Congress considered the creation and then the extension of the life of the Council, we believe the experiences of the most recent control period, 1971-1974, show that the control techniques which were applied were failures. While hindsight gives us all better vision, we fully support the conclusion of this Committee in its February 1977 report on "Oversight Hearings on the Council on Wage and Price Stability." The Committee concluded in pertinent part: The committee sees no useful purpose in supplying the President or the Council even with standby authority to apply mandatory controls. Our experience with directives and freezes and orders ought to be enough to show that this is not the way to proceed. Even with the strongest will to be equitable and the best sources of information, the administrators of such directives cannot avoid an What troubles us beyond this is that industry and labor must--if prudent--view the existence of the Council--even with limited statutory authority--as the foot in the door. In the minds of many, the Council's A testing ground for developing the expertise The "shell" for immediate and further government In sum, we submit that the mere existence of such an agency encourages price and wage increases and discourages price decreases and wage moderation. Restated, on balance the effect, if any, that the Council may have through its information gathering and reporting function is likely to net out to a negative because its existence is a constant reminder of the threat of government-mandated wage and price controls. Further, experience has shown that even voluntary systems frequently become ad hoc programs of exhortations, persuasion, and coercion. Further Specific Problems It should be added that some of the testimony before this Committee adds further concern to the points just made. Specifically, for example, Barry Bosworth, Director of the Council on Wage and Price Stability, on July 19 indicated a fuller-blown scheme for prenotification of prices is already being planned. In part, he said: In a few cases, however, the Council will need to obtain the cooperation of firms and employee groups in order to obtain data on a regular basis which are not published by the government. . . . As a part of this effort, firms in the more critical industries will be asked to inform the Council about pending price actions and will be asked to participate As this Committee knows well, "prenotification" is the essential first step for any kind of price control mechanism and it appears the Council intends to expand its "prenotification" demands at least on a selected basis. This is the very kind of action that concerns industry and will have an inflationary impact. In the same comment, Mr. Bosworth notes that the Administration is requesting a "few minor changes" in the law so as to "clarify" Congress' intent in granting the Council power to collect confidential data and to protect it from disclosure. He argues that "[t]hese changes are needed in order to facilitate voluntary submissions of data without formal subpoenas or periodic report orders." These requested changes would appear to signal a stepped up data collection effort and raise the added spectre of leaks of confidential information. Assurances as to confidential treatment of industry information--even those of a statutory nature-seem to be frequently negated by the constantly enlarging reach of the Freedom of Information Act. In short, increased data collection and the rebirth of a prenotification program must be viewed by industry as a renewed price control effort even if on a scaled-down basis. As we have argued above, such efforts will be counterproductive and should not be supported by Congress. Fighting the "Real" Inflationary Forces A quick look at the recent causes of our inflation problem makes it obvious that "monitoring" the private sector can be no more than a palliative at best. Specifically, recent history shows: 1967-68--inflation caused by large budget deficits 1972-74--inflation caused by worldwide shortages and Quite obviously, the Council's effort--or lack of it--could have had little impact in stemming the rising tide of inflation had it been around in these periods. Even full-blown controls were unsuccessful in the 1971-74 period. In fact, such controls can actually be counterproductive to the extent they lead to an unevenness of the inflationary effects of fiscal and monetary policy and a slower rate of productivity growth. Nor is this experience unique. Canada has had wage-price controls for over a year, but its rate of inflation is higher than that of the U.S. Unfortunately, however, lack of success appears to be no bar to the imposition of controls under what must be a "someday they will work" philosophy. Thus, selected controls are with us now. We have had, for example, price controls in the energy area for some time. The track record here is dismal at best as is evidenced in part in the current energy crisis. On April 25, 1977, in a message to the Congress, the President unveiled another "control" proposal dubbed the Hospital Cost Containment Act of 1977 that would limit hospital revenues from in-patient services. While all would agree that it is necessary that the rise in health care costs be slowed, it is equally certain that this version of "wage and price" controls will not do the job. In short, if government wants to fight inflationary forces, an obvious starting point where it can help is within government itself. A first step is substantially reduced government spending and a balanced budget. Another obvious cause of inflation are certain impacts of government programs and policies. To some degree, in this area the Council has served a useful purpose. Since most regulatory agencies such as OSHA, EPA, CPSC, etc., seem to be unwilling on their own to make any trade-offs between improvements in the "quality of life" and adverse inflationary impacts, the comments submitted by the Council to these agencies have been useful in filling a void. This function, however, could be performed by other agencies such as the Council of Economic Advisers. But, as the President's 19-point anti-inflationary program discussed in his statement on April 15 makes clear, there is much more that needs to be done within government. Whether such efforts will be beneficial is not now possible to discern. It is, however, easy to foresee that the imposition of any controls in the non-governmental sectors short of a grave national emergency will in all likelihood fail. This is the lesson of recent history and it cannot be ignored. To pretend that the Council is making a significant contribution in fighting inflation through its microeconomic analyses of large and highly visible industries is self-deluding. What's worse, it even is inflationary to the extent it is a waste of taxpayers' monies. Concluding Comment For the private sector, the Council on Wage and Price Stability represents a cloud over the economy. It has an adverse effect on business confidence. Its presence is a reminder of the dismal failure of the 1971-74 controls. Its existence is a negative influence on those who might otherwide volunteer their cooperation. Given an overly ambitious charter, a right to monitor--and thus rightly or wrongly the authority to point a finger--and a goal that cannot be attained, the Council is simply not the right medicine. The starting point in recognition of this would be to allow its life to expire. |