Mr. BOSWORTH. No; the size of the Council would remain the same. The CHAIRMAN. It would remain the same? You said it would pull back the request for an increase.

Mr. BOSWORTH. For an increase of 10. So there is to be no expansion. The CHAIRMAN. Why not? What made him decide not to expand? In view of the enormous complexity of the economy and the very serious importance of inflation and how urgently we need facts in this area, what was the reason for the decision?

Mr. BOSWORTH. Well, I was not a party to all the decisions on why. It was an across-the-board reduction in staff throughout all the offices of the President. I suggest probably it's better to ask Charles Schultze for more details and specifics.

The CHAIRMAN. All right.

Mr. BOSWORTH. But we have accommodated most of the planned increase that we intended to make by trying to make arrangements particularly with the Department of Commerce-to do some of the data gathering type activities that the Council would otherwise be involved in. The specific request earlier was to increase the staff by 10 for the purpose of undertaking what was called the early warning system, an attempt to anticipate future problems before they develop. The CHAIRMAN. I can't think of anything more important that the Council can do.

Mr. BOSWORTH. We are going to do that through the Department of Commerce.

The CHAIRMAN. The Department of Commerce?

Mr. BOSWORTH. Yes; they have an Industry Division with a lot of people there.

The CHAIRMAN. They have some very capable people. They have two of the top economists from the Joint Economic Committee.

Mr. BosWORTH. That's true.

The CHAIRMAN. Mrs: Slater and Lucy Falcone, they are two of the very best. I'm sure they've got other competent economists but why would the Department of Commerce do this in view of the fact that this is an agency you have here which was created for the express purpose of dealing with inflation and, as you said, you think it's important to have a degree of independence involved here?

Mr. BOSWORTH. Well, I think some of the evaluation work of those reports will have to continue to be done in the Council on Wage and Price stability.

The CHAIRMAN. Dr. Bosworth, you agreed that quarterly reports to Congress could be helpful because so much of the important decisionmaking is made up here on the Hill would have very serious inflationary implications. I know this is within the determination of the committees and their chairmen, but how about some kind of action we might take to try to persuade our colleagues to urge you and others to testify before the appropriate committees? For example, you came out with your opposition to price supports for dairy products after the Congress had acted. You may be right, but it seems to me the forum to present that and have it considered would be the Agriculture Committees of the House and the Senate. It would be a tough forum for you but I think that would have been a good area not only in dairy price supports but all farm price supports. Similarly, it

would seem to me on the minimum wage you should be testifying. I happen to be strongly in favor of increasing the minimum wage and I'm sure that many of my colleagues are. Congress may well do it. But you should be in there testifying on the inflationary implications. Again, on the proposals to deregulate natural gas and to change the rules of the game on regulation of the oil industry, it seems to me you ought to be testifying before the Energy Committee on that kind of thing.

I know that it's hard for you to take the initiative in that area, but do you have any suggestions as to what we could do to make that a reality and do you favor that kind of aggressive action on the part of the Council?

Mr. BOSWORTH. I favor it. I don't have any suggestions about how to do it except that I'm well aware that in some of the past actions the Council's criticisms have come after Congress has already taken action, which doesn't seem to be a very positive way to try to go about making its views known on these issues. So some procedures have to be established for closer coordination.

The CHAIRMAN. I'm trying to get you in on it early, not after the story is told. You ought to be coming in before the decision is made by Congress. That's why I think you ought to testify.

Dr. Houthakker, I'd like to ask you to comment on Dr. Rees' observation that if we didn't have the Council on Wage and Price Stability, we would have to recreate it under another name to inform the President when price increases in concentrated industries are excessive. Obviously, we want to do that so the President can do something about it. What can we do? He can jawbone one way or another. What's wrong with that? I take it you feel we ought to have a Council on Wage and Price Stability but it ought to confine itself to reducing inflationary pressures in the Federal Government and forget about the private sector because it's just too-well, you have lots of reasons-but isn't that correct?

Mr. HOUTHAKKER. No; Mr. Chairman, I can't agree with that interpretation of my testimony.

The CHAIRMAN. What would you have COWPS do with respect to the private sector?

Mr. HOUTHAKKER. I think COWPS' main role in the private sector is to analyze why competition is weak in many markets. I agree with the observation made that competition in many industries

The CHAIRMAN. What do they do with them when they find out it's weak? Supposing they find out it's weak in steel or oil. What do they do?

Mr. HOUTHAKKER. Then they would suggest measures that might strengthen competition. One of those, for instance, has to do with steel import restrictions. In my opinion, the import restriction in steel serves primarily to enable the steel industry to maintain its very rigid price structure which would be threatened.

The CHAIRMAN. The import restrictions, again, are not so much in the discretion of the private sector. That's a public determination, isn't it? It's a determination by the President and the Congress.

Mr. HOUTHAKKER. Well, I agree that many of the market structures found in the private sector are the result of Government action.

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Nevertheless, I believe it's very important that an agency such as COWPS points out the consequences of these actions and suggest what could be done about them and appear before the relevant agencies, not just the International Trade Commission.

The CHAIRMAN. Can you think of a single instance where you would suggest direct intervention by the President to talk to people in the steel industry or talk to organized labor to try to moderate wage or price demands, or do you think that would be wrong under almost any circumstances?

Mr. HOUTHAKKER. I don't think it would be wrong, but

The CHAIRMAN. Not wrong, but counterproductive and ineffective? Mr. HOUTHAKKER. Yes; I believe intervention like this can be effective if they involve a threat of some kind and a threat in the case of steel may have to be action on import restrictions. It may have to be antitrust action. I believe that our antitrust laws can be enforced more vigorously.

The CHAIRMAN. You think it would be all right for the President to intervene under those circumstances if he has some kind of a club in the closet like action on imports or purchasing by the Defense Department or something like that?

Mr. HOUTHAKKER. I believe in cases like this the President should not say, "Well, why don't you go for some lower price increase?" The President's main concern through the Council on Wage and Price Stability should be to bring about conditions that will make it more difficult for various industries to enforce excessive price increases. I believe that engaging in the condemnation of existing price increases without changing the underlying conditions just creates a bargaining situation and we have many examples of this already. Some steel firms say, "We need 8 percent," and then one finally comes along and says, "6 percent would be all right," and then the one who says 6 percent is a great statesman and he's commended by everybody because he is so restrained.

The CHAIRMAN. I agree with that. There's a lot to that. I'm not sure what you can do about it. In other words, these fellows have in mind that they have a 6 percent increase, so they start off with an 8 percent increase and then they're great statesmen and the President takes a bow and everybody says, "We're moderating inflation" and they get exactly what they want. It's a charade.

Mr. HOUTHAKKER. If I might follow up on this for one second, I believe in a case like steel, which is a longstanding problem, it would not be amiss for the Council on Wage and Price Stability to organize a review of the underlying problems either with its own staff or using an outside group and make recommendations of a long-term nature which would cover the whole question of price behavior, of capacity, of competition from imports, from labor productivity, of the likely size of unemployment. This might be not a plan for steel, but at least a guide to various actions that need to be taken in a number of areas, including imports, taxation, antitrust, et cetera. I believe a study like this might be very constructive in getting the steel industry out of the rut in which it has been for many years.

The CHAIRMAN. Now you rather easily referred to what you called an "Unholy alliance between government and business" in the Dunlop

Meany-Jones group. Why do you feel that's not a constructive way for government to find out what the problems are, to get informed, to get expert advice from the most competent people in labor and business to know what they can do quietly to try to moderate inflationary pressure?

Mr. HOUTHAKKER. Well, the main objection I have to do this is that it puts undue emphasis on big labor and big business. Big labor, after all, the unions, account for 20 percent of the American labor force.

The CHAIRMAN. It's almost entirely an intelligence operation, though. It's a matter of information. There's no clout there. They're not cracking down on anybody one way or another. They're just getting information. What's wrong with that? Quietly and informally.

Mr. HOUTHAKKER. I don't really believe there's any data to be had from union leaders that are not in the public domain and I also doubt very much

The CHAIRMAN. Can you think of an abuse that's likely to develop out of that relationship?

Mr. HOUTHAKKER. I believe the abuse is primarily to think of the American economy in terms which to my mind are very misleading, to think that the basic decisions are being made by a small group of people in the largest corporations and in the largest unions. Thus, the kind of analysis which is popular in the Soviet Union

The CHAIRMAN. There may be that feeling and suspicion, but as I say, what actual abuse is there? What decisions have been made that are against the public interest coming out of this thing? Can you point to any of them? Isn't it simply a matter of having the President get advice from people who have demonstrated their judgment and their ability over the years, as Dr. Dunlop certainly has?

Mr. HOUTHAKKER. I have no doubt that Dr. Dunlop has management experience and judgment in this area. Nevertheless, I feel there are very definite dangers in this kind of effort. For instance, if one works through the union leaders, well, what is it that the union leaders want in return? I believe we saw it in the newspaper this morning that legislation will be submitted to facilitate the operations of the unions. I happen to be opposed to the increase in the minimum wage.

The CHAIRMAN. That has nothing to do with the Jones-Meany meetings. I'm sure they don't talk about that. If they do, I would be surprised because they have entirely different views on it I'm sure. What they're talking about. I would think, would be matters that go to what they can do about moderating prices in a constructive way.

Mr. HOUTHAKKER. I believe, sir, if I may disagree with you respectfully on that, our economy should be one in which power is decentralized; and if you try to manage the economy by going through the so-called top people in labor and in business, then you're working toward centralization, not decentralization.

The CHAIRMAN. You're not going through them. The only way they're going through them, I would think, is just to give the President in information-maybe I'm wrong-and give the Secretary of Labor and give the other top policymakers in the administration an understanding it might not have had. They may also have contacts with small business or other groups that aren't part of organized labor, but it would seem to me that to talk with these people, to get their judgment, get their advice, is a useful and constructive activity.

Mr. HOUTHAKKER. Well, I would be much happier about it if there were in fact representation of nonunion labor and small business, but I have not seen any such evidence that such representation is present. The CHAIRMAN. My time is up. I will be back. Senator Lugar.

Senator LUGAR. Mr. Chairman, I would like to ask Mr. Bosworth for at least some thought or conversation about what the role of the Council ought to be. This has been discussed I think eloquently in your paper and those of the other witnesses and the chairman has tried to get at this.

I suppose I'm confused as to how you can be a part of the executive family at least as I see the new proposals the President has brought forward, your Council is still a part of those that survived. It's fairly close to the throne in essence in terms of serving the White House. Now maybe the service would extend also to other members of that executive family and that could mean the cabinet officials. You mentioned the Secretary of Labor or Commerce or others.

How is it possible for you in fact to serve these people by offering cogent advice and counsel and then, to take the hypothetical example, come over to the Agriculture Committee before the dairy question is finished off so that you have your say? In other words, how in the world can you offer economic and/or political advice or any combination of this sort to the President-who, after all, has to make a very close call on dairy supports, for example-and 1 day you offer this and tell him the implications and he balances the implications for inflation and he balances campaign promises at the same time; and he balances the problems at the same time and finally comes to a decision, and then in the midst of this is it really relevant or appropriate for you to say, "I want to come over to the Agriculture Committee and point out all the implications as far as inflation of this situation?" How do you try to begin to reconcile these missions in your own mind?

Mr. BOSWORTH. Well, I think you point to a great problem that has plagued the Council in the past. It has had a tradition of being a little bit different than other agencies in the Executive Office of the President. It has provided information and made it public. You're quite right that frequently the President's final position is not the same as the Council's because he has to balance all the other factors as well. There are a few problems when the issues are sort of factual ones of gathering information to tell him what the inflationary consequences are. So far, the indications are that the President is willing to have those studies made public. The decision on the milk price support was a good example. He knew that the report was going to be released and he said to go ahead. As long as you can maintain an attitude that the Council's findings are not supposed to indicate where the final decision should necessarily come out-it's simply an agency charged with trying to bring out and highlight the inflationary consequencesI don't find anything inconsistent with doing that and then later finding out that the President or the Congress says, "That's very interesting. That's very important, and we did weigh that consequence, but some actions are necessary even though they have inflationary implications." There are some objectives in life a little bit higher than keeping down the price level, and you need to balance these off.