ducing byssinosis-far better, COWPS airily asserts, than the "unrealistic standard" proposed by OSHA. A more wonderful opportunity for the employer to avoid abating the cotton dust hazard in his workplace would hardly be found. Reported byssinosis cases would magically fade from view. Why? Because the employer would require universal wearing of respirators and fire every employee caught without one, or the worker could quit if he didn't like it. Then, when employees given regular medical exams were found with byssinosis, they would be quickly dismissed. There is nothing new about the so-called "economic disincentive" on which the COWPS enforcement alternative is based. It was powerfully championed in the 1960's as a means of abating water pollution by levying fines on industries, based on the amount of pollution they dumped into the water. The West German system of fining such polluters was cited as a great innovation, until experience demonstrated that this procedure was simply a license to pollute, and the protests of The Netherlands over upstream pollution flowing into the Rhine Delta continued as unabated as the pollution of the river. The COWPS' proposal is simply a license to continue polluting workplaces where employees are exposed to cotton dust. It is incompetent, unworkable and a faint hearted denial of the rights of workers defined by the OSHA Act. As speaking in effect for the Executive, it is difficult to conceive of why this denial of human rights at home is accompanied by espousal of expanded human rights abroad voiced by the President and his policy spokesmen. Proposals such as this have a habit of spreading like water on a blotter. It would be a most deadly blow to this Act and the hopes and expectations of workers for a safe and healthy workplace if the COWPS cotton dust enforcement policy were to be proposed by this Administration to cover all safety and health standards. STATEMENT OF LOUIS G. PELOUBET, CONTROLLER, UNION CARBIDE CORP., REPRESENTING THE BUSINESS ROUNDTABLE The CHAIRMAN. Mr. Peloubet, we are honored to have you. You are the controller of Union Carbide and you represent the Business Roundtable, right? Mr. PELOUBET. Right. The CHAIRMAN. Go right ahead. Mr. PELOUBET. Mr. Chairman, members of the committee, I am Louis G. Peloubet, controller of Union Carbide Corp. Union Carbide is a member of the Business Roundtable, an organization of some 180 industrial, transportation, financial, and retailing corporations which are vitally concerned with the subject of inflation and economic stabilization. William S. Sneath, the chairman of the board of Union Carbide, is chairman of the Business Roundtable's task force on wage and price controls. Mr. Sneath would be present today except for other commitments which make it impossible. We appreciate the opportunity to express our views on the President's anti-inflation program and the views of the Business Roundtable on issues involving wage and price controls, and the extension of the life of the Council on Wage and Price Stability. We believe the program aimed at controlling and reducing inflation, which President Carter announced on April 15, is generally constructive and useful. We believe that the major elements of his program will, if they are carried out with skill and dedication, be successful in moderating the underlying causes of inflation and that they will achieve the goals which the President seeks. The business community is as anxious to control inflation as the President and the members of this committee. Just as individual households have been seriously disdadvantaged by inflation, so too, the business sector has faced financial erosion. In the last few years corporate profits have been buffeted by both the recession and inflation. In 1974 and 1975, aftertax earnings of nonfinancial corporations were $59.7 billion and $55.8 billion, respectively. Earnings did rebound in 1976 to $72.2 billion. However, when the earnings retained by corporations are adjusted for the effects of inflation on depreciation, inventories and loss of general purchasing power, the 1974 and 1975 retained earning become -$13.5 billion and -$900 million, respectively, while the 1976 retained earnings reach only $7 billion. The 1974, 1975, and 1976 retained earnings demonstrate that business has been unable to even maintain its capital base. The increase in 1976 still left earnings at less than one-third of the value that was common during the 1960's. The President's program may not be dramatic. It is unlikely to achieve the regular headlines that can accompany dramatic White House confrontations over price increases or wage demands. But the battle against inflation is essentially a day-by-day, problem-by-problem fight against underlying causes which are neither widely understood nor acknowledged. WAGE AND PRICE CONTROLS AND PRENOTIFICATION We believe that several features of the President's program deserve special mention. Members of the Business Roundtable are heartened by the absence of any reference to wage and price controls and the absence of any mention of prenotification, whether voluntary or mandatory, of major price or wage increases. Wage and price controls-and that includes prenotification-have never been effective against inflation. They raise false hopes in the public and pervasive fears in business and labor--a treacherous foundation for the consumer-labor-business confidence that is needed now and for the years to come. In actuality they fuel, rather than dampen, inflation. The create an artificial nonmarket incentive for higher wages and prices. They all too often lead policymakers into ignoring the real causes of inflation and into fiscal and monetary policies that accelerate inflation. If these policies could work, they would have worked somewhere, sometime. But they have not. There is general agreement on this point among economists and administrators associated with the programs of the 1960's and 1970's. Such policies were also tried and failed in 11 major Western European countries in the 1960's. All collapsed, usually with a burst of large wage increases. For these reasons, we believe the President was wise in not requesting authority for any form of wage and price controls. BUSINESS INVESTMENT INCENTIVES Another feature of the President's program which we find particularly encouraging is his indication, echoed in recent statements by administration officials, that effective incentives to increase investment in new production capacity would be recommended as part of his program of comprehensive tax reform. Tax programs, like the investment tax credit, and increased capital recovery allowances, are some of the Nations' most powerful weapons in stimulating economic growth and stilling inflation. New productive capacity creates new jobs. It increases productivity, and that is a direct counter to the threat of inflation. It improves America's ability to compete for world markets. It benefits the consumer. And past evidence indicates that it even benefits the coffers of the Treasury by increasing national income and economic activity. The President's proposal is all the more important in the light of his energy message. Effective energy conservation will require extensive new investment by industry in machines and processes which are less energy intensive. Major coal burning boilers are two to four times as costly to build and install as are oil or natural gas boilers of the same size. Environmental control programs also require extensive capital investments-investments which can be inflationary in an economic sense, however necessary they are for other reasons. We also believe that the President's plan to require full consideration of the economic cost of major Government regulations, through a more effective analysis of their economic impact, is highly commendable. By their nature, Government policy decisions are not subject to the cost-benefit calculus of the marketplace. Properly done, economic impact statements should provide a second-best approximation of market signals and would contribute to directing Government policies toward the needs of society and away from stimulating inflation. President Carter has also asked the president of the AFL-CIO and the chairman of the General Electric Co. to help coordinate a cooperative collaboration among business, labor, and the Government aimed at the broad policy issues essential to improving the economy, creating of jobs, and reducing inflation. Certainly, the people of Union Carbide are prepared to join in this effort in any way we can. I am confident that all the members of the Business Roundtable will fully cooperate. We regard both of these efforts-economic impact analysis and joint business-labor-Government discussions-as being of major importance because they may focus greater attention on some of the fundamental causes of inflation. We are beginning to see more clearly that key Federal decisions, in areas like food and agriculture policy, energy, and health care, are primary and direct contributors to increases in the cost of living, increases in prices, wages and wage demands. Let me offer an example. Union Carbide's forecasts indicate that one aspect of the President's energy program-the imposition of the end-use consumption tax which would ultimately raise the domestic price of oil $3 per barrel above the world price level-on petrochemical feedstocks and process fuels would produce a 20-percent increase in the chemical price index by 1985. In our view this is one instance of an inflation impact that needs to be identified, understood, and taken into account by Federal decisionmakers. It illustrates the kind of contribution which we believe these efforts, aided by the CWPS, can usefully make in the fight against inflation. COUNCIL ON WAGE AND PRICE STABILITY Now let me turn to the questions with respect to the Council on Wage and Price Stability and the provisions of S. 1542. The President has proposed a constructive and comprehensive program aimed at controlling inflation and he has assigned a number of key areas of responsibility to the Council on Wage and Price Stability. It would hardly be productive to support the basic thrust of the President's program and then deny him some of the key resources which he believes are required to make it effective. Therefore, we support the President's request for a 2-year extension of the life of the Council and a modest increase in its appropriations. We also believe the other, more technical provisions of S. 1542 merit support. One significant aspect of these changes involves a recognition of the importance of confidential treatment of data submitted to the Council by business and other organizations. Much of the information which the Council is empowered to secure from business—like costs, inventories, or orders-could indeed do considerable damage to the competitive posture of a business if it came into the possession of a competitor. We welcome the changes proposed to S. 1542 to strengthen and improve the language in the act requiring the Council to maintain the confidentiality of trade secrets and other confidential business information. Members of the committee will also recognize, I am sure, that our views in support of S. 1542 are presented with some sense of caution. We are not yet in a position to assess the impact which the President's plan to reorganize the Executive Office of the President will have on the Council and its activities. Similarly, we are not yet able to gage the effect which a new Director will have on the thrust and direction of the Council's activities. We would like to suggest that the committee itself may want to weight these factors before making a recommendation with respect to this legislation. We would also like the opportunity to submit an additional statement if our assessment of the impact of these impending changes results in some revisions in our views. I would be glad to respond to any questions you may have. Mr. Peloubet, four times in your statement your refer to something like underlying causes, the real causes, the fundamental causes of inflation. On page 1 you say moderating the underlying causes of inflation; on page 2 you talk about the fight against underlying causes being neither widely understood nor acknowledged. On page 3 you talk about ignoring the real causes of inflation. And on page 4 you talk about the fundamental causes of inflation. But at no place do you identify what these causes of inflation are. It is hard to solve a problem without knowing what the causes are. Can you help us by identifying in your view or the Business Roundtable's view the major causes of inflation? Mr. PELOUBET. Mr. Chairman, I think that a good deal of the discussion that went on this morning indicates that there are a variety of things which contribute to it, and that the way in which each of these pieces fits together is not known to us with any preciseness. But I guess I would like to reserve comment on that and give you a statement back at an appropriate time, after I have had a chance to think that through properly, if that would be acceptable. The CHAIRMAN. I'm sorry, what was that last part? Mr. PELOUBET. I would like to answer that question with a written statement later, if I might do that. The CHAIRMAN. We would appreciate that, because I think it is very important in moving in this area to know precisely what we are talking about. Mr. PELOUBET. I agree. [The following information was received for the record:] SUPPLEMENTAL STATEMENT OF MR. PELOUBET Mr. Chairman, as Drs. Reese, Houthakker and Bosworth indicated in today's panel discussion, the issue of price stability must be understood in the context of the other goals of full employment and economic growth. In the context of this multi-goal approach, the causes of inflation are seen as both many and complex. If, however, we abstract for a minute from the rising wages and prices, which are merely the symptoms of inflation, to what I have termed the "underlying causes" of inflation, we will see that they fall into two categories: macroeconomic and microeconomic. The macroeconomic causes of inflation can be directly related to fiscal and monetary policy. The overly expensive fiscal policies of the last decade have and still continue to take their toll on the economy. The Federal Government has been in deficit in every year in the past decade except one. At the same time, the growth in the money supply has exceeded overall economic growth, with the net result being that the fiscal deficits the Federal Government has been financed by the printing of money and hence infiation. The situation we face today is one wherein the public's expectations of price increases have risen substantially in the past decade. Such expectations which are built into wages, prices and even government budgets can be lowered only by initiating a long run goal of stable fiscal and monetary policy. President Carter is to be commended for his goal of balancing the budget by 1981 as is the Federal Reserve's goal of stable monetary growth. In the last few years, the importance of microeconomic factors in inflation has grown substantially. The rapid acceleration of Federal intervention into the marketplace has caused substantial increases in the costs of providing goods and services. While we wholeheartedly support many of the goals of this new federal intervention such as safer working conditions, reducing environmental pollution, and assuring better products for consumers, the costs of these regulations ultimately get in the economy's price level. Major contributions can be made to slowing inflation by insisting that the benefits of such regulations at least match their costs. The economic impact statements prepared by COWPS go a long way in helping to achieve this goal. Another microeconomic area which has made significant contrbutions to inflation is market intervention. A good illustration of the contributions to inflation made by this area is milk price supports. The Council on Wage and Price Stability has estimated that supporting milk prices at 80 percent of parity would cost taxpayers and consumers more than $900 million over the coming year. The resulting rise in the price of milk products induces consumers to cut back their purchases with the surplus being purchased by the government. The bottom line is that the consumer pays a higher price for less milk. The above example is only one of a host of instances where Government actions directly stimulate inflation. In short, a conscious effort by Government to stabilize fiscal and monetary policy, evaluate the true economic costs of regulation and market intervention, and stimulate capital investment, which is directly responsible for increased productivity, would be an effective beginning for promoting the inflation free, full employment growth which we all desire. The CHAIRMAN. You indicated the members of the Business Roundtable are opposed to prenotification of major wage or price increases, whether voluntary or mandatory. The pricing decisions of major companies have far-reaching effects on all sectors of the economy, not just the sector they operate in. |