Wage-and-price clamp: more advocates heard
The Carter administration is coming under increasing pressure to resort to wage and price controls -- an anti-inflation device it has sworn not to employ. The pressure is coming not only from liberal Democrats, but also from conservative Republicans. In fact, among the latest to advocate the stern measures are Henry Kaufman, who is the conservative economist at Salomon Brothers, and the editorial board of Business Week. Even Sen. William Proxmire (D) of Wisconsin, chairman of the Senate Banking Committee, says that it is "time to reconsider all of our policy options," including the possibility of wage and price controls. Personally, however, the senator remains opposed to controls.
Opening the way for such controls is an inflation rate that is devastating to the nation's economy. On Friday, Feb. 22, the government reported that the consumer price index rose in January at a compounded annual rate of 18.2 percent. The same month, the producer price index -- sometimes an indicator of future price increases -- galloped ahead at a 21-percent annual rate in January.
This inflation rate has prompted Arthur Okun, an economist with Washington's Brookings Institution and former chairman of the Council of Economic Advisers, to call the present period "the most difficult time for formulating economic policy that I have witnessed in my professional career."
Mr. Okun observes that the economy is under "intense and accelerating" inflation pressure while at the same time it stands between a recession and an expansion. The dilemma, he concludes, is that many of the possible political actions that will ease one of these problems "would worsen the other."
Thus, the economic and political solution proposed by more and more economists and politicians includes a short-term period of wage and price controls.
For example, Mr. Kaufman, widely respected on Wall Street, has suggested a seven-point program to combat inflation. His solution includes:
* A declaration of national emergency "to limit the drift toward economic disarray."
* The reduction of nondefense spending by 6 to 7 percent annually, instead of the increase projected this year of 16 percent and next year of 8.4 percent.
* New restrictions on creation of domestic credit by increasing banks' reserve ratios. In the past five years, total US private and public borrowing has increased by 230 percent, Salomon Brothers estimates.
* Tighter standards for private short-term financing and a rein on borrowing by federal agencies. This borrowing is not included in the budget deficits.
* Help from US allies to alleviate pressure on the dollar if the United States steps up defense expenditures.Possibly exchange controls should be put through.
* Establish a "governmental national commission for revitalization of America" to improve technological growth, coordinate business and labor responses, and "resurrect the marketplace as an effective mechanism for economic progress."
* And, finally, if the first six proposals are adopted, Mr. Kaufman proposes a temporary wage and price freeze.
Business Week, often considered a bastion of conservative economic thinking, likewise proposes a temporary six-month freeze. In an editorial, the magazine concludes that "if made part of a comprehensive attack that focuses primarily on eliminating the basic causes of inflation," wage and price controls should be enacted. Business Week identifies the "root causes" of inflation as "soaring energy prices, excessive monetary growth, irresponsible government spending, and sagging economic growth linked to declining productivity."
Pressure from the political front for controls has likewise remained high. Sen. Edward M. Kennedy (D) of Massachusetts has proposed a six-month freeze, which he claims will cut the inflation rate in half. And the Senate Republican leader, Howard H. Baker Jr. of Tennessee, also a candidate for president, said over the weekend that he wouldn't exclude controls "as a short-term possibility." Sen. Henry M. Jackson (D) of Washington had already proposed such a freeze. Despite all these calls, no wage-and-price-control bills are now being considered by Congress, although Senator Proxmire's committee plans to hold hearings on the subject next month.
Some observers theorize that the renewed threat of controls may have prompted businessmen to push up prices already. For example, the steel companies last week raised prices 5 percent on flat-rolled products, despite weak demand from their major customers the auto companies.