April 26, 1978

Wage-Price Control Self Fulfilling Prophecy

Self fulfilling prophecies scare me, and so it is with trembling that I bring up the possibility of wage and price controls by the Great White Father in Washington.  The more you talk about it the more likely it will come true.

Yet, this drastic peace-time action is being seriously suggested by some political types following President Jimmy Carter's recently announced anti-inflation program.

The prediction of ultimate control by government bureaucrats of personal income and business prices is given as inevitable by those mysterious "reliable sources."  Though the prophets are anonymous, their words carry sufficient weight to panic business leaders.

There is worry that Carter's call for "voluntary" wage and price restraint will give way before long to mandatory controls.

Albert Cox, president of Merrill Lynch Economics which is associated with the giant stock brokerage, told U.S. News and World Report: "I'm advising my clients to raise prices before controls are clamped on."  The magazine indicated that the steel prices increases just announced were triggered by fear that a statutory limit on prices is coming.

Such misgivings are fed by unrestrained spending by government, and by new labor contracts exceeding Carter's 5 percent guideline by double.  The railroad, automobile and steel workers declare they are going to get as much as the coal miners, if not more.

I get the feeling that big government, big business and big labor are fighting for the last deck chair on the Titanic.

All this unease was given breath by the disappointing thrust of Carter's inflation fighting program.  Critics liken it to President Gerald Ford's WIN plan (Whip Inflation Now) which had all the impact of a mouse scream.

After much ballyhoo and solemn pronouncements of the seriousness of the inflation problem, Carter came up with five lame proposals:

• Jawbone labor and business to "decelerate" wage and price hikes by holding increases below the average rises of the past two years.
• Expand meat imports to drive down beef prices which shot up 4.1 percent in February.
• Allow a bigger timber harvest on federal lands to slow lumber prices.
• Ask Congress for legislation to hold down hospital costs.

Direct federal regulatory agencies to "weigh" the inflationary effects of their actions.

That's it.  No mention of government spending, imported oil, balance of trade, price of energy, defense sales, pay for government workers, welfare, bail outs for bankrupt cities and the hundreds of other hard-line inflation problems.

Carter inherited a 5.5 percent inflation rate and now has seen it to climb to 7.1percent.  Economists see a slight bit of relief late this year but shake their heads about 1979.

The Council on Wage and Price Stability, official watchdog for the president, issued a special report this month warning about "the risks of higher future inflation" and calling for tough measures to cut spending in every economic sphere.

Arthur Okun, who was chairman of the council of economic advisers under President Johnson, says he is "not terribly optimistic" about the possibility of labor and business holding down wage and price increases to less than they were in the past two years.

At the same time, George Hitchings of MacKay-Shields Financial Corporation points out that historically mandatory controls have not worked once inflation reaches a high level.

The situation appears hopeless.  If this mood takes a firm hold with a majority of Americans we are in real trouble.  Wage and price controls - in the communist style -might not be so unthinkable.

There is an alternative suggested by Henry Wallich, a member of the board of governors of the Federal Reserve System, and supported by several economists.

Called TIP - for tax-based incomes policy - the Wallich plan would accept a government wage-price guideline.  Workers and companies then would be rewarded or penalized on their income taxes in accordance with their success in meeting the federal goal.

Let us say that government sets a 6 percent average wage increase as the standard.  Employees who receive a 7 percent wage boost would pay a "surtax" in addition to their regular income tax.  Those who receive a 5 percent average wage hike would be allowed to take an extra deduction from their total tax.

Companies would be subject to the same procedure for average price increases that stray from government norm.

It is all very frightening.

Outright wage and price controls is bad news.  The Wallich alternative intensifies the dubious technique of manipulating taxes to force compliance with a centrally dictated policy.

The struggle for a practical solution must lay on the shoulders of each citizen.  The problem is too critical to be relegated to a President or a Congress without guidance.

My mind returns to the opening words of a new book, "A Time For Truth," by William E.  Simon, secretary of the Treasury from 1972 to 1975:

"The reason for discussing economic issues is not to inspire a national passion or bookkeeping, but to inspire a national awareness of the connection between economic and political freedom.  The connection is real and unbreakable.  To lose one is to lose the other.  In America we are losing both in the wake of the expanding state."

Author: Lindsey Williams