October 18, 1978

Are Wage-Price Controls Inevitable?

As my old granny used to say, "The road to Hell is paved with good intentions!"

If she were here today she would note a similar analogy with wage-price controls for we are headed in that painful direction with the best of motives.

The fact is we are on the road to direct government control of the fundamental economic equation.

This is not to say we can't turn back, or won't find a detour to a balanced economy.  But every day we take another step toward the "collective regulation" of wages and prices so dear to the hearts of communist countries.

Historically, inflation has always lead to collapse.  And from collapse has come either anarchy or dictatorship.  It is this instinctive fear that now convinces 53 percent of Americans the solution to our inflation is a freeze of both wages and prices.

Significantly, the approval rate of controls passed the half-way point as inflation shot up a full percentage point in July, and as President Jimmy Carter's performance approval plummeted.

The president started out 1977 with a brave anti-inflation plan of self restraint.  But this was reduced to shambles by his personal agreement to a wildly inflationary coal strike settlement.  The genie was out of the bottle, and no one has yet figured out how to stopper the imp.

To his credit, Carter has taken some steps in the right direction.  He vetoed this year's pork-barrel public works bill, held out for modest tax cuts, and abandoned plans for another expensive cabinet department of education.

True, he earlier had set up a department of energy that costs the taxpayers more than all the oil and gas companies combined make in profit.  And he threw his balanced budget out the window.  There is hope, nonetheless that he is born again, economically if not morally.

Now that the Camp David euphoria is fading, and Congress has turned some important administration proposals into law, Carter vows to devise a "Phase Two" battle against inflation.

The White House phaseology makes me a little nervous.  I remember the identical approach that wended it's way through three "phases" during the Nixon administration, and ended up in wage and price controls.

First it was "restraint," then "guidelines," then punitive "sanctions," and then recession.

We must remember, of course, that the authority for wage and price controls was adopted by Congress against the express opposition by President Nixon.  In the end, however, as all else failed, Nixon felt he had to impose controls because there was no alternative.

This experience is too recent in the memories of business and labor to be ignored.

President Carter has emphasized over and over that controls have never worked and he won't use them, "except in an emergency."

This is what Nixon said when only a minority of Americans favored controls.  How long can Carter hold out now that the majority has embraced the Devil?

It is dangerous to talk of these matters, and I do so now with trepidation.  To suggest the possibility is another step down the road.  As speculation grows, so does the uneasiness of management and union decision makers.  The more real the possibility, the larger the protective wage and price increases rushed into the record against that possibility.

Yet, we can not through ignorance drift into the loss of our most important freedom - that to make personal economic decisions.

Under Phase II, the government would set up "guidelines" which business and labor would be asked to follow "voluntarily."  These guidelines would be backed by "limited sanctions," a euphemism for penalties and punishments.

Ominously, some of the sanctions are already in place.  Electric power companies are ordered to burn coal - cleanly - or lose their regulated profit.  Owners of "gas-guzzling" cars, as defined by the administration, are to pay a discouragement tax.  Protectionist taxes against foreign goods now can be raised or lowered by executive order.  Federal contracts and grants are withheld to force compliance with unvoted regulations.

On the surface it would appear that we are safe so long as Congress does not enact wage-price authority as it did for Nixon.  Unfortunately we can not take refuge in this stratagem.  Republican Nixon's authority was forced on him by a Democrat Congress to place blame on him.  Democrat Carter can expect more consideration from his own party.

The likelihood is that we will slip into wage-price controls edge-wise.  Hardly anyone will notice.

The dollar will continue to weaken abroad.  Interest rates will continue to climb.  The stock market will decline.  Inflation will reach new highs.  Unemployment will edge up.  The gross national product will shrink.  The public will demand drastic counter measures, and the president will "suggest" controls.

Lest you think this is a scenario, be advised the processes just cited are already underway.

It is hoped that Phase II standards will halt the trends.  Success hinges on the outcome of voluntary restraint - and you are as qualified as the highest paid White House economist to predict that answer.

The professionals are something less than optimistic.  The consensus is that the year 1979 will remain decent, but 1980 is the end of the free-choice road.

What do you think?

Author: Lindsey Williams