Getting Out of Controls

When the Nixon Administration first imposed wage and price controls in August 1971 to damp down the fires of inflation, consumer prices were rising at a worrisome rate of 4% a year. Since then the controls have been loosened, tightened and loosened again as the nation went through Phases I through IV, not to mention Freezes I and II. After all the tinkering, prices are now rising at a 9% annual rate. Partly in view of that record, the Administration last week announced that it would ask Congress to allow almost all economic controls to expire at the end of April.

In recent months the Administration has dropped controls on industry after industry, until only 28% of the items in the consumer price index and 38% of wage and salary earners were still covered by the Economic Stabilization Act. Last week's decision means that workers in most industries would be able to hold onto any wage increase that they can wring out of an employer without being overruled by the Cost of Living Council. Controls will continue on two industries: petroleum, where prices have been soaring because of the energy crisis; and health care, where costs will encounter considerable upward pressure if Congress passes the Administration's proposed national healthcare program (see MEDICINE), which would add $5.9 billion a year to federal spending. Probably the most important feature of the Government's decision was that, although legislative authority for controls would be allowed to expire, the Administration would keep the Cost of Living Council as a watchdog agency to monitor price changes.

The Administration has not given up the anti-inflation game entirely. John Dunlop, director of the C.O.L.C., is known as a muscular arm-twister who has been able to quash price increases with subtle combinations of browbeating and incentives. Dunlop, for instance, decontrolled such industries as autos, rubber and fertilizer in exchange for promises that executives would voluntarily hold down their prices and, in some cases, step up their output. Recently he said that he might urge the Administration, perhaps through the Federal Energy Office, to allocate scarce building materials to parts of the country where construction unions agree to only modest wage hikes this year. Of course, not everyone is confident that Dunlop can hold back inflation with nothing more potent than persuasion. "How can you jawbone with a toothless jawbone?" asked Illinois Senator Adlai Stevenson during a Senate Banking Subcommittee hearing last week. Replied Dunlop: "I am a great believer in the power of persuasion. That's my business."

Some Fine-Tuning. Lifting controls may produce another run-up in prices this spring. But Administration economists are betting that an economic slowdown will help lower the inflation rate to something like 4% or 5% in the second half of 1974. In fact, a major concern of economic policymakers this year will be to keep that slowdown from turning into an outright recession. Unemployment is already climbing-from 4.8% in December to 5.2% in January -and the fuel shortage is causing layoffs and production cutbacks all over the country.

Last week Herbert Stein, chief Presidential economic adviser, and Federal Reserve Board Chairman Arthur Burns told the subcommittee that they expect the impact of the coming slowdown to be spotty. "There will be some booming industries and some depressed industries," said Burns, "some places where skilled workers will be in short supply and others where unemployment is high." Accordingly, the Administration is not proposing a raft of broad new spending programs, an across-the-board tax cut or new efforts to pump up the money supply. Opening up the Fed's money spigot, said Burns, "would not cut unemployment but would add to inflation." Still, a cut last week in the prime rate from 91/2% to 91/4% by several major banks continued a recent decline in interest rates.

Instead, it will attempt the same kind of "fine tuning" that was practiced under the Kennedy and Johnson administrations but was earlier shunned by the Nixon economists as a device that smacked too strongly of socialist-style planning. The White House is contemplating some large, quick increases in limited categories of Government spending this spring; it is expected to ask Congress to expand unemployment benefits, for example, in those localities hit hardest by the energy crisis.

Administration economists are hoping that their one-two application of decontrol and fine tuning will make for a steady course between too much inflation and too much recession. Congressmen who have to run for re-election this 1 year are not so sanguine, but nobody is really sure of what should be done differently. This lack of consensus is indicated by the fact that in recent months nearly 100 new wage and price bills have been introduced on Capitol Hill. Many of them are designed to leave the Administration with stand-by authority to reimpose controls-just in case the economy once again spins out of control.

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