Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
1535083
label
1976/02/25 - Economic Policy Board
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
1535083
sourceUrl
contentType
document
title
1976/02/25 - Economic Policy Board
citationUrl
collections
James M. Cannon Files (Ford Administration)
James Cannon's Meetings Files
subjects
Commercial products
Federal budget
iiifBase
thumbnailUrl
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
1535083
coverageEndDate
logicalDate
1976-02-29
month
2
year
1976
coverageStartDate
logicalDate
1976-02-01
month
2
year
1976
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
url
mediaId
89bf730fc3451a6d
ocrText
The original documents are located in Box 56, folder "1976/02/25 - Economic Policy Board"
of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 56 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE MEETING
AGENDA
8:30 a. m.
Roosevelt Room
February 25, 1976
PRINCIPALS ONLY
1.
Report of Current Economic Outlook
Troika II
2.
Agricultural Policy Organization
Seidman
BYES ONLY
MINUTES OF THE
ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE MEETING
FEBRUARY 24, 1976
ATTENDEES: Simon, Seidman, Richardson, Usery, Coleman, Dunn,
Zarb, Greenwald, Barnum, Schmults, Collier,
MacAvoy, Kauper, Gorog, Porter, Biller, Binder,
Shields, Darman, Leach, Arena, Piper, Butler
1. International Aviation Policy Statement
The Executive Committee reviewed a draft statement and
issue paper on an international aviation policy state-
ment. The discussion focused on the issue of whether or
not publishing a new international aviation policy state-
ment was appropriate at this time.
Decision
The Executive Committee agreed to add to the issue paper
the additional question of whether or not this was an
appropriate time to publish an international aviation
policy statement.
Executive Committee members were requested to provide
their comments and recommendations on the options out-
lined in the issue paper to Mr. Seidman's office by
3:00 p.m. Wednesday, February 25.
2. Report of EPB/NSC Commodities Policy Coordinating
Committee
The biweekly report of the EPB/NSC Commodities Policy
Coordinating Committee is attached at Tab A. The
Department of Commerce, after appropriate clearance
from the Justice Department, will arrange for a meeting
with U.S. cooper producers to inform them of U.S. par-
ticipation in an International Producer/Consumer
Conference on Copper scheduled for March 23 through 26.
EYES ONLY
RBP
EXECUTIVE OFFICE OF THE PRESIDENT
COUNCIL ON WAGE AND PRICE STABILITY
726 JACKSON PLACE, N.W.
WASHINGTON, D.C. 20506
February 24, 1976
MEMORANDUM FOR: MEMBERS AND ADVISER-MEMBERS OF THE
COUNCIL ON WAGE AND PRICE STABILITY
FROM:
MICHAEL DIRECTOR H. MOSKOW 7th
SUBJECT:
Draft Senate Budget Committee Testimony
Attached is a draft of testimony to be presented to the Senate
Budget Committee on Thursday morning at 10:00 a.m., as part
of a seminar on "Inflation and the 1976 Budget" in which
Bill Usery and I will participate. Due to the need to get
this testimony to the Committee tomorrow, we need your comments
by noon on Wednesday, February 25. I apologize for the short
turn-around but we were first notified of the substance and
timing of this seminar on Friday afternoon, February 20.
Please call or send your comments to me at 456-2306 or to
Jack Meyer, Deputy Assistant Director for Wage and Price
Monitoring, at 456-7000.
Attachment
CC: Members of the EPB Executive Committee
Testimony For Senate Budget Committee Hearing
The Problem of Inflation
Prior to the 1970's inflation was widely believed to be a problem
that occurred in one phase of the business cycle -- the advanced stage
of an economic expansion. This belief sprang from a notion that the
primary cause of inflation was excessive demands for goods and services
relative to the existing productive capacity of the economy. In other
words, inflation was viewed as a signpost that the expansionary phase
of the business cycle was nearing an end and a reflection of labor
shortages and high rates of capacity utilization. The corollary of this
principle, of course, was the assurance that when an overheated economy
cooled off, the inflation fires would also subside.
The experience of the 1970's has taught us that inflation is more
than a manifestation of excessive total demand relative to productive
capacity. Inflation has persisted over all phases of the business cycle
in this decade, so that it is apparent that factors other than business
cycle fluctuations are also responsible for inflation.
The 1973-74 Experience
The 1973-74 period was marked by an explosion of inflation in the
face of a decline in economic activity that was at first gradual, then
precipitous. The simultaneous occurrence of inflation and unemployment,
experienced also for a shorter period during the 1970-71 downturn,
brought about a deterioration in real income for millions of Americans.
Real average hourly earnings -- which have risen in each of the previous
- 2 -
eight years were flat in 1973 and fell by 2.5 percent in 1974 as
increases in average hourly earnings were more than offset by rising
prices of consumer goods. This deterioration in real earnings was
not surprising in view of the 6.6 percent decline in real output that
occurred between the fourth quarter of 1973, when the recession began,
and the first quarter of 1975.
The experience of U.S. households during this period, of course,
was not unique, as other industrialized countries also experienced high
rates of inflation against a backdrop of stagnating economic activity.
Over the 12-month period ending in May 1975 consumer prices rose by 25.0
percent in the United Kingdom, 19.7 percent in Italy, 14.1 percent in
Japan, and 12.1 percent in France, as compared with 9.5 percent in the U.S.
What factors contributed to this international burst of inflation?
First, the oil cartel, which quadrupled oil prices, increased costs
throughout the world economy and contributed heavily to inflation. Second,
a sharp rise in the world demand for food, coupled with the poor harvests
in many areas and the time lags associated with an expansion of supply
to meet this upsurge in demand, sent food prices soaring. Indeed, increases
in food and energy prices together accounted for a considerable proportion
of the increase in the Consumer Price Index in this period. Third, the
removal of price controls in the U.S. in the second quarter of 1974 led
to subsequent sjzeable price increases in many industries.
Thus, the private non-farm sector of the U.S. economy, in which sales,
employment, and profits had been growing in the 1972-73 period while
inflationary pressure was pent up, but not eliminated by wage and price
controls, was subjected to several "external" shocks emanating from
- 3 -
agricultural and energy developments as well as the removal of controls.
In addition, inflation in other sectors of the economy, such as housing
and health care, made important but relatively smaller contributions to
the overall rate of change in consumer prices.
Recent Developments
In the past year increases in oil and food prices have tapered off,
contributing to the noticeable reduction in the rate of increase in
consumer prices. The CPI, which rose by 12.2 percent during 1974,
increased 7.0 percent in 1975; the corresponding figures for the Whole-
sale Price Index were 20.9 percent and 4.2 percent.
Although we have received some encouraging news on the price front,
particularly this winter, we cannot be complacent about inflation. For
even 5-7 percent inflation, which most experts forecast for the coming
year, is well above the 1-3 percent rates of the early postwar period,
and as the recovery, which is now almost a year old, gathers strength,
the risk of a resurgence of inflation increases. Furthermore, although
the overall rate of increase in prices has abated, there are still
pockets or sectors of the economy in which prices are rising sharply.
Thus, we would be foolish to forget what we have so painfully
learned that inflation is no longer purely a business cycle phenomenon,
but rather it can be a major national problem transcending the ebbs and
flows of economic activity. This realization does not deny that spending
by consumers, businesses, and government is an important. factor affecting
inflation. But we must continually be cognizant of the fact that factors
- 4 -
such as major disruptions in individual product and Tabor markets and
international economic developments can generate inflationary pressure
even when there is substantial idle plant capacity and labor market
slack in our economy. Moreover, it is important to realize that the
rules, regulations and rate-making procedures of the government can
contribute to inflation regardless of the particular economic climate,
and that government programs and policies should be continuously and
carefully evaluated to determine whether the benefits they provide
justify the costs.
Problems in Achieving Sustainable Economic Growth
We all share the objectives of reducing unemployment and maintaining
price stability. It is important to recognize that these objectives
are inter-related. The real income of consumers is beginning to rise
again, not only because employment is increasing and tax cuts have
increased take-home pay, but also because inflation has subsided. The
recovery can only be sustained if a resurgence of inflation is avoided.
Sound fiscal and monetary policies are the major tools in the effort
to moderate inflation and reduce unemployment. But one of the important
lessons we have learned from recent experience with inflation is that
macroeconomic policies have differing effects on different industries
or sectors of our economy. The structure of product and labor markets
varies widely across our highly complex economy, and these variations are
associated with differing causes of inflationary pressure.
- 5 -
Some sectors, such as health care, bear little resemblance to the
economist's model of pure competition, and are characterized by unique
institutional arrangements (e.g. the prevalence of third party payments)
which remove the normal economic incentives from consumer or producer
behavior. Other industries are characterized by barriers to entry or
other market imperfections which prop up prices and restrict output. And
we have numerous regulated industries in which government agencies decide
whether proposed price changes can be put into effect.
Improving the Tradeoff Between Inflation and Unemployment
As indicated above, sound fiscal and monetary policies are the
cornerstone of counter-cyclical economic policies. Other policy tools
may supplement the effort to achieve sustainable economic growth, but
they cannot substitute for responsible budget management or monetary
policy, and should not be viewed as safety valves or lids which permit
basic economic policy to be over-expansionary.
What are these other policy tools? Some observors have characterized
themas an "incomes policy," a term which has different meaning for
different people. Some interpret "incomes policy" in a narrow sense to
include only policies designed to establish some mandatory or voluntary
standards for justifiable increases in wages and prices. This, in
effect, is a literal translation of the term "incomes policy," since wage
and price movements are important determinants of the incomes of owners
of the various factors of production labor (wages), land (rent), capital
(interest), and entrepreneurship (profits).
- 6 -
Other observors have interpreted incomes policy in a broader sense,
namely, as a collection of various policies and programs aimed at improving
the tradeoff between unemployment and inflation. These policies would
include not only efforts to restrain the growth of wages, and prices,but also effor
to improve productivity, reduce anti-competitive practices in product and
labor markets, improve the structure of collective bargaining, and increase
the cost effectiveness of government programs. Finally, manpower programs --
designed to improve the job skills of workers -- are also included in this
list. Particularly important with respect to improving the tradeoff
between inflation and unemployment are manpower programs designed to
alleviate inflationary pressure by training workers in occupations where
labor shortages exist or are expected to occur.
Although these efforts differ regarding their approach or their
target group, they share a common objective -- the removal of barriers
to increases in production and employment without generating additional
inflationary pressure. They are predicated on the notion that demand
management policies, while important, are often not sufficient, per se,
to achieve the twin goals of full employment and price stability. The
simultaneous achievement of these goals may require that we operate on
the margin with various tools that dig beneath the relationship between
aggregate demand and aggregate supply.
I have already indicated that inflation is a problem with causes
that vary from sector to sector, so that a microeconomic approach is an
important supplement to policies that impact on total demand. It is also
important to observe that unemployment is a problem with varying causes
- 7 -
which also cannot be fully solved by policies operating on total demand.
For expansionary economic policies bypass many workers whose lack of
education, training, or work experience makes them unattractive to employers.
Thus, just as we need to zero in on particular pockets of inflation in the
economy, so also we need to bore beneath the macroeconomic surface to uncover
pockets of unemployment that are not responsive to a general economic stimulus.
The Council on Wage and Price Stability is geared to this sector-by-sector
approach. Of course, our mandate is to moderate inflation, while other
agencies are charged with reducing unemployment and alleviating its harsh
impact. We analyze individual sectors of the economy to isolate the causes
of inflation, and we are attempting to make markets work better by educating
the public about these causes and by providing additional information to
buyers and sellers.
Our statute, as amended by the Congress last August, specifically
directs the Council to "intervene and otherwise participate on its own
behalf in rulemaking, ratemaking, licensing and other proceedings before
any of the departments and agencies of the United States, in order to present
its views as to the inflationary impact that might result from the possible
outcomes of such proceedings." We have exercised this authority by
participating in a wide variety of Federal agency proceedings that have a
potential impact upon inflation. We have presented our views before the
economic regulatory agencies, urging them to focus on the economic impact
of the proposal at issue, as in the case of the "no frills" fare proceeding
before the CAB. We have participated in agency proceedings concerning
proposed health, safety or environmental regulations, presenting our views
on the costs and benefits and cost-effectiveness of various proposals.
- 8 -
Such Federal regulatory activities ultimately have an impact on the rate
of inflation. An indication of the wide variety of Federal activities
that could ultimately exacerbate inflation is provided by the variety of
issues the Council has addressed in the past year: CPSC safety standards
for lawn mowers, EPA regulation of motorcycle emissions, FDA regulation of
shellfish gathering, NHTSA regulation of truck and bus air brakes, and
so on.
The activities of the Council both in the private and public sectors
are ones that have been discussed for years. The Council on Wage and
Price Stability, however, is the first ongoing institution with a specific
mandate to implement these activities, and we still have only one and
one-halfyears of experience. We are continually learning more about how
to focus our resources effectively on problem areas and how we should
address the problems identified. There is still much more to learn. I
think we are agreed, however, that the sector-by-sector analysis conducted
by the Council will continue to be an important element in an anti-inflation
strategy.
department OF STATE
Washington, D.C. 20520
February 23, 1976
MEMORANDUM FOR THE EXECUTIVE COMMITTEE OF THE
ECONOMIC POLICY BOARD
Subject: Report of the Fifth Commodities Policy
Coordinating Committee
Attached is a brief report for the Board's
Tuesday meeting.
Joseph A. Greenwald Gerald L. L Parsky
Attachment
GERALD FORD LIBRARY
COMMODITIES POLICY COORDINATING COMMITTEE
Summary Report to the Economic Policy Board
(1) CIEC Commission on Raw Materials. The Committee
heard a report from the State Department repre-
sentative on the just-concluded first meeting of
the Commission on Raw Materials of the producer/
consumer dialogue in Paris. The Commission
quickly agreed on its work program, and completed
discussion of the first item on the agenda, con-
ditions of supply and demand. It is now beginning
the most difficult item on the agenda--problems of
commodity markets and trade--and the developing
countries and the U.S. have submitted contrasting
lists for discussion items. The developing coun-
tries apparently wish to press for completion of
discussion in the Commission on all items before
the May meeting of UNCTAD-IV, at which point they
can maintain that there has been no progress in
the Commission and that a political solution is
required.
The Group agreed that it would be desirable for
the U.S. to submit a number of papers to the Com-
mission on some of the subjects covered and encour-
age other participants to do the same. To this
end, it was agreed that the CIEC/CORM inter-agency
sub-group should discuss the specifics of these
papers. It was also agreed that the EC should be
informed by us of our opposition to discussion in
the Commission at this time of specific commodities,
although it was recognized that copper might be an
exception because of the large number of developing
countries in the Commission with a special interest
in copper.
(2) U.S. "Comprehensive Approach" to Commodity Policy.
The Committee agreed upon the report outlining the
US comprehensive approach to commodity policy after
discussion and agreement with several changes relat-
ing to the US position on indexation, buffer stock
financing and compensatory financing. It was agreed
that a sub-group of the CPCC should be established
and report back within two or three weeks on possible
means of improving financing of buffer stocks, recog-
nizing that proposals involving international finan-
cial institutions would have to be considered by the
-2-
International Monetary Group. It was also agreed
that the sub-group would look at the underlying
conditions and considerations which would cause
the US to favor buffer stocks and their financing.
At a later stage, it would also examine issues
relating to management of supply.
There was agreement that use of the comprehensive
approach in international forums, particularly in
written form, was essentially a political decision
to be determined at a later and particular time
when a political response by the US was required.
(3) Copper. It was agreed to send a cable to our Mis-
sion in Geneva asking them to inform the UNCTAD
Secretariat that the US will accept UNCTAD's invi-
tation to an international producer/consumer confer-
ence on copper scheduled for March 23-26. This is
on the understanding that no pre-conditions are set
either for the agenda of the meeting or for the
locus of future producer/consumer meetings on
copper.