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Associated New York State Food Processors, Rochester, NY, May 4, 1971
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Associated New York State Food Processors, Rochester, NY, May 4, 1971
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The original documents are located in Box D31, folder "Associated New York State Food
Processors, Rochester, NY, May 4, 1971" of the Ford Congressional Papers: Press
Secretary and Speech File 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. The Council 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States of America his copyrights in all of his unpublished writings in National Archives collections.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.
CYCLAMA ROCHESTER, 11 ASSOCIATED NEW Miss NEW YORK. YORK FURNES FOOD PROCESSORS, Dr. qu MD MAY
4,
FEEL
A
BIT
OUT
OF
PLACE
HERE
TODAY
--
SOMETHING
LIKE
THE
YOUNG
MAN
OF DOUBTFUL ORIGIN WHO WAS ATTENDING A FAMILY REUNION. YOU SEE -- WHAT I KNOW
ABOUT FOOD PROCESSING IS RESTRICTED TO USING AN ELECTRIC CAN OPENER.
BUT I DO KNOW SOMETHING ABOUT FEDERAL LEGISLATION, AND THAT HAPPENS
TO BE MY TOPIC TODAY. TOGETHER WE ARE GOING TO TAKE A LOOK AT LEGISLATION
WHICH AFFECTS THE FOOD PROCESSING INDUSTRY.
THERE IS A BIG BATCH OF SUCH LEGISLATION AT THE STARTING LINE, BUT
D.C.
OF COURSE MUCH OF IT WON'T GO ANYWHERE.
Digitized from Box D31 of the Ford Congressional Papers: Press Secretary and Speech File at the Gerald R. Ford Presidential Library
PROCESSORS
Committes
THIS LEGISLATION IS DIVIDED UP AMONG SEVERAL COMMITTEES IN THE HOUSE --
INTERSTATE AND FOREIGN COMMERCE GOVERNMENT OPERATIONS AND EDUCATION AND LABOR.
RUNNING DOWN THE LIST IN THE COMMERCE COMMITTEE, WE FIND 11 BILLS ON
OPEN DATING OF FOOD
J
FIVE ON UNIT PRICING
FOUR REGARDING CONSUMER INFORMATION
ON CANS
OF ADDITIVES 1 TWO ON FLAVORING EXTRACTS -- ALCOHOL IN CANDY / FIVE ON WHOLESOME
ONE ON IMITATION DAIRY PRODUCTS MARKING / ONE ON PRE-MARKET CLEARANCE
FISH INCLUDING AN ADMINISTRATION BILL AND 25 ON FOOD SUPPLEMENTS.
AS YOU KNOW, MANY GROCERY CHAINS HAVE STARTED OPEN DATING AND UNIT
PRICING. IT IS POSSIBLE THAT THE COMMERCE COMMITTEE WILL TAKE A LOOK-SEE AT
THIS LEGISLATION LATER ON THIS YEAR.
Fish
FISH INSPECTION IS AN ADMINISTRATIVE MEASURE, AS I MENTIONED. IT FIRST
WAS PROPOSED IN THE 91ST CONGRESS BUT WAS NOT ACTED UPON. IT MAY WIND UP ON THE
3/FOOD PROCESSORS
STATUTE BOOKS THIS TIME.
THE FOOD SUPPLEMENTS LEGISLATION IS A THREE-YEAR-OLD PROPOSAL WHICH
WOULD LIMIT THE FOOD AND DRUG ADMINISTRATION'S POWER TO OUTLAW FOOD SUPPLEMENTS
OR REQUIRE DISCLAIMERS ON VITAMINS. AN ADMINISTRATIVE PROCEEDING HAS BEEN UNDER
WAY IN THIS AREA ALL OF THIS TIME AND HAS NOT YET BEEN COMPLETED. IT IS
DOUBTFUL THAT CONGRESS WILL ACT ON THIS LEGISLATION THIS YEAR.
THE COMMERCE COMMITTEE ALSO IS CONSIDERING THE ADMINISTRATION'S TOXIC
Tox'e
SUBSTANCES BILL AND THE ADMINISTRATION BILL WHICH WOULD EXPAND THE FEDERAL
TRADE COMMISSION'S JURISDICTION TO MATTERS "AFFECTING" COMMERCE, NOT MERELY
THOSE "IN" COMMERCE. THE FTC BILL ALSO WOULD GIVE THE FTC AUTHORITY TO SEEK
PRELIMINARY INJUNCTIONS.
4/FOOD PROCESSORS
FTC CHAIRMAN MILES KIRKPATRICK CONTENDS THERE IS NOT MUCH DIFFERENCE
NOWADAYS BETWEEN WHAT AFFECTS INTERSTATE COMMERCE AND WHAT IS "IN" INTERSTATE
COMMERCE. so HE DOES NOT EXPECT MUCH IMPACT FROM THAT CHANGE.
AS FOR SEEKING PRELIMINARY INJUNCTIONS, THE FTC ALREADY IS TAKING SUCH
ACTION IN FOOD AND DRUG CASES. THIS IS NOW IN THE TEST CASE CATEGORY, AND
KIRKPATRICK DOES CONSIDER AUTHORITY TO SEEK PRELIMINARY INJUNCTIONS AN IMPORTANT
ADDITION TO FTC POWERS. THIS POWER WOULD APPLY PRIMARILY IN ADVERTISING CASES.
THE LEGISLATION HAS NOT EXCITED MUCH CONTROVERSY.
I AM SURE ALL OF YOU HERE ARE FAR MORE INTERESTED IN H.R. 15, THE
ORD
HOLIFIELD-DWYER-ROSENTHAL BILL WHICH WOULD CREATE AN INDEPENDENT CONSUMER
PROTECTION AGENCY AS A CONSUMER ADVOCATE BEFORE FEDERAL AGENCIES.
5/FOOD PROCESSORS
THIS BILL HAS VERY STRONG SUPPORT IN THE HOUSE -- MORE THAN
200 COSPONSORS. ITS AUTHORS INCLUDE THE CHAIRMAN AND THE SENIOR REPUBLICAN
MEMBER OF THE GOVERNMENT OPERATIONS COMMITTEE. IT NARROWLY MISSED BEING
ENACTED LAST YEAR.
IF I WERE TO MAKE A PREDICTION ABOUT H.R. 15, I WOULD SAY THERE IS NO
STOPPING IT. SOMETHING SIMILAR TO H.R. 15 WILL CLEAR THE GOVERNMENT OPERATIONS
COMMITTEE AND WILL PASS THE HOUSE.
I WOULD LIKE TO POINT OUT TO YOU A VITAL DIFFERENCE BETWEEN THE 1971
VERSION OF THE INDEPENDENT CONSUMER PROTECTION AGENCY BILL AND LAST YEAR'S BILL.
ONE REASON LAST YEAR'S BILL WOUND UP ON THE SHELF IS THAT IT FAILED TO
CONTAIN A SERIES OF AMENDMENTS WORKED OUT BY THE BILL'S SPONSORS TO CLARIFY
6/FOOD PROCESSORS
THE COMMITTEE'S INTENTION TO SAFEGUARD BUSINESS INTERESTS. THESE AMENDMENTS
ARE A PART OF H.R. 15, THE CURRENT BILL.
THE PRESIDENT TENDS TO FAVOR PLACING THE CONSUMER ADVOCATE AGENCY
WITHIN THE FTC. THAT IS EXACTLY WHAT WOULD HAPPEN UNDER A BILL SPONSORED BY
REPUBLICAN REPS. JOHN ERLENBORN OF ILLINOIS AND CLARENCE BROWN OF OHIO.
HOWEVER, THERE IS LITTLE QUESTION THAT IT IS H.R. 15 WHICH WILL BE REPORTED
OUT BY THE GOVERNMENT OPERATIONS COMMITTEE.
IT IS WORTH NOTING THAT THE PRESIDENT'S COUNCIL ON EXECUTIVE
REORGANIZATION -- THE ASH COUNCIL -- WOULD REORGANIZE THE FTC BY DIVIDING IT
INTO TWO SEPARATE UNITS. ONE WOULD BE AN ANTITRUST BOARD. THE OTHER WOULD BE
A CONSUMER PROTECTION AGENCY. THE PRESIDENT NOW HAS THESE RECOMMENDATIONS UNDER
STUDY.
7/FOOD PROCESSORS
compañ to BALANCE
IT COULD BE EXPECTED THAT ANY SUCH NEW AGENCY -- WHETEHR CREATED
THROUGH LEGISLATION OR EXECUTIVE REORGANIZATION -- WOULD BE INTERVENING IN
MATTERS WHERE FOOD PROCESSORS ARE INVOLVED. ONE MIGHT ALSO EXPECT THAT
PROCEEDINGS OF THIS KIND WOULD CAUSE FOOD PROCESSORS SOME BURDEN SINCE THEY
LIKELY WOULD REQUIRE A GREATER BURDEN OF PROOF AND WOULD RESULT IN MORE
APPEALS.
I WOULD LIKE TO TURN NOW TO H.R. 7130, DEMOCRAT JOHN DENT'S BILL TO
RAISE THE MINIMUM WAGE, ELIMINATE MOST OVERTIME EXEMPTIONS AND PROMOTE
PROTECTION AGAINST IMPORTS FOR AMERICAN LABOR.
DENT'S BILL IS AN AFL-CIO BILL. IT HAS THE ANNOUNCED BACKING OF
HOUSE SPEAKER CARL ALBERT AND THE REST OF THE HOUSE DEMOCRATIC LEADERSHIP.
8/FOOD PROCESSORS
WITH THE HOUSE EDUCATION AND LABOR COMMITTEE COMPOSED AS IT IS, THERE
IS NO QUESTION THAT THE BILL WILL CLEAR THE COMMITTEE. WITH THE DEMOCRATIC
LEADERSHIP BEHIND IT, THE BILL WILL DEFINITELY COME TO THE HOUSE FLOOR FOR A
VOTE.
THE MINIMUM WAGE BILL IS, IN FACT, ONE OF A PACKAGE OF ECONOMIC BILLS
WHICH THE HOUSE DEMOCRATIC LEADERSHIP IS PUSHING IN HOPES OF EMBARRASSING THE
PRESIDENT.
THE DENT BILL WOULD RAISE THE MINIMUM WAGE GENERALLY TO $2 IN TWO
YEARS -- FROM THE PRESENT $1.60 TO $1.80 ON JANUARY 1, 1972, AND TO $2 ON
JANUARY 1, 1973.
9/FOOD PROCESSORS
DENT
IN AGRICULTURE, WHERE THE MINIMUM WAGE NOW IS $1.30 AN HOUR, THE
TINIMUM WOULD RISE TO $1.50 ON AUGUST 1, 1971 TO $1.60 ON JANUARY 1, 1972, TO
$1.80 ON JANUARY 1, 1973, AND TO $2 ON JANUARY 1, 1974.
THE BILL ALSO WOULD EXTEND THE OVERTIME PROVISIONS OF EXISTING
LEGISLATION TO AGRICULTURAL PROCESSING AND FISH AND SUGAR PROCESSING EMPLOYES,
AS WELL AS OTHERS.
IF THE BILL REMAINS UNAMENDED, IT IS POSSIBLE IT WILL RUN INTO OPPOSITION
FROM THE FREE TRADERS IN CONGRESS.
AS THE BILL NOW IS WRITTEN, IT SETS UP A PROCEDURE FOR GRANTING
RELIEF TO DOMESTIC INSTITUTIONS AND EMPLOYES INJURED BY INCREASED IMPORTS FROM
LOW-WAGE AREAS AND REQUIRES COMPLIANCE WITH THE FAIR LABOR STANDARDS ACT BY
10/FOOD PROCESSORS
FOREIGN MANUFACTURERS AND SUPPLIERS ON DOMESTIC PUBLIC CONTRACTS.
IT IS ALMOST CERTAIN THAT THIS PROVISION OF DENT'S BILL WILL AROUSE THE
IRE OF THOSE MEMBERS OF CONGRESS WHO BELIEVE IN FREE TRADE. AND IF IT STAYS IN
THE BILL, IT COULD BE THE ROCK ON WHICH THE BILL FOUNDERS.
AS FOR THE DENT BILL'S MINIMUM WAGE PROVISIONS, THERE IS LITTLE
MILLS
QUESTION THAT THESE PROPOSALS WILL WIN HOUSE APPROVAL IN SOME FORM.
AS YOU MAY KNOW, HOUSE WAYS AND MEANS CHAIRMAN WILBUR MILLS HAS PROPOSED
THAT THE MINIMUM WAGE BE JUMPED FROM $1.60 AN HOUR TO $2 AN HOUR EFFECTIVE
NEXT FEBRUARY 1, WITHOUT AN INTERMEDIATE STEP.
THE STEP-BY-STEP PROPOSALS CONTAINED IN THE DENT BILL ARE, OF COURSE,
VERY MUCH TO BE PREFERRED TO THE MILLS PROPOSAL.
11/FOOD PROCESSORS
NOW I WOULD LIKE TO MAKE SOME GENERAL COMMENTS ABOUT THE ECONOMY.
I DO NOT BELONG TO THE GLOOM AND DOOM SCHOOL. I AM AN OPTIMIST BY NATURE,
AND I BELIEVE THERE IS BASIS FOR OPTIMISM CONCERNING THE ECONOMIC OUTLOOK.
OUR WITHDRAWAL FROM VIETNAM IS HAVING A TREMENDOUS IMPACT ON THE
ECONOMY. DEFENSE SPENDING CUTS REDUCED UNEMPLOYMENT LAST YEAR BY 600,000 IN
PRIVATE INDUSTRY, 400,000 IN THE ARMED FORCES AND 100,000 IN CIVILIAN PENTAGON
JOBS.
WE HAVE CUT VIETNAM SPENDING IN HALF -- AND WE HAVE DELIBERATELY
COOLED OFF THE ECONOMY TO BRING INFLATION UNDER CONTROL.
NOW THE NEED IS TO STIMULATE THE ECONOMY.
INF
GAVTOS
FED. RES.
FULL EMPLOYMENT BUDGET.
12/FOOD PROCESSORS
UNEMPLOYMENT HAS RESULTED AS WE HAVE FOUGHT INFLATION AND MOVED FROM
A WARTIME TO A PEACETIME ECONOMY. THE PROBLEMS WERE EVEN TOUGHER THAN THE
ADMINISTRATION ANTICIPATED. BUT NOW THE ECONOMY IS IMPROVING.
THERE ARE SIGNS OF AN ECONOMIC UPTURN DESPITE SOME INDICATIONS OF
CONTINUED LAG.
WHAT WE NEED TO GIVE THE ECONOMY A STRONG PUSH IS AN UPSURGE OF
CONSUMER CONFIDENCE.
IT IS ONLY A MATTER OF TIME BEFORE THE ECONOMY PICKS UP APPRECIABLY.
THIS IS BOUND TO OCCUR BECAUSE BOTH OUR FISCAL AND MONETARY POLICIES ARE
EXPANSIONARY.
13/FOOD PROCESSORS
THE MONEY SUPPLY, INCLUDING TIME DEPOSITS, IS EXPANDING AT A RATE
UNPRECEDENTED IN 20 YEARS. AND WHILE FEDERAL SPENDING CURRENTLY IS RISING ONLY
MODERATELY, THE PRESIDENT HAS PROPOSED AN EXPANSIONARY BUDGET FOR FISCAL 1972
WHICH CALLS FOR FEDERAL SPENDING AT FULL EMPLOYMENT REVENUE LEVELS.
I STRONGLY BELIEVE WE ARE HEADED TOWARD A MORE STABLE ECONOMY, A
GROWING ECONOMY, WITH A MORE STABLE PRICE LEVEL. I SEE THE ONSET OF A VIGOROUS
EXPANSION WHICH WILL PRODUCE GREATER JOB OPPORTUNITIES AND GREATER ABUNDANCE
FOR ALL OUR PEOPLE. I BELIEVE THE NATION'S FUTURE IS BRIGHT.
Welfare
their
#########
Revent 2.R.S.
CAROS
ROCHESTER, NEW YORK
MAY 4, 1971
Congress of the United States
Herald R. 3nd
Office of the Minority Leader
M.C.
house of Representatives
OFFICIAL BUSINESS
TUESDAY
MAY 4
1.00pm.
LUNCHEON
ASSOCIATED NEW YORK STATE
FOOD PROCESSORS
FORD i LIBRARY 9ERALD
UNITED STATES DEPARTMENT OF
COMMERCE
OFFICE
OF THE
NEWS
SECRETARY
WASHINGTON, D.C. 20230
FOR RELEASE AT 1:00 P.M. EST
TUESDAY, APRIL 20, 1971
Address by Dr. Harold C. Passer, Assistant
Secretary of Commerce for Economic Affairs.
Prepared for delivery at the luncheon meeting
of the Economic Club of Pittsburgh, William
Penn Hotel, Pittsburgh, Pennsylvania,
1:00 P.M., Tuesday, April 20, 1971.
THE ECONOMY IN 1971: POLICY AND PROSPECTS
The subject today is the U.S. economy in 1971. I have
been looking forward to this appearance because of the timing:
it is always easier to assess a crop after the first sprouts
have appeared, and the economic signs that we have received
so far are very encouraging. If the past winter was one of
discontent and uncertainty, then surely we are now in the
spring of renewed growth and high expectations.
- more -
- 2 -
The first-quarter increase in GNP was gratifying:
significant progress has been made in the fight against
inflation, interest rates have dropped, and both consumers
and businessmen appear increasingly confident. Thus, my
assessment of economic prospects is an optimistic one.
As we examine the evidence of economic performance
provided by recent statistics, and the indicators of the
future rate of progress, I would also like to discuss the
Nixon Administration's economic policies -- both the overall
economic policies and the recent anti-inflation actions
concerning special industry situations.
The Cause of the Current Inflation
Before discussing remedies for the inflation that has
been disrupting the economy, we should first examine the
original cause of the disease.
Economists, regardless of their economic or political
"school", generally agree that the inflation had its beginning
in the serious economic policy mistakes of the mid-1960's.
At that time, Federal spending, for both defense and nondefense
purposes, began to increase rapidly but no offsetting tax
increase was imposed until mid-1968. During those same years,
monetary policy tended toward excessive ease most of the time.
There are several ways to demonstrate the extent of the
inflationary impact of Government policies in the Fiscal
Years 1966, 1967, and 1968. One measure is the rate of increase
in Federal outlays. In the three years from Fiscal 1962 to
1965, outlays rose 10 percent; in the ensuing three years,
from Fiscal 1965 to 1968, Federal spending shot up over 50
percent. In the Fiscal Years 1962-1965, the unified budget
was in surplus on a full-employment basis by an average of
$3 billion a year. In the Fiscal Years 1966-68, the full-
employment budget was in deficit by an average of $14 billion
a year.
- more -
- 3 -
Another measure of the inflationary forces in the economy
is the relation between actual Real GNP and potential Real GNP.
In the early 1960's, until late 1965, actual GNP was less than
its potential, indicating that the economy was operating below
capacity. From late 1965 until mid-1969, however, the reverse
was true: actual GNP was above its potential. This clearly
indicates the presence of excess aggregate demand in those years.
Fiscal policy finally shifted toward restraint in mid-1968,
when the surtax was imposed and late in the year monetary policy
also shifted toward restraint. But the major responsibility
for bringing inflation under control fell to the Nixon Administra-
tion and to the Federal Reserve after 1968.
The basic economic strategy employed was to squeeze the
excess demand out of the economy through the use of restrictive
monetary and fiscal policies during 1969, and then, once a gap
had been opened between actual and potential GNP, to shift to
expansionary policies.
The policies of economic restraint did their job, bringing
on the slowdown of 1970 in the process. In response to the
shift to stimulative policies early in 1970, the economy began
to grow again after mid-year, although this resumption of
growth was aborted by the prolonged auto strike. As a result,
the economic slowdown was, in effect, extended through year-end.
Progress in Curbing Inflation
Most measures of inflationary pressures indicate that the
current spell of inflation, which began about mid-1965,
accelerated until about mid-1969, continued at a high level for
about the next year, and then slowed in the last half of 1970.
There has been further improvement so far in 1971, with both
industrial wholesale and consumer prices rising at a rate of less
than 3 percent.
- more -
- 4 -
Industrial
Wholesale
Consumer
Price Index
Price Index
(Annual rate of increase,
seasonally adjusted)
1968
1st Half
2.5%
4.4%
2nd Half
2.7%
4.8%
1969
1st Half
3.6%
6.4%
2nd Half
4.2%
5.9%
1970
1st Half
3.8%
5.9%
2nd Half
3.4%
4.9%
1971
1st Quarter
2.8%
2.8%*
*Jan.-Feb.
This hard-won progress in the battle against inflation has,
however, been slow in arriving. One reason for this is the
fact that the business slowdown was generally of mild proportions.
We were not willing to suffer a really severe economic setback
just to speed up the deflationary impact. A second reason that
more headway was not achieved more quickly is the deeply
imbedded and widespread inflationary expectations that developed
among businessmen and consumers during the long period of
accelerating inflation from 1965 to 1969. Evidence that these
expectations have, to a considerable extent, been wrung out of
the economy is found in the sharp drop in long-term interest
rates that has taken place in the past six months or so.
The Defense and Aerospace Cutbacks
Another reason for the slower than expected response of
prices is the fact that some of the slack in the economy has
resulted from the defense and aerospace cutbacks of the past
several years. These cutbacks have reduced defense and
- more -
- 5 -
defense-related employment by more than two million from
Fiscal Year 1968 to 1971. These lost jobs have been
concentrated in certain geographic areas, certain industries,
and certain occupations -- a concentration that increased the
difficulties of the transition process to peacetime work.
The especially hard-hit regions have been the Pacific Coast
and New England, and the hardest-hit occupations have been
scientists, engineers, and skilled craftsmen in the defense
industries. Aggravating the situation in these areas and
occupations have been the curtailed production of commercial
aircraft and space projects, which occurred at the same time
that production of military aircraft has declined.
We had major defense cutbacks in 1945-46 and 1953-54 but
these did not take place simultaneously with restrictive
anti-inflationary policies. It was the combination of economic
restraint to fight inflation and defense and aerospace cutbacks
that made 1970 such a difficult year.
Because there have been difficulties involved, however,
no one should conclude that the defense cutbacks should not
have taken place. With the end of the Vietnam War in sight,
we have been adjusting our defense spending to the level
required by our national security needs. The resources released
from defense are now in the process of shifting to civilian
needs.
In brief, there is a link between the defense and aerospace
cutbacks and the battle against inflation. The amount of
slack now in the economy would be more effective in curbing
inflation if the unutilized manpower and facilities were evenly
spread across regional, industrial, and occupational categories.
The pockets of unemployment and idle facilities due to defense
and aerospace cutbacks have created temporary economic hardship
without helping much in the national battle against inflation.
- more -
- 6 -
The Question of Incomes Policy
Although it is now clear that we are making progress in
curbing inflation, we have not yet achieved a satisfactory
degree of price stability. Most economists agree that excess
demand has been eliminated and that the major inflationary
pressures are now coming from the cost side. They also agree
that price stability of the sort that characterized the U.S.
economy from the late 1950's until the mid-1960's cannot
be achieved if the average wage increase for the economy as a
whole significantly exceeds the average economy-wide productivity
trend increase of about 3 percent a year. Thus, the question
arises: Would an active policy of government intervention in
wage and price decisions hasten the return to price and cost
stability?
In answering this question, I think that it is helpful
to distinguish between the two major types of incomes policy:
market-oriented or market-strengthening policies on the one
hand, and authoritarian or market-suppressing policies on the
other.
The Nixon Administration has believed in and utilized
market-oriented incomes policies from the beginning. In the
spring of 1969, President Nixon established a special committee
to study the lumber market. Since then special study groups
or special actions have taken place in copper, oil, and steel.
In all of these cases, the recommended actions were aimed at
increasing supply -- that is, at strengthening the most
fundamental anti-inflationary force available. That is what I
mean by market-oriented or market-strengthening incomes policies.
In addition, President Nixon last year established the
National Commission on Productivity and the Federal Regulations
and Purchasing Review Board. The former has brought leaders
of business, labor, and the public together with top Federal
officials to study how to increase productivity gains. The
Review Board seeks to correct or prevent specific Government
actions that are likely to have a strong inflationary impact.
- more -
- 7 -
Another development was the periodic Inflation Alerts of the
Council of Economic Advisers, which are designed to call
attention to exceptionally inflationary wage and price
decisions.
What President Nixon has not done is to establish wage-
price guidelines or a national wage-price review board. These
fall in the category of authoritarian or market-suppressing
incomes policies. They do not increase supply; they do not
decrease demand; they do not restructure or strengthen markets
in order to reduce inflationary pressures. They simply try to
substitute some kind of amorphous coercion for the forces that
otherwise would be operating.
There is one fundamental difficulty with price-wage
guidelines and national wage-price review boards: They simply
do not work very well. Previous experience in the United States
and elsewhere indicates that procedures based on voluntary
compliance are not very effective. The Johnson Administration
abandoned guidelines in 1966, for example, not because they no
longer believed in them but because the guidelines proved to
be ineffective. The Canadian Government tried guidelines in
1970 but abandoned them after only a year for the same reason.
Similar examples could be cited from the experience of European
countries.
In contrast to voluntary guidelines or review boards,
compulsory wage and price controls can be effective and were
used in the United States during World War II and the Korean
War. But whether the public would actually accept compulsory
economy-wide wage and price controls at the present time is
doubtful. It is interesting to note, as pointed out in a
recent report of the Joint Economic Committee, that just last
July 31, 1970, the House of Representatives refused to impose
wage and price controls by a vote of 270 to 11.
- more -
- 8 -
Two Special Cases
Despite the reluctance of the Nixon Administration to
use voluntary wage and price guidelines or to impose mandatory
price and wage controls, we recognize that two important
sectors of the economy -- transportation and construction --
need special action to reduce inflationary pressures. These
two sectors share some common characteristics that clearly set
them apart from the rest of the economy in terms of their
market structure and performance.
In transportation and construction, the free market
system does not or is not permitted to work in the usual
fashion. In transportation, government regulation substitutes
for the free market, and in construction, special legal provisions
apply to the labor market, permitting hiring halls and secondary
boycotts. Special considerations also apply to collective
bargaining in both industries. In most modes of transportation
a strike that causes a suspension of service can have very
damaging effects on the national economy. In construction,
bargaining is fragmented with the result that the bargaining
power of the workers usually far exceeds that of the contractors.
Work rule problems are generally considered to be more serious
in transportation and construction than in any other major
economic sectors.
Another characteristic shared by transportation and
construction is that neither is directly subject to foreign
competition. Thus, one of the major anti-inflationary
competitive forces is lacking.
In view of these characteristics of transportation and
construction, it is not surprising that inflationary forces
have continued to be particularly strong in these sectors.
On the wage side, as the most recent Inflation Alert points
out, first-year wage increases negotiated in 1970 were
considerably higher in these sectors than in manufacturing.
- more -
- 9 -
First-Year Changes in Wage Rates
Collective Bargaining Agreements
Negotiated in 1970
Average Adjustment
Construction
18.3%
Transportation
16.0%
Manufacturing
8.1%
As the above table shows, the average first-year wage
increases in construction and transportation have been double
the increases in manufacturing.
The Administration has undertaken special anti-inflationary
policies in both of these sectors:
(1) In transportation, President Nixon proposed a year
ago and has again proposed this year emergency labor-disputes
legislation. A key feature of this proposal is the "final
offer selection" alternative, under which a neutral panel
would select, without alteration, the most reasonable of the
final offers of each party as the final and binding contract
to settle the dispute. Unlike arbitration, which too often
merely splits the difference between the parties, and thereby
encourages them to persist in unreasonable positions, this
procedure would reward reasonableness and thereby facilitate
negotiation and settlement.
Another possible reform in transportation is deregulation,
which the Administration has publicly discussed.
(2) In construction, a system of wage and price restraint
is now being implemented.
The Administration has been intensively studying the
construction industry since the formation of the Cabinet
Committee on Construction in the fall of 1969. Considerable
- more -
- 10 -
attention was given to the collective bargaining structure.
Studies centered on ways to increase the supply of construction
labor and possible reform of the collective bargaining structure.
It became clear, however, that quick action was required and
on March 29 President Nixon announced a system of wage and
price stabilization for the construction industry. This system
is now being implemented.
I think that the steps taken by the Nixon Administration
in transportation and construction make it clear that we are
willing to take direct action where market forces are not or
cannot work effectively to curb inflationary pressures.
Looking ahead, we can expect further progress in curbing
inflation as a result of the slack in the economy that now
exists and that will continue to exist until the economy gets
back to the zone of full employment of our manpower and
productive facilities. This progress will be buttressed by
our well-demonstrated willingness to intervene directly where
the market system is not working to contain inflationary
pressures in a reasonably satisfactory way.
How Much Economic Growth in 1971?
That the economy is now on the upswing will be denied
by very few economists who have observed the business scene
closely. I believe that the evidence of this is irrefutable.
The key question now is not the direction but the amount of
economic expansion in prospect.
The first quarter increase in GNP, a massive one in either
current dollars or real terms, was centered in two industries,
autos and steel, and two other sectors, housing and State and
local governments. The large increase in gross auto product
was due, of course, to recovery from the prolonged General
Motors strike. In steel, heavy inventory building is taking
place in anticipation of a possible strike on August 1.
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The strong gains in homebuilding and in spending by
State and local governments reflect mainly greater availability
of credit and lower interest rates. These, in turn, have
resulted from the easing of money a year or so ago, the
reduction in inflationary expectations, and the elimination
of excess demand from the economy.
Two Crucial Sectors: Business and Consumer
In order to have a well-balanced and strong economic
expansion during the remainder of 1971 and on into 1972, we
need strength in business spending for plant and equipment
and in consumer spending.
The turnaround in capital spending by business is probably
now underway. The most recent survey of capital spending plans
calls for an increase of 41/2 percent this year, compared to
the 11/2 percent increase indicated in the previous survey.
Rising production, improving profits, higher cash flow (in part
because of liberalized depreciation guidelines), ready
availability of funds at lower rates -- all of these should
encourage further upward revision of capital spending plans as
1971 progresses. This prospect is reinforced by the rising
trend of contracts and orders for plant and equipment.
As for the consumer, his spending has been increasing
as indicated by the rising trend in retail sales, but auto
purchases have accounted for much of the gain. Spending as
a percent of income is still on the low side and there is
still a huge potential for increases in consumer purchases.
There have been important indications recently that
consumer spending is now moving ahead more strongly across a
wide range of goods and services. The tone of retail sales
was much improved in the crucial weeks just before Easter.
The strength in residential construction should soon begin
to spill over into household durables, home furnishings,
and related lines.
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More generally, most measures of consumer attitudes
and spending plans indicate a turn for the better. Such
a change seems reasonable in view of recent developments
that are favorable from a consumer standpoint:
(1) The rate of inflation has moderated;
(2) Unemployment appears to have peaked and is now
on the downtrend, although there will still be
months with unemployment increases;
(3) The consumer has rebuilt his financial reserves
through a relatively high saving rate in 1970;
(4) Cold war tensions with Russia and China may be
easing. The key trouble spots -- Southeast Asia
and the Middle East -- appear to be cooling
somewhat; and
(5) The stock market is up nearly 50 percent from its
May 1970 low.
The Economic Outlook and Economic Policy
It seems likely, therefore, that consumer and business
spending will be increasing at a strong pace in the months
and quarters ahead. The resulting gains in total economic
activity can be expected to bring a downtrend in the rate of
unemployment and in the percentage of unused capacity.
When these prospects are combined with probable further
progress in the battle against inflation, it seems only
reasonable to conclude that 1971 will be a year of major
accomplishment in moving toward our goals of increasing output
and decreasing unemployment and inflation.
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What does this tell us about the appropriateness of
current economic policies? Both monetary and fiscal policy
have been expansionary for over a year. Nevertheless, many
observers are asking this question: Should fiscal policy
be more expansionary? The most honest answer that I can give
is to say that this question is under constant consideration.
We are in the early stages of an economic expansion that has
a strong probability of proceeding in an orderly and balanced
way. If we achieve substantial economic growth and if we make
progress in bringing down the unemployment rate, then we will
not want still more expansionary policies.
There is, of course, a lag between the implementation of
a policy change and its effect on the economy. By next year
at this time, we probably will be nearing the full-employment
zone. Policies that are overexpansionary now could rekindle
inflation next year. In deciding whether or not to make fiscal
policy more expansionary now, we also must take account of
such considerations as achieving discipline in budget expenditures
and making sure that expenditures in the years ahead do not get
out of control.
If the economy falters or if we fail to make good progress
in reducing unemployment, then it would be appropriate to
consider possible further fiscal stimulus.
But for now our best judgment is that we shall see a
strong economic expansion as 1971 unfolds further.