• U.S.

Government: The Unguided Guidelines

4 minute read
TIME

Having done nothing to help end the New York City transit strike, President Johnson was on doubtful ground when he denounced the settlement as a violation of the Government’s supposedly voluntary wage-price guidelines. Even more questionable was Labor Secretary Willard Wirtz’s after-the-settlement attempt to blame beleaguered Republican Mayor John Lindsay for the guideline violation. The N.Y. Times described the remarks of Democrats Johnson and Wirtz as “blatantly political”—which of course they were. Yet even such editorial cavils served only to obscure some more basic questions—relating to the rather remarkable history of the guidelines and their validity, past and present.

The Formula. In 1961 President Kennedy, fretting about the possibility of inflation in a rapidly expanding U.S. economy, ordered his Council of Economic Advisers, then chaired by Walter Heller, to come up with some sort of anti-inflationary formula. They tied wage and price increases to productivity. Recalls a member of Kennedy’s council: “One of our main purposes was to show how both wages and prices are related to productivity so that the force of public opinion could be brought to bear when either a company or a union disregarded the relationship.” The formula was based on the idea that no union should make contract demands amounting to a wage increase of more than 3.2% a year, and that no industry should raise prices by more than 3.2% in any given year. The 3.2% figure was arrived at by averaging out a five-year productivity growth rate.

As it happened, Kennedy himself found the guidelines little more than a handy thing to mention in State of the Union speeches. The guidelines had hardly anything to do with his successful though costly battle to make U.S. Steel roll back an announced $6-per-ton across-the-board price hike in 1962. On that memorable occasion, Kennedy simply felt that he had been double-crossed by U.S. Steel Chairman Roger Blough, and he lost his Irish temper.

After the Deed. Lyndon Johnson, on the other hand, has apparently come to consider the guidelines as gospel. Even though he always goes out of his way to note that observance of the guidelines is voluntary, he also always acts as though anyone breaking through the guidelines is somehow defying the law of the land. Within the past year he has invoked the guidelines to enforce price rollbacks or holdbacks not only on steel, autos, aluminum, copper, and wheat and corn products—but also on such lesser items as mechanical pencils and catchers’ mitts. During that same period, the President and his aides have employed the guideline concept to restrain wage increases for workers in the steel and maritime industries—as well as for federal employees. Thus the President has lived up to the warning—or threat —made by Treasury Secretary Henry Fowler, who, in a recent speech to the National Association of Manufacturers, said that it was “imperative” that both industry and labor follow the guidelines.

A basic problem in all this is the fact that there is considerable doubt about whether that 3.2% figure remains reasonable or valid. For one thing, the Government itself only last summer revised its statistical basis for figuring gross national product and rates of productivity growth. The corrections raised last year’s GNP from $672 billion, under the old figures, to $675 billion; the productivity growth rate went from 2.7% to 2.9% . Under the revisions, the guideline ceiling ought to be raised to 3.6%. Moreover, businessmen claim with cause that the Administration, while merely grumbling about wage increases, coerces observance of the price ceiling. Thus, when Bethlehem Steel last fortnight tried to raise prices on structural steel by $5 a ton, Johnson ordered all federal agencies to refuse to buy Bethlehem structurals. Yet, while New York’s transit workers were winning an infinitely more inflationary contract, Johnson said nothing.

Only a couple of months ago Gardner Ackley, present chairman of the Council of Economic Advisers, remarked that “You’re soon going to hear a lot more about guidelines.” Rarely has any prophet been proved so accurately occult. And last week, as Ackley and his colleagues worked on their annual economic report, they could only be aware that some changes may have to be made in both the principles and the application of the wage-price guidelines.

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