View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

.CHAIRMAN O F T H E B O A R D O F G O V E R N O R S
FEDERAL R E S E R V E SYSTEM
W A S H IN G T O N , D. C. 2 0 5 5 1

A p ril 13, 1973

M EM ORANDUM FO R JOHN EH RLICH M A N
FRO M :

A rth u r F . B u rn s

I 'm e n clo sin g the m e m o ra n d u m to th e P r e s id e n t w hich
you re q u e s te d .




CHAIRMAN O F TH E BO ARD O F G O V E R N O R S
FEDERAL RESER V E SYSTEM
WASHINGTON, D. C. 2 0 5 5 1

April 13, 1973

M E M O R A N D U M FOR THE PRESIDENT
FROM:

A r t h u r F. B u r n s

A n extension of the E c o n o m i c Stabilization A c t on
anything like the basis p r o p o s e d by the H o u s e B a n k i n g C o m m i t t e e
is totally unacceptable.

Its rollback of prices a n d interest rates,

its failure to cover w a g e a g r e e m e n t s in any parallel m a n n e r , its
onerous r e q u i r e m e n t s for public accountability by the Executive,
could w o r k h a v o c with the e c o n o m y .

Rather than accept s u c h t e r m s ,

y o u should p e r m i t the legislation to lapse a n d go to a voluntary s y s t e m
of restraints.

A s the experience of the C o m m i t t e e o n Interest a n d

Dividends has recently demonstrated, a voluntary effort - - i f
energetically p u r s u e d -- can pr oduce reasonably g o o d results in
m o d e r a t i n g private behavior.
W i t h the E c o n o m i c Stabilization A c t as it n o w stands,
m y preferred solution in the present situation w o u l d be to i m p o s e
a n i m m e d i a t e 45 day freeze over a b r o a d range of prices, with the
understanding that a n e w p r o g r a m w o u l d be a n n o u n c e d before the




-2-

end of the 45 day period.

T h e p r o g r a m I h a v e in m i n d w o u l d

consist of a pa c k a g e of reforms, both legislative a n d administrative,
designed to r e d u c e substantially the existing abuses of e c o n o m i c
p o w e r by the labor unions and corporate giants.

It w o u l d also

include structural r e f o r m s in other a reas -- agricultural policy,
i m p o r t policy, and in the operations of the F e d e r a l regulatory
agencies.

T h e formation of a W a g e a n d P r i c e R e v i e w B o ard,

operating o n a voluntary basis to achieve m o d e r a t i o n in w a g e
a n d price behavior, w o u l d be a part of the r e f o r m package, to
take effect at the end of the 45 day period.
A p r o g r a m of structural r e f o r m of the sort I envisage
would, h o w e v e r , encounter great resistance, particularly by the
trade unions.

I fully appreciate that y o u m a y not find it politically

feasible to travel that route.

In that event, a n d a s s u m i n g again that

the E c o n o m i c Stabilization A c t continues as it stands, y o u m i g h t well
consider a n early return to a m a n d a t o r y p r o g r a m of prenotification
for large firms and e m p l o y e e groups.

T h e Cos t of Living Council

could then be e m p o w e r e d to hold up specific increases in both w a g e s
an d prices until it is satisfied that appropriate rules of behavior are
being met.

T h e reporting c o m p a n i e s w o u l d n e e d to b e w a r n e d that




-3-

they will b e exposed a n d fined w h e n e v e r they appear to be exceeding
their profit m a r g i n ceilings.

S u c h a p r o g r a m w o u l d h a v e teeth and

yet differ in significant respects f r o m P h a s e II.

T h u s coverage

w o u l d be restricted to large c o m p a n i e s a n d m a j o r w a g e bargaining
situations.

Further, prenotification will not carry with it the n e e d

for prior approval; increases could be put into effect after, say,
30 days, unless the Cost of Living Council objects.

Such a p r o g r a m

m i g h t b e p r e c e d e d b y a v e r y brief freeze (say 30 days) o n prices;
but I see no advantage in doing this b e y o n d giving people a chance
to cool off.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102