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NOMINATIONS OF JOHN E. SHEEHAN, C. JACKSON GRAYSON;·-JR., ·AND GEORGE H. BOLDT [c!e,~-~~~ J9:2-( HEARING BEFORE THE ✓COMMITTEE ON BANKING, HOUSING AND6i!!:~~N AFF~R~ JINITED STATE~~~ENATE. ~ ·· NINETY-SECOND CONGRESS · SECOND SESS_ION ON THE NOMINATIONS OF JOHX E. SHEEHAX TO BE A ME~IBER O~' THE BOARD OF GOVERNORS.OF THE FEDERAL RESERVE SYSTEM C. JACKSON GRAYSON, JR., TO BE CHAIRMAN OF THE PRICE C0:\1MISSION AND GEORGE H. BOLDT TO BE CHAIRMAX OF THE PAY BOARD J_A.NUARY 27, 1072 Printed for the use of the Committee on Banking, Housing and Urban Afflairs U.S. GOVERNMENT PRINTING OFFICE 72-782 WASHINGTON : 1972 Oiq1t1zed by Google COM!tfl'ITEE ON BANB:ING, HOUSING AND URBAN AFFA.IBS JOHN SPA.JUOiLUl, Alabama, 01'ofnlatt WILLIAM PROXIIIRJ!I, Wl-ulD HARRISON A. WILLIAMS, JL, New J.w, THOMAS J. HclNTYRE, N- Baml)llatn WALTER 'B'. M'.ONDALJD, lllnne.eota ALAN CRANSTON, Calltornla ADLAI E. STEVENSON III, Ill1Dol1 HA VID H . GAMBRELL, Georgia DUDLH Jr.,.,., JOHN G. TOWER, Tens WALLACE F. BENNETT, Utah EDWARD W. BROOKE, 11'.assaehuaetta BOB PACKWOOD, Oregon WILLIAM'. V. ROTH, Ja., Delaware BILL BROCK, TeDDll88ee ROBERT TAFT, Ja .• Ohio L. O'NliL, mr........ a....i 0 - - - , IIJCB.dL J!I. B11a11a, Mlttorlt11 Oo•tttel Oiq1t1zed by Google CONTENTS Statements: John Sherman Cooper, U .S. Senator from the State of Kentucky ___ _ Marlow W. Cook, U.S. Senator from the State of Kentucky ___ ____ _ John E. Sheehan, nominee to be a member of the Board of Governors of the Federal Reserve System _______________________________ _ C.Comm1Ss1on Jacks.o n_ Grayson, Jr.,__________ nominee, __________________________ to be Chairman of the Price ___________ __ George H . Boldt, nominee, to be Chairman of the Pay Board _______ _ Andrew J. Biemiller, director, Department of Legislation, AFL-CIO __ Letters: Mike Mansfield, U.S. Senator from the State of Montana ___ ______ _ Warren G. Magnuson, U.S. Senator from the State of Washington __ _ Henry M. Jac~son, U.S. Senator from the State of Washington _____ _ Lee Metcalf, U.S. Senator from the State of Montana _____________ Ralph Nader _______________________________________________ ____ C. Jackson Grayson, Jr., Chairman, Price Commission ______ ______ _ Mark Fredericksen ___________________________________________ _ Thomas J. McIntyre, U.S. Senator from the State of New Hampshire_ Biographical sketches:__________________________________ __________ __ John E. Sheehan C. Jackson Grayson, Jr ___________ ____________________________ _ Addi~~~Jed~t~ ~oldt_ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Resolution of Executive Council, AFL-CIO ________ ______________ _ Articles reprinted from Business Week __________________________ _ (Ill) Oiq,t,zed by Google Paae 3 4 5 22 46 68 1 2 2 2 26 27 32 37 5 21 45 77 81 Oiq1t1zed by Google NOMINATIONS OF JOHN E. SHEEHAN, C. JACKSON GRAYSON, JR., AND GEORGE H. BOLDT THURSDAY, JANUARY 27, 1972 U.S. SENATE, COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, lV ashington, D.O. . The committee met at 10 a.m. in room 5302, New Senate Office Build- · mg, Senator John Sparkman (chairman) presiding. Present: Senators Sparkman, Proxmire, McIntyre, Cranston, Gambrell, Tower, Brock, and Brooke. The CHAIRMAN. Let the committee come to order, please. These hearings are for the purpose of considering the names of three people who have been named by the President to serve in various posts in the Federal Government. The first one that we shall hear from today is 1\fr. John E. Sheehan of Kentucky, who has been nominated to be a member of the Federal Reserve Board. The nomination of Mr. Sheehan has been cleared by both Senators Cooper and Cook of the State of Kentucky. The second nominee to nppenr today wiH be Dr. C. Jackson Grayson of Texas. Dr. Grayson has been nominated by the President to be Chairman of the Price Commission. Dr. Grayson's nomination has been cleared by both Senator Tower and Senator Bentsen of Texas. Our third witness will be Judge George H. Boldt to be Chairman of the Pay Board. Judge Boldt has been cleared by both Senators Mairnuson and ,Jackson of the State of Washington. With regard to ,Judge Boldt's nomination, I have received four letters endorsin~ him to the position to which he has been nominated. Senator Magnuson has written to me stating that he regrets that he cannot be here to introduce ,Judge Boldt to the committee. And Senator ,Jackson of the State of Washington has also written me expressing regret that he is not able to be here 3nd strongly endorsing Judge Boldt. Senators Metcalf and Mansfield have also written regretting that they cannot be here, and they, too, endorse Judge Boldt. 'Without objection, I shall submit the letters from Senators Mansfield. Magnuson, ,Jackson, and Metcalf for the record. (The letters follow:) OFFICE U.S. SENATE, OF )IA,JORITY LEADER, Washington, D.C., January !6, 191!. Hon. JOHN SPARKMAN. Chairman, Committee on Banking, Hou8ing and Urban Af'faira, U.8. Senate, Washington, D.C. · DEAR MR. CHAIRMAN: Your Committee has before it the nonihratlcm of Judge George H . Boldt as Chairman of the Pay Board. While my leadership responsibilities make it impossible for me to testify in .Judge Boldt's behalf, I do wish to take this means of expressing my endorsement of his nomination as Chairman of the Pay Board. (1) Oiq1t1zed by Google 2 As you know, Judge Bolclt was raised in Montana and enjoys respect and admiration of its citizens. Judge Boldt bas a fine record as a member of the Judiciary. While I have not known Judge Boldt personally. I do nnt hesitate to endorse his confirmation based on personal recommendations from others and my knowledge of his expertise and devoted public service. The Chairman of the Pay Board ls a most challenging position and I am cm,fident that Judge Boldt can fulfill tbts position with objectivity and awareness of the economic problems we face tu the :N'atlon today. I am delighted to join my colleague, Senator Lee Metcalf who has known the .Judge for many years, in asking that the Committee act promptly in confirming Judge Boldt as Chairman of the Pay Board. With best personal wishes, I am Sincerely yours, MIKE MA~SFtELD. U.S. SENATE. COMMITTEE 01' C0YMERCE, Waahin17t01J, D.C., January /?5, 197!. Hon. JOHN SPABKMAN, Chairman, Committee on Bankinu, Ho11Binu and Urban Affaira, U.S. Senate, Waahinuton, D.C. DEAR MR. CHAIRMAN: I regret very much that I must ht> out of the dty and therefore will not be able to introduce Judge George H. Boldt when he appears before the Committee on January 27th for his confirmation hearing. However, I do want to take this opportunity to express my support for Judge Boldt's nomination to serve as Chairman of the Pay Board. I have known Judge Boldt very well for many years and have the highest respect for him as an individual and for the record he bas established during his distinguished career as an attorney and judge. That record certainly demonstrates that be ls fully qualified to serve in the difficult position for which he bas been nominated. · Best personal regards. Sincerely, W.UUl'r G. MAGNUSON, U.S. Senator. U.S. SE:SATE, COMMITTEE ON INTERIOB AND INSULAR AFFAIRS, Waahinuton, D.C., Janttar1124, 1972. Hon. JOHN D. SPABKMAN, C1,airman, Committee on Banking, Hoiising and Urban Affair11. U.S. Senate, Washington, D.C. DEAR JOHN: I understand that the Committee will be considering .Tuclge Georgt> Boldt's nomination later this week. I regret very much that I cannot be on band to lntroduee Judge Boldt to the Committee. However, I want to take the opportunity to express my high regard and respect for Judge Boldt. I have known him for many years 1tnd feel that be ls a wise choice to handle the tough responsibilities as Chairman of the Pay Bo1trd. Best regards. Sincerely yours, HENRY M. JACKSON, U.S. Sen-atM. Hon. JOHN SPARKMAN, U.S. SENATE. COMMITTEE ON GOVERNMENT OPERATIONS, Washington, D.C., January Z-5, 1972. Chairman, Committee on Banki-n g, Houaing and Urban AfJaira, New Senate Office Building, Washinuton, D.O. DEAR CHAffiMAN SPARKMAN : I regret that I cannot be here to sit with Jud~P. George H. Boldt in bis appearance before this Committee for confirmation as Chairman of the Pay Board. However, Jong-standing commitments in Montana Oiqit,zed by Google eonnected with my own co~rmation for another terin in, the. Senate prevent my attendance. ·. . · · , As you all know, George Boldt grew up in Steven·svme, Montana, my home town. We lived across the street from each other in that small western town of about 650 people. Be was a few years older than I ·but we went to the · same schools, had the same teachers, our parents belonged to the same organizations. I have already told the Senate how, as a small boy, I admired him as one of a handful of athletes who won the State Track Meet for Stevensvllle against schools with attendance 100 times greater. .I can recan a blizr.ardy, below zero winter night when my mother and I took the family car (a model T pickup) and drove 30 miles to :\li:,soula to hear George debate against a touring Oxford University team . .As a freshman Democrat member of the Bouse of Representatives, I ap~ peared with him-a Republican, nominated by a Republican President, Eisenhower-before a Republican Judiciary, Committee (Senator Langer, Chairman) to urge his confirmation as U.S. District Judge. I recite these Instances, and there are many more, to convince you that I have known Judge Boldt and followed his career as have few others. Over the years boyhood. heroes fade and hometown colleagues expose fault.a and aberrations. But this has not happened with Judge Boldt. Mr. Chairman, I urge prompt confirmation of Judge Boldt for two reasons. First, here is a man who has been in public life for more than two decades and has been acclaimed for his integrity and fairness. Bis record as a judge in his home district and in cases all over America speaks for itself. Second is his complete objectivity. In this very sensitive position, he will be able to understand and consider the problems presented by every group. As a result of a long acquaintance with Judge Boldt, I am convinced that President Nixon has nominated an outstandingly qualified man · for a very difficult job. I again urge prompt and early confirmation .so. that ·be can : get along with that job. Respectfully, LEE :\fETCA,LF•. The CHAIUIAN. In addition to the nominees Mr. Andrew J. Biemiller, direetor of the Department of Legislation, AFL-CIO, will also appear as a witness today. . . .. , . ·· • Unless some ·other member of the committee has a statement •he -wishes to make we shall .c all our first witness, Mr. Sheehan, who is already at the table. And we are very pleased to have two distinguished Senators from Kentucky, Senator. Cooper and Senator Cook, with us who will make a presentation. , , . . · · · · Let me add justthis thought before we start. I ,hope we can finish this work today. We have one or two executive matters that I want to consider also, particularly our money resolutions, and therefore I hope we can move along with these hearings just as rapidly as we can. We have permission of the Senate to sit during the session of the Senate, hut undoubtedly when the Senate convenes we shall be int~rrupted from time to time with rollcall~. . Senator Cooper, we will be very glad to hear from you, sir. STATEMENT OF 100 SHERM.AB COOPER, U.S. SENATOR FROM THE STATE OF KENTUCKY Senator CooPER. Mr. Chairman, members of the eommittee, it is an honor for me to come before this committee to support -the nomination of Mr. ,John E. Sheehan of Louisville, Ky., to be a Governor of the Federal Reserve Board. . · I hav!' _not had the ?P~ortunity to know Mr: Sheehan personally. Many citizens of Lomsv11le, Ky., who know him well, among them Oiq1t1zed by Google 4 Senator Cook, former Senator Morton, have told me a.bout his fine qualities and abilities, and I support strongly his confirmation. His resume is before you, and I think it testifies to his abilities, his interests, his scholarship as a Naval Academy graduate, and graduate of Harvard Business School, and his capacity as an executive. .\lso I note that he served as a director of the Louisville branch of the Federal Reserve Bank of St. Louis. Aside from his resume, I have learned that he is one of 10 children, all living. And all of these children have worked hard and accomplished a great deal for their country and for their families, and I think that, too, is a good recomendation. I have only the highest tributes to his ability and his capadty and qualifications for this position, which is, of course, a very important position in our country. I shall strongly suppo1t his confirmation. The CHAIRMAN. Thank you, Senator Cooper. Senator Cook. STATEMENT OF MARLOW W. COOK, U.S. SENATOR FROM THE STATE OF KENTUCKY Senator CooK. Thank you Senator Sparkman and gentlemen of the committee. There is not a great deal I would add except to say that Mr. Sheehan is rather a remarkable man, having graduated from the Naval Academy and served in the Naval Air Force in both the Atlantic and the Pacific. He resigned his commission in 1058 to go to the Harvard Business School, and graduated from there in 1960. He was associated for a while with McKinsey & Co., the internationally known management consulting firm in New York City, and then moved directly into the management field, and at the time that he was nominated by the President was president of Corhart Refractories in Louisville. As a result of this Mr. Sheehan has traveled extensively throughout the world, and he brings to the Board a great deal of knowledge in regard to the international monetary problems that confront us and confront the Board. I might say it is very interesting to note relative to this gentleman, who was born in Johnstown, Pa., and has seven brothers and three sisters, that there are about. 20 college and university degrees among his brothers and sisters, including himself, which I think is rather remarkable. Many of his brothers and sisters have made rather substantial contributions to our country, and you might be interested to know, Senator Tower, to its military capabilities. He has one brother who has worked extensively over the past 10 years in the development of the military's night vision equipment, and is the author of the program known as It. Took the Night Away From Charlie, as a matter of fact. So I think it is a family that has contributed much to this country, and I think that is the way Mr. Sheehan feels wbout the acceptance of this position, and I wholeheartedly support him. . The CHAIRMAN. Thank you very much . .\nyone ham an,v questions of either one of our Senatorsf If not, we will take up Mr. Sheehan. Oiq1t1zed by Google 5 l\lr. Sheehan, WP. have your biographical sketch. That will be printed in the record at this point. ( Biographical sketch follows :) BIOGRAPHICAL SKETCH OF JOHN E. SHEEHAN John E . (Jack) Sheehan was President of Corha·rt Refractories Company, a subsidiary of Corning Glass Works, f-rom January 15, 1966 to January 3, 1972. He wai-< the company's chief executin• officer. Corhart is II company engaged in the manufacture nnd marketing of high temperature materials and processes, primarily refrnctory m•a terials used in the manufacture of steel and glass. Corhart in turn operates three subsidiary companies: Corchem which makes magnesite 11rom sea water. Magnesite is a magnesium oxide mineral used in the production of refractories, paper processing, pharmaceuticals, rubber and neoprene manufacturing, the fertilizer industry, the electrical industry, etc. Schlienger, Inc. which engineers and builds controlled atmosphne melting systems such as vacuum furnaces for the manufacture of titanium and other high value met-als. ZIRCOA which makes unique zirconium oxide products. Zirconium oxide is the highest temperature mnterial extant which ,w ill not be wet by metals. A very versatile material, zirconia finds uses in some twenty industries. In the early 1060's Mr. Sheeha11 was on the professional statr of McKinsey and Compnny, th(' intnDationally known manag('rn('nt consulting firm, in its Xew York City office. He later joined the Martin Marietta Corp. ·and subsequently became a Vice President of its Cement and Line Division. Mr. Sheehan was graduated from the U.S. Naval Academy in l!l52 and then served as •a naval aviator with the Atlantic and Pacific fleets. He resigned his Lieutenant's commisi<ion in 1958 to attend Harvard Business School where he was elected a George E. Baker Scholar for academic excellence a•nd subsequently received an M .B.A. degree in 1960. Mr. Sheehan is mar.ried to the former Jean McEvers of Kansas City, l\fisf<ouri. They have three <'hildren-Kathleen. age 13; Kevin, age 10; and Kelly, age 8. The Sheehan family r('sides at 12 River Hill Road, Louisville, Kentucky. Until recently, :\Ir. Sheehan was a director of The Louisville Fund. a director and executh·e committee member of the Kentucky Center for thf' Performing Arts, a dir('ctor of the Orion Broadcasting Company (TV and Radio i, and a director of the LouisvHle Branch of the Federal Reserve Bank of St. Louis. Mr. Sheehan ill a member of the Pendennil! Club in Louisville, the Harvard Club-New York City, the Army and Navy Country Club-Washington, D.C., and the Duquesne Club--Pittsburgh. STATEMEWT OF 1011B E. SHEEHAN, :NOMINEE, TO BE A MEMBER OF THE BOARD OF DIRECTORS OF THE FEDERAL RESERVE SYSTEM The CHAIRMAN. By the way, I was impressed with Senator Cooper's statement that you were a member of a family of 10 children. There were 11 children in my •f amily, and I was No. 7. Mr. SHEEHAN. I was also No. 7. Mr. Chairman. The CHAIRl\IAN. ,v-e have your financial statement. I should like to ask you the formal question that we always do ask, whether or not you have any holding or interests that would in any way confliet with your holding th is office. Mr. SHEEHAN. No, sir I do not. The CHAIRMAN. '\Ve have the statement which yon have filed, and as I have told you previously, it will be availahle to the •m embers of the committee here in the committee room only, and then it will be sealed and put in our files and kept there for t:he length of time yon 72-7S2-72--2 D,qitized by Google / 6 hold this office plus 1 :vear. According to what President Nixon said the other day, that will be al>out 18 years. When Mr. Sheehan was sworn in President Nixon said that he had 17 years ahead of him. He said to me, "this fellow is going to have to work with you." He said he has got 17 years, and I said "you mean working with me 17 years 1" But anyhow. his appointment, as I understand, is to fill out an unexpired term of 3 years-Mr. SHEEHAN. Ten years. The CHAIRMAN. Ten years. Twenty-four. Senator PROXMIRE. He has 10 years on this one. If he gets reappointed. he will have 14 more. The CHAIRMAN. Well, the President used the term 17 years. I am sure. That is the situation with reference to your financial statcnwnt. I helieve you told me that you hitd taken this matter nn with General Counsel of the Federal Reserve Svstem. We haw a statement from Mr. Thomas .T. O'Connell, initialed b:v him. Ot>nPra 1 Counsel of the Federal Reserve Board, and he savs,' "I am satisfied no interest or activity evidenced therein," talking about vour financial statement, "presents any conflict with or impediment to Mr. Sheehan 's service as a member of the Board of Governors." This is aYailab1e for any member th&t wants to see it. I have had the opportunity of checking your record. Certainly we appreciate the discussion of the two Senators. I think you are fully qualified to render a good service to this country, and I shall be glad to support you. Senator Tower. Senator TOWER. I have no questions, Mr. Chairman. I am ver:v pleased by Mr. Sheehan's credentials, and I shall be happy to yote for his nomination. The CHAIRMAN. Senator Proxmire. Senator PROXMIRB. Mr. Sheehan, I have plenty of questions, and I want to tell the chairman that I expect tlrnt we are going to be here certainly long after 11 :30 today, not only with respecfto you, but with resnect. to the other nominees. ·· This is one of the most Perious nominations the PresidPnt can make, as you know. and as the chairman lrns said. rightly. you are going to be on for a long, long time, 10 years in this appointment.. and you mif?'ht ve.ry well be reappointed for 14 more unless we chnng-e the law. The Federal Reserve Board has an enormous economic power. I don't know of anv agency in the Government, that has more power. It is independent of the Executive. not independent. of t.hl' Congre!,S but independent of the Executive. The Federal Reserve Board does fun<' tion with enormous independence of its o,vn because Congress can't very well direct it. °\\That concerns me frankly about your nomination, Mr. Sheehan, although you are a fine man and I think what the Senators have said is very t.rne. I can think of a dozen important. Federal posts for which you would be eminently qualified-I am not sure you are qualified for this one. Oiq,t,zed by Google I have become convinced in reeent years that we shouldn't appoint niembers to the Federal Reserve Board unless they have good, solid ~raining in professional eeonomies. You wouldn't hire in your business, or if you were president of a big bank. an economist with your background to advise you on economic policy. And for that reason I want to get into some of tho~ questions in some detail. I just don't think that we should hire a man who is going to be one of the principal, very few handful of people determining our monetary policy with the expectation that they are intelligent and will receive on-the-job training. What are your views as to the erimary goals of monetary policy? Mr. Sm,ETIAN. To maintain stability of the dollar without inflation, and to promote the expansion of the American eeonomy in the briskest, healthiest way we can achieve it. Senator PROXMIRE. To promote the expansion and growth of the economy; at the same time maintain-Mr. SHEEHAN. Maintain a stable dollar. Senator Pnox:mm:. Maintain a stable dollar. Do you feel that the Federal Reserve should be primarily concerned with fighting inflation, or should other economic goals take precedence? Mr. SHEEHAX. I think at the current moment, Senator, inflation is the primary problem that we face. Senator PROXMIRE. Inflation is the primary problem? Mr. SHEEHAN. I think it is; yes. Senator PRoxlnRE. You say that, although we have more than 6 percent of our people out of work, although the economy's growth has been disappointing in the past year! Mr. SHEEHAN. Well, I think unemployment is a very serious problem relating to a lack of vigor in the economy currently. But I thmkwell, it is close to inflation as a primary problem, but I think inflation is the No. 1 problem today. Senator Pno:nrmE. 'Why do you say that? Would yon expand on that? Mr. SHEEHAN. Can I go back, first, to the thrust of your opening statement? Senator PROXMIRE. Fine. I wish you would. · Mr. SHEEHAN. Let me quote from the Federal Reserve Act, section 10, which was passed by the Congress, signed by President Wilson in 1913. Under paragraph 1, appointment and qualifications of members of the Board, itfrovides: "In selecting the members of the Board, not more than one o whom shall be selected from any one Federal Reserve district, the President shall have due regard to a fair representation of the financia 1. al!ricultural, industrial, and commercial interests, and geographical divisions of the country." It would seem to me the greatest wisdom on the part of the Congress to provide for diversity on the Board of Governors. I would point out that the Federal Reserve System is a large financial system. It operates 12 banks and 24 branches of those banks throughout the country, in addition to a large staff here in Washington. It includes some 23,000 people, with an operating budget of some $300 million a year. And it seems to me, as it seemed to Dr. Burns when he suggested to the President my appointment, that an experienced businessman Oiq1t1zed by Google s accustomed to managing a relatively large organization could probably play a useful role. Further, it seems that a seasoned businessman should be able to help the other Governors on the Board, all but one of whom are trained economists, in interpreting the thinking of the business and financial community to the Board of Governors in matters under consideration. Beyond that I will agree wholeheartedly, Senator, that every Governor must be familiar with the Government's policy in the matter of monetary and fiscal affairs, and I have had some interest in this over the years. But I come to this position with the greatest possible humility, and I intend to study and work hard to fill the gaps that exist in my knowledge. Senator PROXMIRE. I don't sre any inc0nsishm<'v with haYing a man who is a trained economi,:t and haYing him sensiti,·e to and aware of and capable of evaluating hnsiness problems and great <'Xperience in husiness. There has been some kind of a facetious debate about the nossibilities of naming a nonlawver to the Supreme Court, for example, with the notion that. after all, the lawyers represent a tinv minority of our people and that we ought. to get some less le~alistic approach. But people are just being facetious about that. Nobody has pronosed i t I don't think any President has considered doing this, althong-h I understand Franklin Roose,·C'lt thouirht ahont naming young Boh O'Follett to the Supreme f'onrt. He nrobably "·ould have been confirmed. But. in general we feel we ought to have people with trainingin the parti<"nlar field where this is required. Y011 are ahsolutelv ri~ht. about the 1913 act, and if yon ,ro back over the history of the Federal Reserve Board yon find we lrnve had many occasions in which people with no economic background. people wh<l h:ive hren farmers. people who have been unrelated to financial problems, ha.ve been on the Federal Reserve Board. ,ve have an entirely <l.ifferent economy now. extraordinarily comnlicat-ed. and a far more important role for the Federal Re,:erve. This is why it seems to me that this notion of not having people who are trained economists apnointe<l to the Federal Reserve ought to be challenged. You are !!'oing to he confirmed, there is no question about that. This committee will give. you overwhelming approval. I may not vote for vou. You will get overwhelming approval on the floor. But I t.hink we ought to begin somewhere to lay down the stan<lard that I think is one which on reflection most of us would recognize we onQ"ht to have on the Federal R<lserve Board. l\fr. SHEEHAN. I wouldn't neglect, Senator, the notion that I presented to you just now. that we onerate a very large banking system. that there are 23,000 people. and I would subinit that when you have a Board of seven Governors you ought to have one man experienced in mnna!!'ement. Further, this is a day of automation and computers. ":--e have hil lions-23, I think-of checks to process in our system. ·we are moYin,r dramatically toward automation and computerization of the checking system in this countrv. I think that 23 billion, if that is an accurate number. is going to double over the next 10 years. Oiq1t1zed by Google 9 Xow the creation and the supervision of that system, it seems to me, takes some business mnnugement competence on the Board of O·overnors which is char~d with making the-Senator PROXMIRE. ,vell, I would challenge that very expressly. I think no question that you need capable technicians to handle computers, you need good business managers, but they should be on the staff. The Board that makes the poJicy, the monetary policy for this country, which is so enormously important, coping with both inflation and economic growth, and so forth, ought to be professionally trained economists who are working expressly on this, not on the details of computerization or some of these other matters which a capable staff could handle. But obviously we differ on that. Let me ask you this. Could you give us your view on the role of monetary policy in economic stabilization during the 1970's i Let me be a little more spN'ific. Do you think we will be making greater use of monetary policy, less use. or about the same? Mr. SHEEHAN. Senator, I don't come to this Board with fixed views on how monetary policy should be formed or executed. It seems to me that there is a great deal of controversy among leading academic scholars in the field as to the importance of monetary policy as an economic stabilizer and how monetary policy should be executed. Because this is the case it would seem to me to be foolish for me, a newcomer to the Board and to the field, to take any firm position before weighing the evidence very carefully, and I intend to do that. Senator PRounnF.. "\\Tell, what are vour views about relative effectiveness of fiscal policv and monetary policy in arhieving full employm<>nt? Mr. SHEERAN. I didn't hear the latter part of that question. Senator PROXMIRE. What are your views about the importance of fiscal policy and monetary policy, the monetary role in achieving full employment and economic stabilization~ Mr. SHEEHAN. Well, I doubt that I will ever become associated with an extreme or rigid or fixed position on monetary policy. It seems to me impossible. for example, that the effects of monetary policy on economy are the same under all conditions. The world does change, and I think monetary policy has to adapt to the circumstances as they develop. There may be times when the growth rate of the money supply is the more important thing we have to look at in effecting the health of the economy. But there are other times, I am sure, when fiscal policy or the state of confidence of consumers or businessmen, or a major war on the coast of Asia, or the application of a national effort to control wages and prices directly looms larger in importance than monetary policy. I pledge to you that I intend to-I will keep as open a mind as I can so that I can apply all the relevant considerations toward achieving the best solution to a problem rather than being committed to any single thought or rigid theory. Senator PROXMIRE. My time is up. I will be back. The CHAIRMAN. Senator Tower. Senator Tow1rn. I have already passed. The CnAIRMAX. Oh, that's right. Senator Brock. Oiq1t1zed by Google 10 Senator BROCK. I would like to pursue some of the questions WP were just discussing for a moment. You seem to have had some di:aagreement with the Senato1· from ,visconsin about the No. 1 problem in terms of your view of the Federal Reserve Board, the implementation of the Federal Rest>rve System of monetary policy in broad term~. Is it your view that the System should be used to promote particular objectives of your own or should the Federal Reserve System and thP monetary system be used in a manner so as t.o encourage the publir and private sectors to achieve those objectives that they seek at a given point in time 1 In other words, is your vision of the Federal Resen-e Board one of creating new initiatives, social objectives or economic objecti,·es, or one of creating the kind of a climate in which the country can set its own pace and determine its own goals and priorities? Do you get the distinction? Mr. SnEF.HAN. Yes; I think so, Senator. I would go back to my response to Senator Proxmire's question and say that it is the function of the Federal Reserve Board and the System to promote the expansion of the economy as briskly as possible, such that we can have full production and full employment at all times being consistent with a stable dollar. And I intend to act in the interests of the American people. not in the interest of some thoughts or prejudice I bring. Senator BROCK. Then to be more specific, you would not say that yon would choose only one objecti,·e such as an increase in the ]eye} of employment over the other considerations which afl'ect every American. such as stable dollar, snch as controlling inflation? In other words. I gather that you are implying an effort to achieve some sort of balanced approach rather than a one-shot approach. Mr. SHEEHAN. Absolutely, Senator. Let me f!O back to the answer to the first question. Perhaps I came down too hard on the notion that inflation is the No. 1 problem. It is a fearful problem. Unemployment is at the same time a very difficult problem in this country toda_v, and the fact that we can have evidences of both inflation and deflation at the same time is relatively remarkable in the history of our economy. That is that we can have rising prices while we have the industrial acti,·ity at about 70 percent and unemployment at about 6 perccnt.-thi, is obviously a very difficult situation in which to operate. . Senator BROCK. Would you not agree that the very fact of mflation can create unemploymenU )fr. SHEEHAN. It certainly can. And let me expand on that. We hav~ , profits in the .American system today that are as low as they have been as a percentage of the gross national product in 30 years. in order for business to expand and to create jobs profits are fundamental. \:Vhen '. profits are low, people are nervous. Workmen are concerned about their _continued employment. Consumers will not then spend with confidence. and bnsi11e,.:smen tend to lack confidence ;.and so I ,think it compound, the inflationary problem. · · • . · ., . ,: , Senator BROCK. Well, I think Senator Cook mentioned your experience and your interest in the international field. Is it not also true that inflation prices us out of competition on the world market, thereb, exporting jobs! · Oiq1tized by Google 11 Mr. SHEEHAN. Well, yes. The major industry that our company served was the American steel industry. That industry earned a return on capital invested last year of 21/2 ~rcent, which is about half of what one can earn on a tax exempt murucipal bond. The steel industry suffered in this country last year. The Nation imported $1,900 million worth of steel. We have a trade deficit this year of about $2 billion that would almost have boon eliminated if we had boon in an export position in steel as we were some 10 years ago. The cost increases incurred by the American steel industry in recent years have been dramatic, the most significant of which is cost of labor. The primary problem in the American society in the sense of its inflation m my judgment is productivity or lack of it. This morning's newspaper reports that we have a productivity increase in recent months, I believe in the past year, of about 3.6 percent or so. It surprises me a little bit that it was that high for the year. However, on reflection, it is not surprising in view of the industrial situation. When factories are operating at 70 percent you get productivity at a rapid rate as you proceed from 70 to 90 percent or so. But I think we have a fundamental productivity problem which involves the cooperation of management and organized labor in increasing the output of our factories. ::,enator BROCK. Well, let's assume that our productivity were, which it has not, to keep up with the rest of the world. Could any country, no matter how rich, how wealthy, how big, keep up over the long term if its prices escalate at a rate double those of the rest of the world i Mr. SHEEHAN. Absolutely not. One of the three or four :q1ost important problems we have is our international posture in competition, and we have arrayed against us now in the world competitive environment, a different situation than we had as early as 5 years ago or 10 years ago. We have what some refer to as Japan Inccv-porated-a vigorous competitor in Asia. And we have very vigorous, determined, French, English, and Italian competition in world markets. It is a different game than it was, and unless we develop a method throughout the American industrial system to dramatically increase our productivity we will continue in difficulty. Senator BROCK. I agree. Let me go now very briefly to the matter of qualifications and just to start at the back, in 1958 you attended the Harvard Business School. I assume you took some business courses there. ·what were your primary areas of study? Mr. SHEEHAN. ·well, the Harvard Business School, as some of you well know-Senator Proxmire is a graduate-has been-and I don ·t think it will do Dr. Gray.son, who is in. the room, any disservice to suggest that it has been and continues to be the pioneer business school in the country. Dr. Grayson has a Ph.D. from that sd1ool. It has a wide range of courses, and I approached it in this manner. ·when I graduated from the U.8. Naval Academy I felt I would continue for a complete career in the Navy, and I felt I was very weH prepared ~~ ' . In leaving the Navy I spent about a year researching the capa,bilities of the business schools in the country. I wanted a position in management, in"American industry, and I wanted a preparation equivalent Oiq1t1zed by Google 12 to what. I had received at the :N'aval Academy. and I was fully satisfied. . . . I did not specialize to a great degree. If I had a specialty it wa s finance, and I took the best professors at Harvard Business School in the area of finance. I also took a rourse in what economi sts call macroeconomics. which at that time was called business respon sihil ities in the Amnican societv. Senator BROCK. Thus I gatl1er then that you have had economic training at the most. sophisticated university that I know of in this country in that particular field~ . )fr. SHEEHAN. Yes, Sena.tor; that 1s corrert. Senator BnocT{. To meet the S enator~s criteria you would either have to be a teacher or a professional economist, b11t not a graduate of thP srhool that they teach. I think your qualifications are an asset to the Board. And I make one additional point. If we are going to say that you only can be a professional economist. then we don't need seven-man Board. w•e need a one-man Board, the best professional economist we can find in the United States. The reason we have a Board of more than one person is to have a diversity on that Board of input, a diversity of philosophy, of experience, of background. And I think to say "that vou would be disqualified because you happen to be a businessman ;vould be a very, very serious mistake to make in terms of our selection process here in the Senate. I am delighted that you have been recommended. I intend to support you, and I appreciate your willingness to serve. Mr. SHEEHAN. TTiank yon, Senator. The CHAIRUAN. Senator McIntyre. Senator McINTYRE. Thank you, Mr. Chairman. I have no questions for Mr. Sheehan. I would like to recount a little story, something that occurred to me, not meant to demean Senator Proxmire at al[ I think I understand what he is driving at. But in 1963 when I joined this committee one of the first witneSRes we had before us was a distinguished Pronomist who testified at length on the balance of payments. ,,ri1e11 it was all through I went to then our great Senator Paul Douglas and I said "Senator Douglas, I don't believe that I should be on this committee." And he said ""TJ1V?" "'\,Vell," I said, "I have never had a course in economics in mv life." Senator Douglas said."You mean you hare no preconceived notions and fixed ideas on economics?" I said "absolutely not." He said "you are going to be a most valuable member of this committee." So I hope, and I believe Mr. Sheehan will be a most valuable member of the Federal Reserve Board. Thank you. The CHAIRMAN. By the way, Senator Douglas was a noted eronomist. St>nator McINTYRE. I felt better after I talked with him. The CH,\IRl\L\N. Senator Brooke. Senator BROOKE. Thank you, Mr. Chairman. I have no onest.ionc;, I 1.'"llow of the qualifications of Mr. Sheehan. I know of the hig-h a Oiq1t1zed by Google 13 -esteem of my colleagues from Kentucky, a.nd the fact that he resides in Kentucky, but I am glad he has been educated in Massachusetts. And I am glad to hear my colleague, Senator Brock, acknowledge that we have the finest institutions in the Nation in Massachusetts. I just want to say that I am also very pleased at this time in ,the :State of our economy that you have agreed to come in and serve in the Government. I think we need the highest quality that we can obtain. I think you represent that quality. I look forward to working with you in your position on the Reser, e Board. · . Mr. Sm:EHAN. Thank you, Senator Brooke, and I look forward to working with you if confirmed. The CHAmMAN. Before I call on Senator Cranston let me make a suggestion. Sena.tor Cooper and Senator Cook are here to present their constituent, Mr. Sheehan. They may barn other obligations, I don't know. I just W&nt to make it clear that if you do need to go at any time feel perfectly free to do so. I am sure the audience will understand and this committee will understand. Senator Cranston. Senator CRANSTO:S. Thank you very much. I have no questions. I would like to say in effect what Senator McIntyre said. I understand and am very interested in Senator Proxmire's line of questioning. l am interested in the responses to it. At the same time I question whether we want a Federal Reserve Board made up entirely of trained economists. and I think there is room there for a man of hard business experif'nl'e to balance wit.h t'he tn.ined economist background. The CHAIRl\ux. Senator Gambrell. Senator GAMBRELL. Mr. Oha.i.rman and Mr; Sh~han, I would like to say I am very much impressed with :Mr. Sheehan's quaHfications. I would like to associat.e myself with the remarks of Senator Douglas ss related to us ,by Senator McIntyre. I would like to ask Mr. Sheehan one or two questions. . Mr. Sheehan, as I understood. you said that your appointment had been recommended to the President by Dr. Burns; is that correct 1 :Mr. SHEF!HAN. That iscorrect,sir. Senator GA)fBRET.J',. I wonder if you would feel 1rny obli1ratfon to Dr. Rnrns as a n>sult of that recommenda.tion, or would you fool free to.act imlependentl:v of whatever his judgment might be on issues that came lwF"re the Board! Mr. SHF.EHAN. Well, I am a fundamenta1ist. Senator. And bv that I mf'ftn not in II religious sense. but in a practical sense. I think in tenns of fundamenhdist. And when I make a d<>"'ision I do so. The decision to f'f)J1~(> to Wa~hington waR an ext.r emel, difficult dooision for me to make. It was even more difficult for mv familv. In considerin~ it, the most import1nit thou1rht that entered mv mind was the definition of happiness that the an<'ient Greek::; used, that ,John Kennedy frequently quoted, which went along these line:a;-happiness is the exercise of vital powers along lines of exce11ence in a life affording one scope. And when I dissected that relative to this JlOSition certainly there are few positions in the country or in the wodd. and none in business, that have the scope of the Federal Reserve Systom of the United States. 1 1 72-782-72-3 Oiq1t1zed by Google 14 Furthermore, it has been a prh,ileg'e over my lifetime for me to worl.: with some truly outstanding people. I was aide to the then Rear Adn1. C. D. Griffin, eventually a full admiral, when he was commander of the strike force, Atlantic Fleet. And I worked intimately with him on an hourly basis throughout that experience. · It has been ·my privilege to ha,-e associations like that ove1· time. And I would suggest to you that the fact that Arthur Burns is the Chairman of the Federal Reserve Svstem had much to do with the conclusion I reached. I recof!nize him as one of the preeminent economists of this generation or any generation in this Repuh.li~. "·hen you think of that definition of happine;;s-along line.s of excellenceArthur Burns epitomizes excellence, an<l he is -,urrounded by one of the ri1ost. excf'llent staffs in ,vashington or in any place. So, I come th the task with that in mind. 'However, a·ny'one who knows me-and the,Preside.nt. I understand. checked with people, or his staff did in Kentucky, :who know me well-who know that I am my own man. And anyone m the corporati~n which I have just concluded my sen·ice will tell you the same ~~' ' ' ' , ' I expect to act in the best interests of the people of the country as. I see those interests. And in serving·since the 3d of.January on the Board of Governors, I have already differed with the judgment of Dr. Burns ifi decisions that the Board has taken. . Senator GA!\IBRELL. ,vell, I would hope that you would feel free to do that, and also to differ with the administration, with Members.of Congress and others. . . . Tthink some .of the finest qualifications yon have are youth, your business background, rind the eilergy and intensity which you obviously bring to bear on the problems which yon are faced with, and the fact that ;vour thinking will not be d_o minated by any preconceptions or by any influences on what conclus10ns you- might come to. :: • I am particularly concerned-'-and· I share your admiration for Dr. Burns--:that Dr. Burns, I think, has been wrong. If I recall correctly,' he expressed a concern before this committee about the i1nplementatitm of "·age and·prfoe controls under thl:l Economic St.abilization,Act, and then came back later and said that he mt.s wrong 'o n it, that he was mistaken. · ,· · · · · ·· . · : · .. · Dr. Burns has also promised to give us a report on the Board's :feelings ttbout the monetary supply in this country. I came here about a, year ago and asked if we conld have imch a report. I was told that it _would' be forthcoming in August, and it is not 'here yet. Maybe thmgs have happPned that have made it impossible to produce the report. But the Congress has got to have something to act on; If we don't hav(' the report we j11st have to act on our own best judgment. ; I would like to ask at this time if you would think it possible and hPlpful for the Board to produce, froin its expe-rience over the past yea_r with the economic stabilizn.tion a report to Congress on what leg1slat1on can be ·brought about to d<.>al with the No. 1 problem that you mentioned, and that is inflation. ,vhen do you think such a report might be made, and do you think it is appropriate for the Board to make such a report to Congress? · Oiq1t1zed by Google 15 Mr. SHEEHAN. It is absolutel,Y appropriate. I think that Dr. Burns has appeared before this com1mttee-I am not certain of that-I have read a number of statements that he has made to this committee relative to inflation. He .was the driving force in the Government, I believe, relative to 'the · price-wage control boards that were created. There are several-or .at least one I know on housing-reports that the Federal Reserve Board staff has submitted to this committ.ee, I believe; and the Board of Governors is currentll concerning- itself with a f ollowup recommendation by the Board o Governors itself. I might add, Senator, that I have been in the Federal Reserve now since January 3, and I have yet to see a group of harder working people. Dr, Burns is the h,a rdest working man I have ever met in terms of time on the job. _, ; . The Federal Reserve Board has been flooded, as you probably well know, by applications relative to the One Bank Holding Company Act of 1970. While the Board of Governors is qniite concerned about handling these applications as quickly as possible-which, .by the way, is a management functioa-that is, how do you organize to handle these things"-Dr. Burns is not in my judgment, ,unresponsive to the needs of the C<;mgress. In fa.ct he is quite concerned about his relationship with the Congress and will d.o his best to'assist the C~mgress and this committee. · , , Senator ,TowER. Would the. Senator yield for a comment at this point?i •', ' :- ' ' ' Senator GAMBRELL. Yes. Senator ToWER- I discussed this .matter with Dr. Burns when the vaca;ncy <>?curred, and I know that ,there were several pe_ople under cons1derat)on that ·Dr. Burns fottnd acceptable. And bemg a very intellectually ho,µest man, Dr. Burns' principal criterion was that he hoped· th!\t the new. Governor would be somebody who was free and would •A.ct independently of external pressures. And Dr, Burns I think is the type of man .who invites honest dissent. I think there will be no problems · from the standpoint of either administrative pressure or pressure frotn Dr. Burns on any-··: . Senator GAMBRELL. Well, I have no real concern about that, but I did want. Mr~ Sheehan to express his own feelings about it on the record. . . •• , . I would like to say, Mr. Sheehan,that I think one of the big jobs of the Congress this year wi11 be, prior to the expiration of the Economic Stapilization Act next .April, to determine what legislation needs to be put on the books in .a permanent way to prevent what we have seen happen, tight money, monetary expansion, high interest rates, inflation-housing starts and stops~nd to stabilize the economic situaeconomic situation. I don't think that we ought to leave it open to haption. I don't think that we ought to leave it open to happen again. · I think the Federal Reserve ought to get their recommendatitons over here, I think the wage and price boards ought to get their recommendations over here, and that ·we ought to act on it; All I am saying today is we have to act on our own notion if we don't have · administrative expert advice. · That's all, Mr. Chairman~ D,qitized by Google 16 The CnAIRM.\S. Thank vou. Let me Hay in speaking of the need of trained l'f-onomists for the Hoard, Gornmor Sherril], whose place Mr. Sheehan is nominated to till, was not an economist, I under;;tand. hut. a busine~man. One of the GO\·ernors who has been there for a long time and whom I consider as one of the very best is the vice chairman. Gowrnor Robert~n, who is not a trained economi&-t. I helie,·e it is safe to sav that the other fh·e members are trained economists. That's a pretty #?'ood sized group of <•cm1omists that ham to come to some kind of understanding with each other. Senator TO\'°er, furtl,er questions? S.•nator TowT.R. I ham no furt.her questions, )(r. Chairman. The CnAmMA:S. Senator Proxmire. Senator PRoxvmE. Well, Jet me just per5ist a little bit in the line that some of the other members of the committee ha,·e brought up. It is true, as the chairman has said, that there are two very fine members of the Board who are not trained economists, Sherrill and Robertson. Sherrill is leavin,r and you are taking his place. There has been a change in the makeup of the Federal R~rve Roard over the vears. It didn't 11sed to be economist dominated. I think it is a p:ood thing that it is. I think it ought to be a requirement. Obviously I am in a minority of one of the committee right now, and perhaps a minorit:v of one in the Senate. But I think the quality of the F1>deral Reserve Board is enormously improved. It used to be a joke. The Federal ReserYe Roard was always wrong. They would alwavs taken position in restrieting- the mone_v supply as they clid in the thirties. when it was the worst possible thing- to do in retrospect, or they would take a position to expand the money supply when it was infl1ttionary. Friedman, of course, made a Yery able study of t.hat, how the;\· wou1rl be much better if they followed some automatic device. The Federal Reserve Board's track record hasn~t been proven in very recent. years, but I get a feeling it is much better, a far better record. And I think that Arthur Burns, appointed by President Nixon, was a superb appointment. I praised it warmlv. Sot.here is nothing partisan about. my criticism. I think President "Eisenhower made some fine a11pointments, and he was responsible. too, in shifting tl,e nature of the Bonrd to people with professionally trained economist backgrounds. Xow I have exactly the same background as you have in a way up to a point. I went to Harvaro Business School. I, too. g-ot my degree in hnsinl'ss administration with distinction, as you did. I, too, majored in financial management. Then I went across the river and studied economic policy at Han·ard Graduate School, which was quite different, which d(\als with an entirely different kind of problem. It is not a trainintr in business problems, which is a training which is very important, hut. is ouite different than the training in broad economic policy which trnhwd economists achieve. I <lon't want to persist much longer in that because obviously, as I sa_v, I am not gettin~ anywhere with the committee. l.Jt't. me ask you a couple of other onestions, three or four other questions thnt r(')atc to 1>0lic_v, bccanse I think yonr initial response does tronhfo me very mnch, and vou cang-ht it vourself when you said maybe yon spoke a lit.t.]e too quickly when you· said inflation was our No. 1 Oiq1t1zed by Google 17 problem. I think maybe this is one of the problems with the Federal Reserve. They have been thinking in these terms too much. When you think what has happened to inflation, at least that is moderating somewhat seems to be-we have a program to brifll? it under control. ·we nave a goal, and in the third quarter the GNP deflater was already down-last yeal'--:-was already down to 3 percent, and it seems to have been better in the fourth quarter. So that is a problem we seem to be winning on. But we hf!,ve no goal, no program, at least nothing comparable to overcome this very, very serious problem of unemployment. And yet you say you think inflation is still more important. See, this is the kmd of thing that concerns me very much. If we a.re going to have a principal economic policy a~ency of our Government independent of the executive, unable to be mfluenced by them, shouldn't be, with this in mind seems to me ·that we are going to have some very tough times economically if we appoint people with no training, or experience in economic policy to it. . Mr. SHEEHAN. Can I react to that, Senator! Senator PROXMIRE. Yes. . Mr. SHEEHAN. Yes; I did want to make it clear thwt unemployment is certainly a critical problem today, but I will not back down from the statement that inflation is more significant. I will agree with you that inflation is moderating from where it was, and I would submit that unemployment is not unimportant to me personally. I grew up in a _neighborhood with a family next door that was black. The boys that I grew up with now are bricklayers in the Bethelehem Steel plant in .Tohnstown, Pa., or truckdrivers, and when I go there and see the unemployment, I am concerned. I know very directly the problems of the steel industry where unemployment is now high since the company wl1ich I managed served that rndustry. And I feel that problem Yery r.ersonally. So I am not unconcerned about unemployment. But I do think that if we do not get control of this inflation and stop it, there will be more unemployment before there will be ,less. Senator PROXMIRE. Well, of course, we can argue the other way too. But if we want to persist in that, that if we don't get unemployment under control that inflation is a.n element of unemployment, too, although that is a complicated thesis-Senator ToWER. Will you yield? Will the Senator be willing to submit this question to the vote of the committee i · Senator PRoxMIRE. Let me persist and ask you this. Where would you rate in priority the responsibilities of the Federal Resen·e Board to correct our serious and persistent adverse balance of payments? Mr. SHEEHAN. Would you restate the first part of that question 1 Senator PROXMIRE. Where would you rate as a Federal Reserve Board priority the Federal Reserve Board's responsibility in operating monetary policy in such a way as to improve our seriously ad,,erse balance of payments i Let me say what I am getting at. What I am getting at is ob,·iously monetary policy is enormously important in h11pr0\·ing our balance of payments. To the extent that interest rates are high, capital tends to come into this country, to the extent they are low, capital tends to go out. Now high interest rates to bring capital in, directly conflicts Oiq1t1zed by Google 18 with a policy of trying to stimulate the e<'onomy with low interest rates. Stimulate the economy with low interest rates and your capital goes out and your balance of payments deteriorates. • )fr. SnEEHAX. I think stimulating the economy is more important. Senator PROX:\CIRE. Is more import8nt. Yon rate that higher? Mr. SHEEHAX. Yes; because I think the balance of payments problem will come to a more even keel if we can have a more vigorous economy and therefore lower costs, it will make us more competitive. And therefore our trade balance-1971 is the first time it has been negative, I think. since 1888-will come into balance or become positive much sooner if we have a more vigorous economy. Senator PROXMIRE. w·e hope so, but that may be one of the very serious problems you are going to be confronted with. Mr. SrIEEHAN. I accept that. Senator PROXMIRE. It may not improve, and if it does not improve the question is would you vote to keep the economy slow, if necessary, unemployment high if that seemed to be necessary in order to correct our adverse balance of payments~ Mr. SHEEHAN. I can't envision taking that action. Senator PROXMIRE. Do you regard the Phillips' curve as a useful way of describing a trade-off between full employment and inflation 1 Mr. SHEEHAN. I am not familiar with the Phillips' curve, Sena.tor, familiar enought to comment. Senator PROXMIRE. Well. the Phillips' curve is the most commonly used term to describe the fact that as unemployment increases inflation should moderate and vice versa. So that one wav-and manv people charge that the administration tried to cope with inflation first by slowing down the economy, letting unemplovment increase so the slack in the economy would result in lower prices. Mr. SnEEHAN. ·well, as I said earlier, and as vou well understand, I am not an economist. and I am not thoroughly familiar with economic theory. I understand the practicality, the effect of what ;vou are saying. In recent decades the way inflation has been cured m this economy is to drop the economy into a sharp recession. Senator PROXMIRE. Right. That's what I am getting at. Mr. SHEEHAN. The system does not now function that way appar~ ently. I am a pragmatist, and I look at what has happened. Dr. Burns has said before this committee the system isn't functioning- the way it did. And I would submit to you that theory as we learned it relative to a system that we have lived with. over the years may not be so relevant. We are dealing with somethmg completely different today. No one, when the Federal Reserve Act was passed b:v the Congress in ]!)]~ or amended in snbse<JnPnt years. envisionecl a trillion dollar economy, a $24 billion General :Motors, the size of the banking system we have today, the size of exports from this country, the nature of world ·commerce as it exists today, and we are dealing in completely new areas. And it seems to me we are on the frontier. Senator Pnox:mRE. "What level of unemployment would you tolerate 'in order to bring inflation under control i · Mr. SHEEHAN. The objective is 4 percent in the country. Oiq1t1zed by Google 19 I wr a.I ITTli ay- JD· 1r· n, it re 30 r. n I· e I Senat~r Pnox:mRE. ·what level would Y.ou tolerate to bring it under control, though 1 You: say inflation is still not -a paramount problem, coequal problem perhaps with unemployment. Would you feel it would be right -to let unemployment get even higher if necessary to stem inflation j :Mr. SHEEHAN. Well, 6 percent is pretty high. Unemployment is a relative matter. If you are the man unemployed it is a crisis. I have no level that I consider tolerable. I think that 4 percent for the 4 per-cent isn't tolerable. If you dissect unemployment today you find that males over 20 are unemployed at the rate currently of about 4.2 per·,eent-unemployed males over 20. Much of the 6.1 perc.ent is the teenage group under 20. That is a change, a structural change in the American economy. · · Senator PROXMIRE. It was always heavier for teenagers. There are more teenagers on the market now. Unemployment was always heavier ·for women and teenagers. But statistics indicated there were more men-. Mr. SHEEHAN. The makeup of the 6 percent' has a larger proportion :of teenagers and women than 1t ever had before. Unemployment of males over 20 is 4.2 percent, I believe, at the current time. . Senator PROXMIRE. Almost twice as high as it was 2 ·years ago. It was 2.8. · · Mr. SHEEHAN. Yes, and the teenage unemployment is something that I think relates to the social problems we have had, the fires in the cities 'and the riots that we had. Senator PROXMIRE. You bet your life. When you have 17-percent unemployment among teenagers you are going to have-the devil finds use for idle hands, and it certainly does. And women, after all-we ·don't need Women's Lib to remind us they have every reason to have ~xpectation to get a job in our society as men do. Mr. SHEEHAN. The classical problem is how to get to full employment without inflation, and I don't propose or I don't submit to you that I 'have any solution to that problem. But I am willing to think hard about it with the rest of the Board of Governors and determine what action should be taken to try to gain full production and full employment without inflation. · · . Senator PROXMIRE. I have one more question I would like to ask. This is a question that has concerned me greatly, and I think has coneerned other members of the committee. The Federal Reserve Board policies have had a peculiarly adverse effect on housing. Governor Maisel made a study-as you know, he is one of the outstanding housing experts in the conn't ry-which showed int.he 1966 credit crunch that housing which occupied three and a half percent of our 1rross national product received 70 percent of the cutback, as a result of the restriction in money. State and local spending is also especially sensitive to tight money and yet we need more hospitals, more schools, and so forth. The business community is much less sensitive. "~e proposed on this conu.nittee, a number of us, close to the majority. t~at the Federal Heserve Board be obligated to buy socially useful debt mst.rumehts, mortgages; and so forth, to assure that housing is protected. Do you have ,any feeling about this~ Oiq1t1zed by Google 20 Mr. SHEJ:HAN. I would react to your question in this way? Senator. First I would disput.e at least what I consider eould be taken from one of the phrases you used in posing that question, and that is you said the business community is not eo much affected. Senator PROXMIRE. Far less affected. Far less. Mr. SHEEHAN. I was connected with a cement company, and believe me, when housing starts go dow!1 that co~pany is severely affected adversely, or any other construction ma.~ruLls company . . Senator PRoxHIRE. I say housing and everything related to housing is affected. What I am saying is the rest of the business community is far less, and yon can see that by the fact that 'housing sufl'ers the big brunt. . Mr. SHEEHAN. .I would su~gest to you, Senator, that construction in this country is 10 percent of the gross national product. It is as important, or more so, than the automobile industry and the steel industry combined. So mortgage credit available to the construction industry is a critical problem. I would submit further that some agency of the Federal Gowrn·ment mould concern itself with the fluctuations in available mortgagecredit to the construction industry over time. But it seems to me, as Dr. Bums has said: "Our free credit markets have served our Nation well over the years by chaneling financial resources to productive a.nd eocia.lly beneficial uses. Market mechanisms are imperfect and the efi'ects of monetary ease or restraint do not affect all sectol'S of the economy uniformly." And as you suggest, only part of business is: severely affected. "There is ample justification, therefore, for serious efforts to improve the functioning of om· finaneial markets-particularly, to cushion th0 effects of monetary restraint on sectors such as housing. Such efforts have been made on an extensive scale in ourcountry, and they have typically taken the form of supplementing the market mechanism rather than subjecting the decisionmaking process of private financial institutions to detailed and shifting governmental mies. Federally sponsored credit agencies that borrow funds in the m ~ and capital markets and channel them to sectors of high social priority have played a particularly constructive role in this regard. So also have Government loan guarantees to encourage private inl'88tment in risk enterprises or in low- and middle-income housing." AndSenator PROXMIRE. How did you know I ,vas going to ask that question 9 You are reading the answer. Mr. SHEF.HAN. That is coITect. Senator PROXMIRE. You are amazing. I have had several other questions that you have read the answer to, and I didn't give it to anybody,. I didn't know I was going to ask the question myself. Mr. SHEEHAN. Senator, you are making this-Senator ToWER. You are becoming predictable. [Lau~hter.J Mr. SHEEHAN. Let me say this, Senator. You ma,v be familiar with the Emperor Marcus Aurelius' book "Meditations:" In that book he suggests, "I never made a public statment that I did not carefully write down beforehand." The Emperor further said, "I have found this such a successful procedure that I even use it with my wife.',. [Laughter.] Oiq1t1zed by Google 21 Senator PROXMIRE. Very good. Well, thank you very much, .Mr. S heeha.n. You are obviously a.n extraordinarily able man. I just think there are so many other jobs you oould do mu.ch better. [Laughter.] The CIIAIRMAN. A:ny other questions by anyone? If not, thank you very much, l\lr. Sheehan. 1\:1:r. SHEEHAN. Thank 1ou, Mr. Chairman. The CHAIRMAN. We wish you well. Next we have Dr. C. Jackson Grayson, Jr. Dr. Grayson, would _you. come around? We are very glad to hear from you. I will call on Sena.tor Tower to say a word a.bout Dr. Gra.yson~ Senator TowER. Mr. Chairman, I don't wish to detain the committee., and the committee has already read the biographical sketch of Dr. Grayson. I would simply like to say that I have known for some time of this man's great personal qualifications, that he has been dean of the School of Business at Southern Methodist University -£or some 3 years, and I happen to have the privilege of serving on t.he hoard of trustees of that institution, and I know how highly regarded Dr. Grayson is in the academic community and the buslness community in my State. And I am very pleased to present him to the committee and recommend his confirmation. The CHAIRMAN. Thank you, Senawr Tower." · . · • Dr. Grayson, we have your biographical sketch..That will be placed 1n the record. ( Biographical sketch follows:} RIOORAPHTCAL ~ItETCH or C. JACKSO~ GRAYSON, :,R. ' C. .Jackson Grayson, Jr., was appointed Ohaitman of the Price Commission oy President Richard M. Nixon on October 22, 1971. He ls on leave as Professor and Dean of the School of BU8lnees Administration of Southern Methodist Uni-versity, Dallas, Texas. · ,.,Chairman Grayson was born October 8, 1923, at Fort Necessity, Louisiana, and was graduated with a Bachelor's Degree in Business Administration from -<rulane University In 1944. He received a Mamr's Degree tn Business Administration from the University of Pennsylvania in 1947 and a Doctor's Degree in the same field from the Graduate School of Business Administration, Harvard University, in 1959. Hie Master's thesis was "The Yardstick Power Program of The Tennessee Valley Authority" and his doctoral dissertation was "Decisions under Uncertainty-Drilling Decisions by Independent Oil and Gae Operators." Dr. Grayson was a member of Beta Gamma Sigma honorary scholastic frater-· nlty. During World War II, he served with the U.S. Navy in the South PaC'ltlc and from 1947 to 1949 was an instructor in the School of Business Administration- at Tulane University. He served as an Assistant Professor in the School and as Assistant to the Vice President of the University from 1958 to 1955. He was an Assistant Professor in the Graduate School of Business Administration at Harvard from 1958 to 1959, then returned to Tulane to be Associate Professor of the School of Business Administration from 1959 to 1963. He was Associate Dean of the School from 1961 to 1963 and Dean and Professor from 1963 to 1968 when be left to take similar posts with the School of Business Administration at SMU. Chairman Gray:son served as a Professor at the Management Development In~ -stltnte in SwitzE>rland in 100R-H4 and was a Visiting Professor at the Graduate School of Business at Stunfor<l University in the spring of 1967. At various times, he has lieen an instructor in the Graduate School of Credit and Financial Management; the Motorola Executive Institute; the IBM Executive Development Program; the Sun Oil Company Executive Program, and the Northwestern Transportation Center. He has participated in seminars on quantitative methods, information and control systems, computers and financial models 72-782-72-4 Oiq1t1zed by Google 20 Mr. SBEl:HAN. I would react to your question in this way. Senator. First I would disput.e at least what I consider could be taken from one of the phmseR yon used in posing that questio~ and that is :you said the business commnnitv is not so much affected. Senator PRonnRE. Far le·ss affected. Far )('SS. Mr. SHEr;HAN. I was connected with a cement company, and belie,e me, when housing starts go down that compan~• is severely atJected adversely, or anv other construction materials company. . Senator PRonrmE. I say housing and e,·erything related to housing is affected. What I am saying is the rest of the business community .is far less, and you can see that by the fact that housing suffers the big brunt. Mr. SHEEHAN.. I would suggest to you. Senator. that construction in this country is 10 percent of the gros.-, national product. It is as important, or more so, than the automobile industry and the steel industry combined. So mortgage credit available to the construction industry is a critical problem. I would submit further that some agen<'y of the Federal Gowrn·ment lihould concern itself with the fluctuations in available mortgage credit to the construction industry m-er time. But it seems to me, as Dr. Burns has said: "Our free credit markets have served our Nation well over the years by chaneling financial resources to productive and eocially beneficial uses. Market mechanisms are imperfect and the effects of monetarv ease or restraint do not affect all sectors of the economy uniformly." And as you suggest, only part of busine!B is severely affected. "There is ample justiiication. therefore, for serious efforts to improve the functioning of our finaneial markets--particularly. to cushion the effects of monetary restraint on sectors such as housing. Such efforts ban, been made on an extensive scale in our country, and they have typically taken the form of supplementing the market mechanism rather than subjecting the dedsionmaking proeess of private financial institutions to detailed and shifting governmental rules. Federally sponsored credit agencies that borrow funds in the money and capital markets and channel them to sectors of high social priority ha.e played a particularl;v constnictive role in this regard. So also have Government loan guarantees to encourage private investment in risk enterprises or in low- and middle-income housing." And- Senator PRoDIIRE. How did ,ou know I -was 20ing to ask that question ~ y OU &re reading the answer. ~ Mr. SHEEHAN. That is coITect. Senator PRonnRE. You are amazing. I have had several other questions that you have read the answer to, and I didn't give it to anybody,. I didn't kno,v I was going to ask the question myself. Mr. SHEDIAN. Senator, you are making this-Senator ToWJ:R. You are becoming predi<.'table. [Laughter.] :Mr. SHEEHAX. Let me sav this. Senator. You nu\V be familiar with the Emperor :Marcus Aureiius' book ")leditations:" In that book he suggests. '~I never made a public statment that I did not carefullv wrife down beforehand." The Emperor further said, "1 have found this su<.'h a succ~sful procedure that I even use it with my wife.',. [Laughter.] Oiq,t,zed by Google 21 Senator PROXMIRE. Very good. Well, thank you very much, Mr. Sheehan. You are obviously an. extraordinarily able ma.n. I just think t.here are so many other jobs you oould do much better. [Laughter.] The CHAIRMAN. Any other questions by anyone? If not, thank you -very much, Mr. Sheehan. Mr. SHEEHAN. Thank ~ou, Mr. Chairman. The CHAIRMAN. We wish you well. Next we have Dr. C. Jackson Grayson, Jr. Dr. Grayson, would _you come around? We are very glad to hear from you. I will call on Sena.tor Tower to say a word about Dr. Grayson. Senator TowER. Mr. Chairman, I don't wish to detain the commit·t.ee, and the committee has already read the biographical sketch of Dr. Grayson. I would simply like to say that I have known for some -time of this man's great p~rsonal qualifications, tha~ he h~ ~n dean of the School of Bnsmess at Southern Methodist Umvers1ty for some 3 years, and I happen to have the privilege of serving on. the board of trustees of that institution, and I know how highly regarded Dr. Grayson is in the academic community and the bus1ness community in my State. And I am very pleased to present him to the committee and recommend his confirmation. - The CHAIRMAN. Thank you, Sern~tor Tower. " · Dr. Grayson, we have your biographicalsketch..That will be placed in the record. ( Biographical sketch follows:) RrooRAPH?CAL 81t)::TCH OF C. JA~KSO!V GRAYSON, ifR. C. lacbon Gril:,soa, Jr., WM appointed Chairman of the Price Con:nnts..'!ion by President Richard M. Nixon on October 22, 1971. He is on leave as Professor and Dean of the School of Business Adlilinistrat1on of Southern Methodist University, Dallas, Texas. · ,.,Chairman Grayson was born October 8, 1923, at Fort Necessity, Loulslana, and was graduated with a Bachelor's Degree in Business Administration from "Tulane University in 1944. He received a Master'8 Degree tn Business Administration from the University of Pennsylvania in 1947 and a Doctor's Degree in the same field from the Graduate School of Business Administration, Harvard University, in 1959. His Master's thesis was "The Yardstick Power Program of The Tennessee Valley Authority" and bis doctoral dissertation was "Decisions under Uncertainty-Drilling Decisions by Independent Oil and Gas Operators." Dr. Grayson was a member of Beta Gamma Sigma honorary scholastic fraternity. During World War II, he served with the U.S. Navy in the South PacUic and from 1947 to 1949 was an instructor in the School of Business Administration at Tulane University. He served as an Assistant Professor in the School and as Assistant to the Vice President of the University from 1953 to 1955. He was an Assistant Professor in the Graduate School of Business Administration at Harvard from 1958 to 1959, then returned to 'Tulane to be Associate Professor of the School of Business Administration from 1959 to 1963. He was Associate Dean of the School from 1961 to 1963 and Dean and Professor from 1963 to 1968 when be left to take similar posts with the School of Business Administration at SMU. Chairman Grayson served as a Professor at the Management Development In·stltnte in ~witzf'rland in 1063--H4 and was a Visiting Professor at the Graduate School of Business at St1mford University in the spring of 1'967. At various times, he has been an instructor in the Graduate School of Credit and Financial Management; the Motorola Executive Institute; the IBM Executive Development Program; the Sun Oil Company Executive Program, and the Northwestern Transportation Center. He has participated in seminars on quantitative methods, information and control systems, computers and financial models 72--782-72-4 Oiq1t1zed by Google 22 and has serred as a consultant to the Sun. Huruhl<' nnd :\Inrathon Oil Companies and to the Standard Oil Company of Ohio: to the Comptroller General of the United States, and to the Stanford Research Institute. He was consulting editor of the Financial.Executive's Handbook in 1968. Chairman Grayson has been a Certified Pnblic Accountant since 1948. He worked briefly as a newspaper reporter in New Orleans in 194~50 and As a Special Agent of the Federal Bureau of Im-estigation from 1950 to 1952. He is the author of numerous artid<'s and books on financial and industrial topics. He is a member of the American Accounting Al<sociation. the American Finance Association, the Operations Re!<earch Society, the Institute of :\Ianagement Science, the Society of CPA's of Louisiana and the World Future Society. Chairman Grayson is married to the former Barbara Schmidt and bas threE' sons: Christopher Jackson Grayson, Michael Wiley Grayson. and Randall Cha rlt"s Grayson. PUBLICATIONS BOOKS Deci8wns Under Uncertainty: Dril1i119 Deci.~ions 1!11 Oil and Gas Operators, Divisions of Research, Harvard Business School, Roston. 1960. "The Use of Statistical Techniques in Capital Budgeting." Chapter 5, Financial Research and Management Decisions, John Wiley & Sons, Xew York, 1967. ARTICLES A~D MONOGRAPHS "Bayesion Analysis-A New Approach to Statistical Decislon-:\Iaking," Journal of Petroleum Technology, June 1962, pp. 603-607. "Introduction of Uncertainty Into Capital Budgeting Decisions," N.A.A. B1llletin, January 1962, Section 1, pp. 7~80"Computer Applications in Oil Exploration Decisions," Proceedin!l's of S11mposi11 m on Computers in the Mineral Industries, Stanford University, June 24-28, 1963. Coauthor, ''Business Schools and Education for International Business, Report of the Task Force on Busines~ Administration aud Public Administration. The Profeaswnal School and World Affairs, Education and World Affairs, New York, 1967. Education and Technology, pp. No. 11, The Diebold Research Program. The Diebold Group, Inc., New York, 1967. "The B-School World of Pvt. Douglas Dallas, circa 1980," Innovation !4, 1971. STATEMENT OF C.1ACKSON GRAYSON, ra., NOMINEE, TO BE CHAIRMAN OF THE PRICE COMMISSION The CHAIRMAN. I also have the finaneial statement that vou filed and you heard the statement I made with referen<'e to Dr. Sheehan, and I will say for the benefit of the committee that the general counsel of the Cost of Living Council has certified that there is no conflict of interest involved. Senator Tower, do you have questions? Senator ToWER. I have no questions at the moment, Mr. Chairman. The CHAIRMAN. Senator Proxmire. Senator PROXMIRE. Mr. Grayson, it was m:v amendment that provided that we approve-I wanted to h:we all the members of the Price Commission and the Pay Board come before this committee for approval, but the chairman decided he would accept an amendment which provided just you and Judge Boldt would appear before us, so I am very interested in this hearing and very interested in your testi• • mony this morning. Oiq1t1zed by Google 23 You are a most extrrio.rdinary man; I don't know anybody who has come to Washington and taken hold as fast as you have and as overwhelmingly as you have. That is pa1tly good and partly maybe not so good. . .. I understand that you make every price decision yourself, that policy is determined by your Commission which meets only once a week, but all the price decisions, decisions on individual price increase, no matter how big, no matter how controversial, no matter how significant, you make finall:y and definitely, Is that correcH Dr. GRAYSON. That 1s correct. It was the decision of the Commiss.ion members in the discussion of this that they did .not want to make individual price decisions on inclh·idual cases. They wanted to discuss policy. They asked that cases of a significant nature which affect substantial portions of the economy, or w h i~h result in v~ry large. increases, be brought to them a~ a matter of policy or as an 11lustrat1on of the need to look at a particular policy matter, · Senator PROXMIRE. You don't bring it to them for their approval or disapproval'? Dr. GRAYSON. No. Senat?r P~ox:MIRE. you bring it!<> them to illustrate what you have been domg; 1f they disagree, that 1s too bad. You have made the de. . cision, and that's it, is that right? . . Dr. GRAYSON. Well, I . have made the decision. The Commission members have every right to l_ook at .~h9se decis~_ons and .question me as to whether.or not I am cons1stent_w1th the pohcy. They can reyerse a decision I have made. · ·· ': . Sdenftor PROXMIRE. But you have never r~versed a decision yoi:1 have ma e, Dr. GRAYSON. No. · Senator PROXMIRE. Once you make it, that's it? Dr. GRAYSON. No, it could be reversed. Senator PROXMIRE. How many decisions have you made on prices? Dr. GRAYSON. There are a total now of 1,200 mdividual cases that have been decided, and, in the beginning, I, inyself, looked at every one of the cases. Then the volume increased and the training of the staff became more sophisticated and I decided that I could delegate certain kinds of decisions, certain levels of decisions to the staff. So I have delegated, with explicit decisionmaking criteria, certain decisionmaking powers to a committee composed of senior staff members in the organization. At least three meml::iers of the committee must always be present to make a recommendation. Senator PROXMIRE. So the staff, not the appointed members, appointed by the President of the United States, they don't make the price decision-the staff under your jurisdiction, under your final approval, makes the decision? Dr. GRAYSON. Under carefully dele~ated decision criteria. The Commission delegated to me individual price decisions, which in turn under an explicit delegation order I have given the staff at certain levels. You might be interested in the criteria which are used. In any significant case involving a large firm of a significant sector of the economy, and these are spelled out- D,qitized by Google 24 Senator PnoDORE. Gire me an example of how big a dooisiOR the . staff' might make. Dr. GKAYSON. Well, in terms of nwnbers-now this is not in terms of a significant sector of the economy like auto, aluminum, steel-I personally see to every one of those. But, in cases involving less than a 5-percent increase the sta.fI members as a commit~ must decide on the re11uest, the committee is composed of the executive directol', the general counsel, and another member of the staff. The CHAIRMAN. Senator Proxmire, there is a roUcaU, a.nd we ha..ve short rollcalls .now, so let the committee stand in recess for 10 minutes. (Recess.) Sena.tor PROXMIRE. The committee will come to order. Mr. Grayson, when I was questioning you llloSt we were discm,sing the fact, whkh you,. a.greed to, that you make the decisions on ·an the prices, that you determine :for each individual company without recourse and without modification and overruling by the Commission or majority of the Commission whether prices should be up or not. This is . . a terrific power. ,vbr.n WE:' were considering passing this lr.irishttion, Dr. Bu:rns aippea.red before us and he !'\Md he wouldn't give this power to any President of t'he United States for even 6 mAnths. First. he s11:id 2 weeks, then he said ~ months. Well, he chan~ed his view after thd, but he wonlrl agree that this is a dictatorial kirid of authoritv to ~ive a President in the free eeonomic system. The President. in turn, del~ted it tot he Commisl'lion, The Comm~ssion has delet?;ated it to yoH, and :Vi>U are a price czar. You really have the life and death power, i n ~ <'a~ · DY"'" business. You are an E-xtraordinariJ:v ingratiating, smooth, attractive man, and :vou have won aH kinds of friends here in ·washinqton. Rnt wha.t do vou think about an ecoiloinic svst.em that has comP- to a point whel"e we h:we one man determine what our prices are? Don't you think that thi-. is Romethin~ vou would like to ,ret out o-f as fast as you can? Dr. GRAYSON. Well, my intent.ion is to go back when the job is done. · If I can follow 1back the trail of decision-making-Senator PROXMIRE. I w~sh you would, because I am concerned about · this great power given you. Dr. GRAYSON. One, the Congress has delegated to the President under the Economic St111bilization Act the powers to make decisions regarding price stability, and-Semtor PROXMIRE. Nobody ~as elected you. You a.re appointed, but you are not elected. You are bemg confirmed now, but that is a pretty . thin rre<l for this kind of responsibility. Dr. GRAYSON. Then the President delegated to the Commission the po,wr that he had under the act, and the Commission members are the ones where the power does reside. They make the policies, and the policies are where the real focus of power is because those policies . . detE-rmine the individual decisions. Senator PRox:t\URE. Yes; but yon can make all kinds of determinations within those policies1 and,. of course, you have a great voice in determining whaJt the policies are. I notice the price increases have been-in one case, I recall for a steel company 7 percent, in other cases they have been denied. This is a great range in which you can act. Oiq1t1zed by Google 25 Dr. GRAYSON. Yes; but only within the policies of the Commi&5ion. And if the Commi&5ion were to feel that m_y individual decisions were not in line with the policy, they do have the power to act. Also there is the delegation of authority within the organization under certain specified conditions. It is a very carefully devised dele~tion system which I think has adequate checks and l>alances. The title of czar is a little bit overstated, I think. Senator PROXMIRE. Well, you have it. You have it. One of the safeguards in a democratic system for checking and controlling this kind of power is public knowledge, public understanding. We have a den1th of that. We can't get it. I have documentation I am going to ask you about, a letter from Ralph Nader about the trouble he is having getting information. The act itself, section 207 ( c) of the Stabilization Act, requires-as an amendment of mine-public hearings to the maximum extent possible on si~nificant requests for price increases. How many public hearings has the Commi&5ion held pursuant to this requirement 1 Dr. GRAYSON. We have had no public hearings per se. There have been no formal requests made yet. Now if public hearings are requested we will certainly make every attempt in matters of national significance to the economy, as the act states-we will make every effort. -to do so. But we must be careful that we do not, in terms of the time involved, hold such open hearings as will inhibit our ability to move forward in providing respO'JlS('S to companies that do meet-Senator PRoxMIRE. In view of this great power wouldn't it be wise for you to have hearin~s at least occasionally i You have been in operation now two and a half months in phase II. No hearings at all, none, apparently none anticipated unless people request them. Shouldn't you have, as a matter of course, hearings at some regular intervals j If you have to have more staff it seems to me the kind of thing Congress would be happy to provide. . . . Dr. GRAYSON. Yes; and I anticipate we will have some open hearings. I have none scheduled at the moment, but we are certainly receptive to the request for open hearings. · Senator PRoxMTJtE. Who can make a request for an open hearing~ Dr. GRAYSON. Any individual or any group can write in and request a hearing. Senator PROXMIRE. Does it have to be a directly interested party, that is a company that feels agA"rieved-·Dr. GIMYSON. It wouldn1t have to be a. directly aggrieved party. Senator PRoxMIRE. O>ldd a consumer come in and ask for it! Dr. GRAYSON. Yes. · Senator PROXMIRE. A ?.fomber of Congress 1 Dr.GRAYSON. Yes. · · Senator PRoumn:. ·w ell, then we are going to start moving on that. Let me ask yon to comment along this line--:and I would ask unanimous consent, Mr. Chairman, to put in the record a -letter from Mr. Nader dated ,January 25. He says: Her~ is t:1Je ·commissfon'i, rerord. The Price Commission 'ha·s not held any puhHe hearihgs 011 any p,rice increases: The Commission has not described the Information .available for public inspection , nor tbe l)roeednres for obtaining rmch 1ntormatl9ri as ·required by the Freedom i of Information Act. rn .his letter of • • ' I ·• Oiq1t1zed by Google .2G December 29 :'.\Ir. Gray:;on promised these regulations in about one week. They llll ve not been forthcoming. 1Vhvnot? Dr. ·GRAYSON. The response to Mr. Nader's letter has been given. The regu_lations :i,re now being drafted to state our position on interested parties makmg statements, and the procedures under which they can present their views to the Commission. And I want to state that we do welcome views in writing, in particular. We don't have the time necessarily to meet facet? face with every single individual or group that would want to come m. But we are sympathetic. . Senator PROXMIRE. Would you supply the information that is available when you respond t o Dr. GRAYSON. I'm sorry? Senator Pnox:mRE. He asked for a description of the information available for public inspection. Dr. GRAYSON. Yes; that is also specified in the recent response, exactly what information can be requested. Senator PROXMIRE. He savs that the Commission offers no detailed reasons for its actions on in.dividual increases, but rather recites that the price increases were justified by increased labor-increased labor cost and adjustment for productivity, unquote. It could be that further disclosures might prove discomforting for the Commission, as they have already admitted they don't know how much of each ap~ proved increase is due to profit markup. . Dr. GR.wsoN. ·we would know in each case the price markup. That would be known. Senator PROXMIRE. Why aren't these detailed reasons given? · Dr. GRAYSON. ,ve do not want to reveal company confidential data which un_der the act is pr~ted. So w~ do not reveal the company . . confidential data, and· that 1s a protection. . ~enator PROXMIRE. All information isn't confidential. Dr. GRAY-SON. All the information that they have submitted to us in the way of cost data is company confidential information; Now other data that the company has, that is up to them to decide whether they want to release it. But the only thing they file with us on the form is company confidential data. . Senator PROXMIRE. Then there is no protection to the consumer. You will simply say it is company confidential, that's it. The consumer will have to suffer ignorantly. If they think the prices are high that'$ too bad. You, as one man can determine what they are, and; no recourse, and no wav of finding out whether it is justified or not. Dr. GRAYSON. 1Vell, again the confidentiality was specified, .and we must protect the companies right to confidentiality. We will and we nre required to do so under the act. (The letters referred to follow:) JANUABY 25, 1972. Senator WiLLIAM PROXMIRE, V.S. Senate, Washington, D.O. DEAR SENATOR PaoxMIBE": In llght of the forthcoming Senate oonfirmatlon hearings for C. Jackson Grayson, Chairman of the Price Commission, I wish to bring the following points to your attention: . : The Price Commission ba,s shown a-b undant dlsdilln , for any publlc particl• pation in deliberations deallng with price policy toward consumers. Under the Oiq1t1zed by Google 27 banner ot expeditiousness. the Commission has chosen to hear only the corporate voices concerned. The Commission's viewpoint can be seen in Chairman Grayson's answer to my recommendation for immediate establishment of procedures allowing for meaningful public participation. Mr. Grayson's letter of December 29 ( first page) bluntly shows the Commission's Jack of concern. .. In carrying out its a<>tlvitie,- in a void ot public participation and dis<>losure, the Price Commission hns ignored almost every Congressional mandate regarding ndministratin.• proct'<lnre. Cnder the Economic Stabilization Act ot 1971, the Price Commission is subject to title 5 USC sections 552, ::,53, and 555(e); it mu,-t establish procedures for persons seeking exemptions and rulings; and must hold public hearings on increase requests th~t will have a significant impact on the economy. Here is the Co1111nlsslon's record: The Price Commission has not held any public hearings on any price increase. The Commission has not def<erih!'d the information ava.ilable for public insr>e<'tion. nor the procedures for obtaining such information, as required by the Freedom of Information Act. ( In his letter of December 29, Mr. Grayson promised these regulations "in about one week.") The Commission offers no detailed reasons for its actions on individual increases, but rather recites that the price increases were justified· by '"increased labol'. and material costs and adjustments for productivity". It could be that further disclosures might prove discomforting for the Commission, as they have already admitted they do not know how much of each approvro increase is due to profit mark-up. (See attached undated \etter from Price Commission.) The Commission continues to use the gu~se ot impracticability to side-step proper rule making proceduers. The Commission used this for the utility regulations. Though the Commission approved the basic regulations on November 29, and stated that they would he releasPd in a few days, the regulations were not released until January 14. The inter,·ening period could have offered more than enough time for the Commission to g:ither public comment. The Commis1Sion hasn·t adopted policies to judge whether specific data submitted should justly be considPred confidential (merely because companies ,request such confidentiality),. w1qer the .definition offered in Section 1905 of Title 18. The Commission does not release the final votes of members of the Commission (as required Wlder the Freedom of Information Act). . . . In the public interest; the Senate Banking Committee should elicit guarantees of proper implementation of the Congressional guidelines regarding administrati\·e procedures before the confirmation of C. Jackson Grayson. · Sincerely sours, RALPH NADER. DECEMBER 10, 1971. Hon. C. JACKSON GRiY-SoN; JR., Chairman, Price Commission, Wu.shington, D.C. ' DEAR MR. GRAYSON: To date the Price Commission has received over 600 requests for price increases and has approved at least 100 of them, some for the giants of American industry. The .average citizen, however, who must bear the cost of these increases, has been .d enied all opportunity to participate in . thf decision-making process. He has been denied all access to tl1e information. supplied to the Commission in support of proposed · price increases ani, has be.e n supplied with no reasoning in support of the decis~ons of th~ Commission. Public Partioiation in Commission Deliberations ' i . At this time I strongly u~ge you to refrain from all further action on ending price increases unUl you promptly establish thorough procedures for allowing meaningful public participation in the decisions of the .Commission. Under present .procedures the Commission receives only one side of the picture of any proposed .price increase; the data submitted are prepared solely by the company reque;;tingthe increase and are not subject to any citizen scrutiny. In addition, the Commission has an extremely small staff considering the volume of material which -it must review and the chairµian is the only fulltime member of the Commission. Unle~ . the Commission ~Uows 1an opportunity for ,anyone who challenges a. request to meaningfully comment on it and then caretu)~Y ~o~;;-~d~r1s,9.J?.ry~IP;J;}l9I,!lt~ Oiq1t1zed by Google 28 of view, it cannot realistically believe that its decisions will serve the best interests of the public at large. In establishing the rules governing public participation the Oommissiou should use as its model the Administrative Procedure Act provisions concerning rule making (see 5 U.S.C. 553 et seq.). The Commission should announce a schedule for consideration of each request, If possible, so that the public ls aware of its deadline for submissions. Deviations from this model should be made only to the extent that the Commission feels they are necessary for expeditious and fair implementation of the controls progTam. The longer the Commission delays in adopting such rules and regulations the more it undermines public confidence and cooperation in Phase II which is so important for the success of the program. Hasty action on those requests now pending ls likely only to produce pressure for similar hasty decisions by the Comm,i11sion as the increased prices are passed along the manutacturlng chain.. Now Is the time for the Commission to promulgate rules allowing for pubHe participation. Such rules wlll also Increase the likelihood that the decisions of the Commission will be equitable. P•bUc Aootu to lndust,y Sullmiaat<>M ant Olw C°""""u,wcationa Members of the public will not be able t.o participate meaningfully In the dectsion-makinr proce88 of the Commission tmless they are given very broad a~s to the Information supplfed to the Commission by a company in support -of its request for a price increase. Thus far the Commission has denied the public access to all such data. The Commission should establish immedlatelv rules regarding .public access to the Information supplied in support of an crease; it should protect from public scrutiny only that material which, If released, would be truly detrimental to the competitive position of the company ln-,,olved. The Commission should carefully weigh ea.ch request for con.ftdentlality, narrowly construing its own regulations, and, where it finds the claim justified, shonld rt>strlct 'll("e{'SS only to that port.ion of the matE>rlal wh!ch d~rws secrecy, not to the entire document in which it ls contalned. AU subrulsslons in ·support of an Increase should be placed in a publfc docket after the confidential material bias been deleted, along with all internal memoranda summarizing or containing data to be considered, lllld that docltet should be made available to the public from a central faclllty at the Commission. A clerk should be available to retrieve all Information not In the docket within a reasonable time and a copying facility should be made available to the public at a reasonable price. All members of the Commission and its staff should prepare minutes of all ex · parte meetings ·and conversations including telephone calls and should plaee these records In the public docket of the request to which they relate. This procedure will not only inform the public as to the nature of tlae inputs resulting in a particular decision, 'but will also help insulate the Commission . . from undue influence from all sources. Ia no case should the Comm-ission clothe an industry-wide submission or a submission by a trade association ln the garb of confldentlaUty. Tbe doctrine ascribing a proprietary nature to trade secrets and similar data was designed to foster and protect competition ; surely an industry-wide or tt'llde association submission does not fall within the protections of this rationale. If the Commission does not fully release all such submissions, it may encourage wholesale violations of the antitrust laws. in- Improper Uae of the Stabilization Program by Indu3try The Commission should establish better guidelines regarding the nature of material required In support of a request for an increase and shouM then enforce strict compllan<'e with the new guidelines. It should carefully guard against t.he use of the request pro<'E>SS as a i:iropagnnda technique for influencing pubrtc opinion in unrelated areas; for example, by allowing General Motors to separate its requests for increases related to pollution and safety lmprcwements from the rest of Its requests for price increases, the Commission allowed the corporation to misue its procedures for propaganda purposes. If the industry ls willing to provide such detailed data when it operates to the Industry's benefit, then it should be requlred to do so on all its requests (such as those related to styling costs for an aut:o company). Oiq1t1zed by Google 29 Publication of Rcaaona in Support of Commission Determinations At the very least the Commission should immediately initiate a program of presenting reasons In its announcements of approvals or denials of requests for 11ricp increases. Current announcements merely recite that price increases are justified by "increased labor and material costs and adjustments for productivity"; obviously, such a meager declaration cannot provide a bal:!is for a meaningful public responl:!e. Decisions with reasons would allow for a minimum of public review during the Interim while the Commission members further consider the precl!!e nature of the regnla,t ions which should be adopted concerning public access and purtlciputlon. l:t'urther, the Commission might egtablish a procedure of delaying the etT(>etlvPness of Its decisions for seven days, allowing for puhlic response to these "decisions with reasons" before they take effect. Under such a procedure the Commission could modify a decision with little hardship to interest parties should it become convinced that the original decision Is not in the best Interest of the public. The Commission's Obligation to Better Inform the Public If the Commission Is seriously committed to public participation In the decisions that are made and In the enforcement of its regulations, it must clearly explain to consumers their rights. The public must understand their right to inspect the ceiling price information posted in rt:he stores, the conditions under which landlords can raise rents, and precisely which items are exempt from controls. The Commission should use public service television advertisements to explain these and other complicated matters to the public and should include In the announcements the local address and telephone number where one can report violations. In addition, the Commission should use public service advertisements in the printed media to explain the tlner details of its program. Currently much of the information concerning Phase II Is burled in the tlnancial pages of the newspapers where It Is extremely unlikely rt:o be seen by the majority of people who are affected. Improving the Enforcement Proces, If consumers are to bear the brunt of monitoring prices during Phase II, they must be provided adequate tools to do tl~e job. Current regulations require retailers only to display their celling price lists ; they provide no way for the average consumer to evaluate easily the legality of any price increases over the base prices. The Commission should require stores to post the following breakdown for all goods sold : the previous price, the new price, the percentage increase or decrease in price over the base price, and the reason any increases are justified under Phase II regula,Uons. These lists should be posted prominently in areas where most customers pass, such as near entrance or cash registers. In addition, the Commission should pay special attention to those segments of tbe marketplace whieh ,p ose especially difficult problems for monitoring. For example, the pricing practices in tbe selling of new cars provides a haven for abuse of the stabilization guidelines. Though the "sticker price" might remain constant, there is no guarantee that the dealer is giving the same discount which he gave during the previous year. The Commission should establish rules requiring the maintenance of proper records avnilable for public inspection to ensure that the standard discount is being granted. Another area where monitoring by the consumer is difficult is in the pricing of seasonal apparel; as the individual consumer makes only infrequent purchases, he is poorly equipped to ensure compliance. 'I n these and other areas where the efficiency of citizen Service to make periodic epot checks to ensure the fullest possible compliance with Commission rulings and regulations. ThP- Problem of Quality Degradation With reasona·b ly long term price controls now established, the Price Commis• sion must caretuUy consider the problems of quality degradation which are to arise. The Commission should esb8Jblish procedures to review all available quality data previously collected and compare this information to the quaUty of products in current production. Prior data can be gathered from results of private testing organizations (e.g. Oonsumers Union and the Insurance Institute for Highway Safety), results of government tests, and data ,a lready submitted to the government ·b y Industry for other purposes (e.g. performance data for new cars) . 72-782-72--!'.i Oiq,t,zed by Google 30 Careful assessment of quality chanj!'es should piny 1111 inte:mil pflrt in the Commission's approvaI or denial of a request to incrf'llSe n µartknlar prit-e: morPover, it would provide ample justification for II Commission (l(>,_•ision to n><Jnire a price roll-back. Already the Commission has appro,Pd priet• irwrea;;es for American Motors and the other auto manufacturers: howe,er. recent);\· announced independent test results demoMtrated, for ex11wple. tlrnt tlw l!l'i:2 Gremlin incurs 175% more damage 1n a five-mile-per-hour frontal crn,:h than last year's model. The Commission should detail somp of its srnff to tlevt>lop adequate procedures for consideration of this and i-i111ilar quality information. Improving the Information Available to the Commi.ision The decision,s which the Prl<'e Commission rnnkP:s can hp no l•Pttt•r th:1n thP data on which they are b11sed. The prPsent notification form:- /PC'-1 nnd l'C'-lRt are deficient in several serious respects. For instance. nowherp on thP forms is thP company required to report any profit dntn. In nt!<lition, thP compnny is askP<l neither to report any changes in the quality of its pro<lnets. nor to affirm that there bas been no quality degradation. Th!'S(' omi.«sions are only the> most oh,ions and show the need for the drafting of new forms. Such forms should hp ado[ltc>,l only after careful consideration and review hy a wide variPty of interPs-tP<l parties, including some of those who might be interested in challenging requei;ats for increases when the Commission establishes procedures for public participation. Conclusions The Price Commission is entering n vPry critical period with regnrd to the future of the Phase II program. If the Commission i,; intprested in irwreasin:? public confidence in its decisions and in increasing thP likelihood thnt its dPcisions will be fair and equitable to all concernPd parties. it mu;.:t immecliately adopt a series of rules and r~gulations allowing for puhlic' aC'<'t'ss to information presented in support of requests for price incrPase,: and for pnhlic participation in its decision-making processes. This letter presents only a brief deSC'riptif)n of a ntriPt)· of aetinns whic-h tlw Commission should undertake. Ideally. the Commi><:sion shonl<l hold puhli(' hearings before issuing rules and n-gulatlons go,t-rning tlw nniou1S mntter:< 1lisc11:s.wd above; however, should such bearings apJ)Par impracticahle at thP prt-sent time. the Commission should not <lelny from issuing intPrim rPgulations pro,·i<ling for public access and participation until more thorough procedures can he developed. It is hoped that the recommendations discussP<l ahm·e nrt- helpful and thnt the Commission will carefully consider them bpfore acting on any more of the pending requests. Thank you for your consideration. Sincerely, RAT.PH XAnER. DF:C"DIIIF.R 29. 1971. )[r. RALPH NAnt:R, :Vntimiaf. Pre.'lfl Building, W11,Yhington, D.O. DEAR )IR. :'\:ADER: Thank ~·ou for )"OUr letter of December 10 which rnisPd lllllllV difficult question:-<. I will 110 my J,pst to nn;;wpr them in the order in which tlJPy were stated. Publie Partieipation in ('0111111i,,sim1. JJf'li/)('rnfion.'I '_, It is unrenlistic to Pxpeet the Commission to rpfrain from all further pt'ice increase requests until it has Pfitablished procedure:- for meaning-ful public participation in its deci!<ions. )Jost com1>anles prei-ently asking for priee increases have not heen able to inerease their prif'ps legally since .\ugust Hi. A cost justified price increase may he long m·enlne. To allow "mPaningful public- participation" in each suc-h decision would delay the decision so Jong as to work ,mhstantial economic injustice. · GrantPd. that in many ca;;ps the argumpnts the Commission !wars are representath·e only of the company's concerned. The staff' of the Conuui:-sion and the Commission itself, howe,·er, are quite capahle of asking pertinent questions and obtaining additional information when it appears to be needed. Hardly Oiq,t,zed by Google 31 a case has passed through the Conw1lssion procednn•s without questions being asked and consideraule uew information ueing supplied. Of course. we wight haYe done a uetter job in some cases had we had the benefit of input from an informed third party. but the delay which obtaining the input would have in,·o!n•d would 11ot han• bei>u tolerahle. In addition, as I am sure you are aware, meaningful puhlic participation is rarely possible without prior disclosure to the pu!Jlic of the information 011011 which an application for a pri1·e increase is based. Yet, the bulk of such information. in mo:-:t cases, is claimed hy the company to be confidential, am\ the Commission belieYes that such elairns are normally justified. Disclos ure of l<Uch information O\·er the objections of the companies concernPd woulcl he a ltrnuch of faith and would snhstantially impair tht> cooperative attitude toward the Price Commission program which ha,; heen adopted by most of America's industries. Public .tcocss to Intltt-~tr11 Submi.~sionil and. Other Co11111111nicution .~ ::\lost of your questions here ha Ye been dealt with by what I said in the 11revious section. Insofar as the Price Commission can feasil,1)' provide information to the public. regulations outliuing how such information can ue obh1i111>tl will be puhlished in about a week. "'e are consideriu~ your rPQUt'St that all memhers of the Corumis,;ion and its staff' should prepare minute,i of all incoming phone communications and file them in public dockets to which they relate. In fact, I believe that in substance this is already being done. The operations staff makes a record of every telephone call or other communication whleb they take or receiYe in connection with resolution of a case and this record is kept in the docket of the case. The Commission itself has directly de<'idecl very few cases so far. and no such detailed record of telephone conversations was kept in those instances. There was nothing uummal ahout the teli>phoue contacts in the casi>s di>cided hy the Commission. 'l'hey conci>rned ri>qnl'Sts for explanations and for additional information. We are also considering your request that industrywide snl,missions not hi> accorded such hroad benefits of confidentiality. Improper Uu of the Stabilization Program by Industr11 The Commission has its own guidelines for public diselosure which it follows in e,·ery case consistently. What a com11any says about its own ret1uests for price increases. however, is beyond our control. Xor should we s~k to control it. '\Vhat one person regards as only "pro1mganda," others may rightly regard as fri>e speech. Publication of R'ea ,9on ,9 in Support of Commission Determinations 'l'he Commission already publishes its reasons for imliYidual dicisions to the extent permitted by confideutinlity. Many of our statements of reasons are al,:o puhlished more fully as "Price Commission Rnlings·• applicable to hrond classt•s of eases. 7'1,c Comm·is.9ion's Obligation to Better Inform the Public I agree that widPspread public knowledge of how the Commission works is desiral>le. I also admit that some of our rules are not easy to follow nor easy to understand and that an aYerage member of the public may not he able to spot a ,·iolation immediately. All I can say in our defense is that we are doing our best to keep our rules simple and to inform the public. The inherent dif; ficulties of controlling prices in an economy as various and as complex as the economy of the United States makes complex rules necessary. Improving the Enforcement Process What I said under the previous bending also applies here. In addition. the Commission has recently been briefed by the Internal Revenue Seryice on the problems of monitoring within the retail area. We recognize these problems and are currently working on solutions. 1'he Problem of Quality Degradation ThE' Commission has established channels for obtaining quality-deterioration information. Here again, however, I must say that there are limits on how much the Commission can hope to take into account with the limited resources at its Oiq1t1zed by Google 32 command. Under the guise ot price control, we cannot properly expect to become the quality policemen tor all industry. Improving the Information, Available to the Commission All our Price Commission torms are being revised, and the new torms should be out by the time you read this. Price Commission forms are continually under review, as we gain experience under them. Concl·usi011, I appreciate your interest and your specific recommendations, even though I cannot say that in all cases I agree with them. Thank you very much tor your efforts. Sincerely, C. JACKSON, Jr., Chairman. Mr. C. JACKSON GRAYSON, Chairman of the Price Commission, Washington, D.C., Janu.ary 1, 1972. Washington, D.C. DEAB MR. GRAYSON : I would like further information regarding the Price Commission's approval of certain price increases. Specifically, I would like to know if the Commission allowed the following companies to add any profit margins to allowable cost increases for the price increases approved, or if the increased costs were passed on dollar for dollar. I would like this information for the following increases approved by the Commission : I.B.M.: 1.5% increase on all domestic products and services, as reported on decision list No. 15, December 14, 1971. Xerox: 2.2% increase on copiers and duplicators, as reported on decision list No. 71-28, January 4, 1972. ITT, Continental Baking Co.: 3.61% increase on bakery products as reported on decision list No. 18, December 17, 1971; 7.5% average increase on bakery products, reported on decision list No. 71-27, January 3, 1972. Royal Crown Bottling Co. ; 10.08% increase on bottled soda, and a 6.92% increase on canned soda, both reported on decision list No. 23 December 27, 1971. Pepsico : 1.39% increase on "selected products," as reported on decision list No. 23, December 27, 1971. I would also like to know in . each of the cases above what percentage of the price increase results from the application of profit margins to the allowable cost increases. Your prompt attention to this request would be appreciated. Sincerely, MARK ]f'REDERIKSEN. Eci>!I.OMIC STABILIZATION I'ROGBAM, THE PRICE COMMISSION, Wash ington, D.C. Mr. l\fARK FREDEIUKSE:., Wa shington, D.C. DEAR MR. FREDERIKSEN : Regarding your letter requesting information about Price Commission decisions, cost information submitted in price increase reques ts does not detail the portion attributable to profit margin maintenance. The Commis.sion permits the inclusion of profit margins in allowa·b le cost increases used as a basis for price increases. However, such price increases will not be allowed if they increase the maJJufacturer's profit margin-, as a percentage of sales, beyond that in the base period. The ·a llowable costs justified by IBM, Xerox and Royal Crown Cola (10.08% request) exceeded the price increase they requested, thus reducing or eliminating the portion of the ,p rice increase granted which could be a,ttributable to profit margin maintenance. . {rhe increases for Pepsico, ITT's Continental Baking Co. and Royal Crown Cola (6.92% request) were equal to the cost justification and would have included a cost factor for maintenance of the profit ma,rgin. Oiq1t1zed by Google 33 When a requested priee increase equals the allowable cost justified by the applicant, it can generally be a:,,sumed that maintenance of profit margin constituted a part of the price increase requested. Where the applicant Ms justified allowable costs in excess of his request, the portion of the price increase granted attributable to profit margin maintenance would be reduced or eliminated. As a general rule, rrerm Limit Price agreements, such as that ·reflected in the order granted to IBM, involve justified allowalJle costs in excess of the increases granted. Oost information concerning specific companies is not permitted to be publicly disclosed under the Economic Stabilization Act. For your information, enclosed are copies of Price Commission orders on these companies. J hope this information will be of value to you. Sincerely, C. JACKSO1' GRAYSO~. Cliair111a11, Price Jr.. Com11u:1sim1. Senator PROXMIRE. Let me ask you another question. The Commission continues to use the guise of impracticability to sidestep proper rulemaking procedure. The Commission used this for the utility regulations. Though the Commission approved the basic regulations on N'ovember 29 and stated they would release regulations in a few days, they were not released until January 14. The intervening period would have been more than enough time for the Commission to gather public comment. Dr. GRAYsox. One, the complexity of trying to write those t'('gulntions was larger than we had thought it would be. e wanted to nm ke certain that the regulations would not be incorrect, or hazy. "~e also wanted to be sure that they permitted utilities to be able to respond and work in the bond markets. As a result, there was a longer delay than we had hoped for. In addition, we did have conversations with all the regulatory authorities, with individual companies and utilities. There were a lot of interactions and much information was gathered, but not in open hearings. We just didn't have time to have the open hearings. ,ve needed to get the regulations published so that the compames could move. Senator PROXMIRE. Well, secrecy: is often more efficient-in this case it probably is. But I just wonder if it really serves the public interest. Dr. GRAYSON. The meetings which we held with all the regulatory agencies were announced, and they were known to all the commissioners, all the people-Senator PROXMIRE. The material, the information was secret. There is no way that the newspaperR or a Member of Congress or anyone else, a consumer, labor organization, could determine whether these were justified or not, is that right? Dr. GRAYSON. Well, as far as getting the data, no. As far as getting the company confidential data, that is what we are protectinl. Senator PROXMIRE. Let me ask you one more question. The vommission hasn't adopted policies to judge whether specific data submitted should justly be considered confidential; merely because companies request its confidentiality under the definition offered in section 1905 of title 18. Wouldn't it be wise for you to make some kind of finding that some of this information should be confidential and some should not? As it is now we don't get anything. ,v Oiq1t1zed by Google 34 Dr. GRAYSON. Yes, Senator, I think that is correct, and we are studying that in line with the direction of the act. Right now, in the beginning, what we said was what the company submitted we would regard as confidential. But I think you are correct, we will make a careful determination and decide whether the data they submit are confidential. Senator PROXMIRE. Not only that, but you accept the company's information as ~spcl, yon don 1 cha11entze it: is that rig-ht? Dr. GR.\YSON. Right now we do not have the staff to go back to the company itself, but we challeng-e a lot of fig-ures and send the companies back fo1: more explicit data, and also audited data. So we do have some checks and balances in the accuracy of the data. Senator PRoxMIRF.. You don't clieck the statement of confidentiality? Dr. GR.\YSON. Don't check the statement? Senator Pm,x:mnE. The statement that information has to be confidential. The company says this is confidential, that's it. That's good enough for you. Dr. GR..\YSON. Yes. as of now, but we are studying the question and we will come out with a statement that savs which data you submit to us we will not hold confidential. · · The C1L\IR::\IAX. Dr. Grayson, I am sorry to be late. But any time we hin-e to break I hope the first member back will resume the hearings. I am glad yon did. It seems to me that it will be good when you get to the point that yon can set up some kind of arrangement for· hearing-s where hearings arc required or requested. I take it that most of the cases you have had so far han~ been an accumulation of cases that came in all at once, did thev not ? You had to make the decisions. 1'Ve wrote into the law a requirement that hearing-s might be available when requested or required. Dr. GRAYSON. Yes. that will be the case. Mr. Chairman. ,Y(' will re<'ognize that and will hold hearings in cases that are of importance to the national economy. The Cn.\IR:\IAN. And information on that will be available as soon as you can put it, out? Dr. GR.\ Ysox. That. is correct. The Cn.\IR:\IAN. I have to leave. It won't take me but a few minutes. I would like to suggest that if you c.omp]ete with Dr. Grayson you call up ,Tudg-e Boldt immediately. vVe have his financial statement and also th~ biographical sketch. And if you will excuse me, I will ]eave for a few mmutes. Senator Tower, do you have a question? Senator TowER. I have passed. The C'H.\IR)L\X. Senator Brock. Senator BROCK. ,Just a couple of very brief questions, Dr. Grayson. I wonder if you have any idea what, percent of those companies whose decisions won.Id have a sizable eff('d. upon the national ('C<momy a re pnbli<'ly lwlcl. Aren't the overwhelming majority of companies who ha rn any impact of major consequence on the economy publicly held corporations? Dr. Gn.\YSOX. To mv knowledge. hv far the majoritv. I know of onlv one or two instances from instant. recall where t'1ere is a large private Oiq1t1zed by Google 35 holding in some major companies. Those publicly held are up in the 99 percentile. Senator BROCK. And in those 99 percent their financial reports are available to the general public j Dr. GRAYSON. That is correct, and audited. Senator BROCK. And audited under the SEC regulations among others. So that secrecy really relates to cost data on specific products which may be brought before you of that corporation which are of necessity confidential because they contain data which could be highly useful to the competitor. Dr. GRAYSON. That is true. Senator BROCK. And release could be highly detrimental to that particular corporation. I think we need to debunk this thing about secrecy as being something we are trying to protect the secret profits of all these corpo1;ations. Something in excess of 99 percent are a matter of puulic record and public knowledge right now. Dr. GRAYSON. That is correct. Senator BROCK. That is a fair statement; is it not? Dr. GRAYSO:N". That is correct. And I emphasize that these are all audited by reputable professional CPA firms in every case, and we require that as doest he SEC. Senator BROCK. I am tempted to ask you as a graduate of a certain notable institution and as the dean of another what impact the Price Commission has on the Phillips curve, but I guess I will pass that one for now. f.enator PRox1\HRE. Senator McIntyre. Senator Mcl:xTYRF.. Thank you, Mr. Chairman. Mr. Grayson, I hope you realize that 11 million citizens of my section of the country, New England, are presently forced to pay millions of dollars a year in higher prices for oil products because of numerous subsidies granted to the oil industry. It has been estimated that the oil depletion allowance, intangible drilling cost benefits, the foreig-11 investment. tax credit, and the oil import quota system result in an $8 to $10 billion a year benefit to the domestic oil industry. ,ve, in New England, feel the oil industry has been sufficiently protected and price increases on top of the present Gornrnment subsidies will be a hard pill for Ne,y England consumers to swallow. The Washington Post lnst week carried headlines stating "19711Vas a Banner Year for the Giants of the Oil Industry.'' So let's try to make 1972 a banner year for the consumer by holding those prices down. l\fr. Grayson, on ,Tanuary 2;\ I sent you a letter regarding preliminary negotiations prior to formal filings of requests for price increases by Shell Oil and Trans-American Oil Cos. I would assume that if these. two companies formally filed for pay increases that other members of the oil industry will follow. Now I recognize that in view of the fnct that no formal filing has been made at this time it w·onld be impos,-ible for yon to comment on a proposed price increase, and e,·en if the requested increases were filed it would be inappropriate for you to (liscnss the merits of these requests. Howt-ver, I would like> to raise two quest.ions with you in regard to the manner in ·which your agency would handle such price increases if and when they :ne formally submitted. Oiq1t1zed by Google 36 First is that our domestic petroleum industry is covered by the mandatory oil import quota system program. This, as I am sure you are aware, limits the amount of foreign oil that can be imported into the United States. and was purnosely designed to provide protection for our domestic oil industry. The import program was instituted in 1959, by Presidential proclamation 3279. Sedion 6 (A) of that proclamation requires that when crude oil or its derivatirns are increas<>d in price the director of the Office of Emeqrencv PreparednesR shall make a determination as to whether such increases are necessarv .to accomplish the nn.tional security objectives upon which the quot.a system was purportedly based. I would strongly urge that the Price Commission if and wh<>n members of the petroleum industry rerptest price increases. have OEP conduct such a survey prior to any decision made by your Commission. If there is not, it could well be that litiJ?ation may result charg-inP." that any price increase granted by yonr agency would be illegal. The second point is it. is my understanding that both Shell and Trans-American are nresentlv negotiating with your staff to file for what is called term limit. pricing. This procedure, as I understand it. would allow a company to increase its total prices by 2 percl'nt for the entire year. In view of the large number of products refined by petroleum comnanies and their sensitivity to our economy in ~eneral, it. is hoped that any price increase ~anted will be based along individual product lines rather than on a broad percentage avf'ra~ing procedure. · I alRo realize that. you probably cannot comm<>nt on this is.;;;ne today. Rut I hope y011 will keep the commit.tee informed as to the policv adopted by the Price Commission with regard to crude oil and petrolPnm increases. Now hem is the Question. The Economic Stabilization Act as pa,:sed with amendments contains in section 203(b) as part of the standards for issuing orrlers and regulations that general exceptions and variations should be made where necessary to foster orderly economic growth and alRo to protect from domestic shortages of raw materials. The phrnse "domestic shorta~es of raw materials" was included in section 203 (b) because of difficulties encountered bv domestic tanners and some other industries in obtaining materials· needed in manufacture. It is my understanding that the economic stabilization plan has had the effect. in some instances of encouraging exportation of raw materials resultinJ? in shortages in some industrieR. "\Vould you comment on what action has been taken, if any, by the Price Commission to assure that domestic tanners can acqui"re necessarv cattle hides at competitive prices? Dr. GRAYSON. To my knowledge, Senator, no export control action has been taken on the issue you raised as to the tanners. We are aware that, in some cases, our policies could have, as side effeds, the conditions you cite here, and when that is the case the Price Commission does not have the powers to go into other el<>ments snch as export controls and any other kind of activities. That is not within our jurisdiction. But we do want to be aware of impact of our policies, and I will certainly look at the situation you describe in this particular case. Oiq1t1zed by Google 37 But I do not know that any specific decision was made on the tanning industry per se. Senator McINTYRE. But you are aware of that problem~ Dr. GRAYSON. Yes. Senator McINTYUE. And will be sensitive to it? Dr. GRAYSON. Yes; we will. The other problem you raised, without going into the specifics--your comments and your letter-will all be considered in our decisionmaking. Senator McINTYRE. Mr. Grayson, section 214 of the Economic Stabilization Act as amended calls for providing exemption for small business as may be feasible. The Price Commission has at this time exempted small retail establishments with gross sale of under $100,000 from several Price Commission rules and regulations. Do you foresee any further small business exemptions, and if so, when? Dr. GRAYSON. ·well, immediately, no. I think we want to look at what impact this has, and we know that it has a small impact-that is 15 percent of the sales in the retail sector are now exempt. But the matter of studying the push on the inflationary forces, together with our ability to respond to the administrative burdens that are required under the act will affect our decisions on other exemptions in the Small Business Administration area. But, at this moment, we don't have any immediate plans for further exemptions. Senator McINTYRE. I would like to make my letter to Chairman Grayson of January 25 part of the record. Senator PROXMIRE. Without objection, that will be printed right after your questioning. ( The letter follows : ) U.S. SENATE, COMMITI'EE ON BANKING, HOUSING AND URBA:s' AFFAIRS, Hon. C. JACKSON GRAYSON, Washington, D.C., January 25, 1972. Chairman, Price Commi.'lsion, lrashington, D.C. DEAR Ma. CHAIRMAN : It is my understanding that preliminary negotiations are presently being conducted by your agency's staff r{'garding the filing of a formal request for term limit pricing permission on behalf of the Shell Oil Company and Trans American Oil Company. In view of the indicated desire of these two companies to obtain permis><ion for price increase:,;, I believe it can reasonably be inferred that competitors of these companies will make !:!imilar requests. Serious questions are raised as to the a-ppropriateness of granting these price Increases without first obtaining from the Office of Emergency Preparedness ·a report as required by Section 6 (a) of Presidential Proclamation 3279, which establif'hed the Mandatory Oil Import Program. to determine whether snch increases are necessary to aceomJllish the national security obje<'tlves of the controlling legislation and of the proclamation. Tbe pertinent part of Section 6(a) states: "In the event prices of crude oil or its derivativt>s shoul<l be increased after the effectivt> date of thii,; proclamation, su<'h survt>illan<'e shall include a determination as to whether su<'h increase or in<'re11ses are necessary to accomplii;;h the national security ohjecti\·es of the .Act of .July 1, 19:-\-1 as amended, and of this proclamation." Tht> rt>Rponsihility referred to in tht> Inst sentence is dele,mtt>cl by the President directly to the Director of the Office of Emergency Prepa redness. Public intert>st con;;idnations Hlso must qut';;tion whethn the use of yonr llltt>ncy's term limit pricing mt>ch11ni;;m would be appropriate with regard to crude oil and petroleum product price in<'rease requests. As I understand this procedure, a company granted such an increase would be pennitted to increase prices within the year by two percent based on the average of all domestic product prices. 72-782-72--6 D,qitized by Google 38 ·while in some industries this procedure may well be appropriate, the structure of the petroleum industry would require a product by product examination to determine whether indh·idual prices increases are justified. This is particularly true with regard to crude oil prices. The impact of the oil depletion allowance. the effect of intangible drilling costs and the operation of the )Iandatory Oil Import Quota System combine to give major integratPd producer-refiner-marketprs enormous economic and competitive advanta-ges over their smaller and less inte;:rratt>d rivals. To a great extent this advantage is based upon the ability of a small number of majo1· oil companies to control the sup1ily and priee of c-rude oil. This control is also present in varring degrees with regard to a number of petrolemu products. Public policy requires that petroleum price increasf>s, if indf>ed they arP pro,·p11 to be justified, must be limited to particular produets and uot be granted under a broad averaging procedure. Unlf>s:< the major oil eom1,unies are re11uirPd to :<uhstantiate individual requested price increases, their market dornimrnee will allow them to price products at varying percentagf> lf>Yels rausing ~eriom: PMnomic hardships on particular dasses of users. Of particnlnr lmportanee to my constituents ii; the ability of a small number of major oil companies to unreasonably increase the price on resi<lential and industrial heating oils in Xew England and by adjusting the price of other products still remain within the gPnPrnl two percent price increai,;e limitation. An isi;ue of such importance requires that the Offll'e of Emergeney Preparedne"'"' conclnct a study on any proposed petroleum price increase as i:s rerinire!l hy Section 6(a) of Presidential Proclamation 3279 and that any price increase granted be based on the indh·idual petroleum pro<luct. Sincerely, THO\IAS .J. l\fC'IN'l'YRt'.. Chairman. Subcommittee on Small Ru..,i11l'1J8. Senator PROXl\IIRE. Senator Tower. Senator TowER. I have no questions at the moment. Senator PROXMIRE. Mr. Grayson, pursuing the line of questioning that I was pursuing in regard to making more information published, we would be in a better position to appraise this and how you are administering it, does the Price Commission make public the votes of its members? Dr. GRAYSON. Yes, these are being made available to the public. They are to be published in the next few days for all our meetin~rs going back to December 22. · Senator PROXl\IIBE. Yon say they will be published. They haw not been published so far? Dr. GRAYRON. :No. I think the minutesSenator PROXMIRE. l:nder the Freedom of Information Act wusn~t this reouired to be published? Dr. GRAYSON. Records were kept on these, but it was felt. that it was not required. Senator PROXMIRE. They were required under the Freedom of Information Act. · Dr. GRAYSON. 1:Ve asked the counsel. He said the way the act was written, at the moment they were not requii-ed, but they'are now. The Commission members were polled to see if they had any questions a~ou_t going back, and there was no question whatsoever by any Comm1ss10ner. Senator PRox~nRE. Last December the wholesale price index rose by 0.8 of a percent. There were 2 or 3 months in which the wholesale price index did not. rise. For that month it was a very high rate. It Oiq1t1zed by Google 39 was the biggest increase in 10 months. How effective has the phase 2 price control been in view of this large increase in wholesale prices, and recognizing quite a bit of this was a result of the food prices that are not under control ? Dr. GRAYSON. I think the industrial increase was 0.3, which is the area primarily where we have our control. Of the total 0.8 increase, exempt food was two-thirds of that increase. And if you look at the rate from August to December it was approximately 1.7 annualized, during the period of the operation of the act itself. 'What we are looking at, therefore, is fairly encouraging. Senator PROXl\URE. During the period of the act itself-are you including the freeze period? Dr. GRAYSON. Yes. Senator PROXl\URE. During the freeze period there shouldn ~t have been any significant increases. Dr. GRAYSON. Yes, in fact there were some decreases in food prices. Senator PROXMIRE. Should have been, because no price could go up. Dr. GP.AYSON. vVhat I think we are seeing now is an increase due to the fact that the freeze limited the ability of some firms to raise prices; they were trapped by increased costs just J?rior to the freeze. I am anticipating that we will have control in the mdustrial sector based on certain factors that we see operating in the firms we are controlling directly. And I haxe talked to the Agriculture Department and their statisticians expect that the rate of increase in farm prices over the next year is likely to be in the neighborhood of 3 percent. I have also talked to some food chains just in the past week or so, and they are anticipating and hoping that increases can be held a.t. 2.5. That is annually across the year; it does not. mean necessarily in any month we won~t get the seasonal factors. But if that is so, the rate of increase in the WPI is going to come down. Senator PRonnRE. So far we have no hard evidence that this has worked at all. It is obvious that during a freeze period, a 90-dayfreeze period, that had an effect on inflation, of course. But many prominent economists, including people like Friedman and others, argue that this is deceptive because right after the freeze yon are going to get prices resuming their increase. vVould you agree that to date we do not know, we do not at least have the hard evidence that the anti-inflation program has worked? Dr. GRAYSON. I would agree as to hard evidence. I see enconraging signs that we are making progress, and I can cite some of those if yon wish. Senator PROXMrnE. '\Ve11, can you give us a target for yonr price inereases for each quarter of H>72? Dr. GRAYSON. The. CPI-want me to gue;;s the CPI? Senator PROX:\rIRE. Yes. Dr. GRAYSON. I would say I hope this can be he]d over the next few months at hopefully around 0.4, and then gradnal1y-Senator Pnoxl\:URE. Around 0.4 for 3 months? Dr. GRAYSON. Approximately. Senator PROX:'IHRE. Annual rate tl1cn wo11kl be 1.6. Dr. G1u.Ysox. I mean 0.4 for the increase per month over the next few months. Oiq1t1zed by Google 40 Senator PROXMIRE. Per month-wait a minute---0.4, that would be quite a bit. That would be a big increase. That is 4.8 percent incre-ase annually. Dr. GRAYSON. That's right. That is what it was this past month, in December. Senator PRoucmE. That wouldn't be any imprornment ornr what it was the period before the act went into etfod. So yon are expecting this quarter to be about the same as before the net went into effect 1 Dr. GRAYSON. Approximate]v. Kow I <lo expect that there will be a downward trend and that by tlie end of the year, I predict, the annual rate will be approximately 2.4 percent which is our goal. Senator PROXMIRE. That wouldn't represent much of an improYement in 1972 over 1971. Dr. GRAYSON. •I think the annuu,l rate we are heading for by the end of 1972 is 2 or 3 percent. Senator PROXMIRE. By the end of the year it would be around two and a half -p ereent? Dr. GRAYSON. Two to three percent hy tlw end of the year, but not all through 1972. Senator PROXMIRE, So the a,·erage during the year might be around 4 to 5 percent. Dr. GRAnoN. I think it wil1 he lower than that-say 3.5 percent.. Senator PROXMIRE. Three and a half to 4 percent wou]d be. a pretty modest improvement. ,ve would still have serious inflation. Have any consumer groups brought civil actions against price violators? Dr. GRAYSON. To my knowledge there has been no formal act.ion filed. no. Senator PROXMIRE. You wonld know abont that? Dr. GRAYSON. In aB ]ikelihood, :ves, because we get data sampled from the IRS system a round the Nat.ion. Senator PROXMIRE. How many requests for price increases have you apJ)roved? Dr. GRAYSON. A:bout 1.200 cases. Senator PROXMIRE. '\Vhat has been the average percentage increase reouested? · Dr. GR.ffSON. About 3 percent.. '\-Ye have approved about 95 percent of the requested increase. Senator Pnoxl\fIRE. Yon approYed 93 percent? Dr. GRAYSON. Yes. Senator PRoxMrnE. Onl:v denied ,5 p<'r<'ent . . Dr. GRAYSON. That is correct. In addition many firms have not filed because they didn't feel, a.ft<'r conversations with the staff. that t]1ey were ent.itled to an increase. Therefore. the firms that have filed nre the firms who ~ould justify an increase. Many of these firms conld justify more of an 1mcrease than they requested. Senator PnoxllfIRE.1Yhat was the averap-e increase? Dr. GRAYSON. In terms of all the applfra,ble sales the average increase is 2.91. . S1>nator Pnox:mm:. 2.01. and vou have done this during a two and a half month period, is that rig-ht? Dr. GRAYSON. Since November 14. Oiq1t1zed by Google 41 Senator PROXMIRE. .And when you report this you report two things; as I recall. One is the increase for a particular product for which a price increase is requested; two, the impact that has on the firm's total sales. Dr. GRAYSON. That is correct. Senator PROXMIRE. However, you don:t print a cumulative total. So that the same firm can come back, might come back eight or 10 times during the year and get the increases that might all be below 1 percent, but it might turn out to be a very substantial increase. . Dr. GRAYSON. Not in excess of our policies, because the cumu]ative record is kept in all.the files and we note that every time. There have not been many repeat filings. · . Senator PROXMIRE. Not repeat so far, but we are only beginning the operation. · · . · Dr. GnAYSON. And I have requested that the cumulative informa- • tion be published. · · Senator PROXMIRE. It has not been published? Dr. GRAYSON. Not yet. But that is being put into the computer run so that we can get that published as part of our reported data. Senator PRox:mRE. ·when do you expect to be able to do that? Dr. GRAYSON. I would say the end of next month, maybe the middle of next month. But I may be a little optimistic. Senator PROXMIRE. How can consumers rea 11y take part in monitoring this data if they are denied information that they ·have to have to judge it? The AFL-CIO I think has done a great public service in indicating they do their best to have their members monitor this. Great · thing-after all, no cost to the taxpayer-effective monitoring system. But it seems to me they have a very tough job. l\faybe it is impossible. I don't know how they can do it without this kind of information. And isn't there something you can do to make more information available so monitoring can be more effective? Dr. GRAYSON. Yes; one of the things I did was appear before the A FL-CIO price monitoring group and try to explain the system and enlist their cooperation in several ways. One way is discriminative shopping: Asking the store owners a;bout the price bases, and comparing the distance ·between the base price and the current price, particularly over time. What the customer can not do is to go to the individual item on the shelf and determine whether or not there has been a vio1ation. We made the decision to go to the aggregate system or the mark-up system as opposed to an item-by-item control for various reasons. One reason is that in item-by-item control you end up with supply shifting . from low mark-up items to high mark-up items. This deprives many people, particularly in the low income segments, of the ability to get low mark-up items. e didn't want to create shortages. . We also· Jooked at the administrative bm·dens that would be caused by goin1r to item-bys item control and saw that it would also inhibit market flexibility. Looking back at the history of item-by-item control in OPA, we noted that eventually they had to go to an aggregate system because item-by-item caused so many problems in the market. . Tomorrow, I am appe:H'ing before the Consumer Federation of America. I have talked to the President:s Cousnmer Advisory Conn- ,v Oiq1t1zed by Google 42 cil, and I do agree that we need to get more'. information out to the consumers. I ha,·e now been visiting several cities in the Nation so consumer g-roups and businessmen can come and hear Commission policies and learn how consumers can adequately help us monitor the program. Senator Pnox:mRE. One more question on this round. A housewife who is cooperating in this effort to determine whether the. mark up was legitimate goes into a store,-! went into a store and they showed me a price list the other day. There is a code number for a particular it~m and a base amount. Then she has to go and find that, coordinate the two. which takes some trouble and some time and effort. Once she gets it what has she really got? She won't know-the price increase could he 5 percent illegal, could be 10 percent proper, 20 percent justified. It is very, very aifficult for her to have any basis for judging whether the price increase was right or not. Just looking at the individual consumer, even if she is very shrewd and very persistent, seems to me it is hopeless. Dr. CTn.n-soN. I went shopping Saturday myself. Senator, and I went to grocery stores and other kinds of stores Saturday, and I found out that it is difficult in some cases. Senator PnoxMrnE. AH cases; isn't it? Dr. Gr:.,Ysox. No, T found in some :;tores that the base pric-·e was ,·ate~orizPd Yerv neatly. You could look up a brand of tomato ~auce and find it easily. In !"0111e otlwr f>tores it wasn~t easv. I instructed the IRS to tC'II their ag-ents that they must get stores to imt the ba,;ic price in a form that i,, comprehensible to the consnnwr. You are right about the fad that the eonsHmer on the snot cannot tell if there has been a ,·iolation. I don't claim otherwise. Rnt we are going to get those base 11rir•f>s in hPtter form. I do not think manv stores haYe made it easilv dsihle and nnderstandii.ble to the ronsumer. And I am determined to do that in order to make the posting ham more meaning and value to the customer. Senator Pnox:mm:. Semttor Tower. RPnator 'T'mn:n. No <1uestions. SP1rntor Pnonnm:. I wi11 he as rapid as I can. How many comJ>anies ha Ye heen able to submit nroductivity figures in connection with tlJPir rM11est for nrice increases? Dr. Gn.,Yt-O:'\". The maioritv of them, Rfter preliminary discussions. have snhmitted prodnrtidty · figures. Admittedly these are rough fi~ures .. \rlmittedlv manv firms do not presentlv keep these figures. What we do is try to' get them to estimate, and if they can't estimate, we Sll!!!!est that they look at the industry data. Senator Pnox~nm:. Do you acrept their jnd!ITilent as to what the indnstrv data is? You don't trv to find it. yourself? Dr: GR.\Y80X. ,,re have the industry data from BLS. ,ve say that vou should have a nroductivitv target. It should be there. ,vhat does vom· data ~how? ,ve. attemnt 'to let them use their data. but we recorrni?:C' that this is Yerv difficult for eertain individual firms. ,-Senator PnoxJ\lmF.. So if their J)I'oductivity is better than the indnstrv :n-erage thev ham no in<'entirn for de,:eloping any other data. ln fart thev have an incentive for goina along, they get a better price increase th.an if they reported what the producth·ity-- Oiq1t1zed by Google 43 Dr. GRAYSON. 1\'hat we are using- is the coming year's productivity us compared to last year's productivity. I think a company's producti ,·ity gains as a return on investment for capital should reside with the company. The producti,·ity data we request is labor productivity, not capital productidty. ~ don ·t want t_o destroy that incentive either. Senator PRounRL I tlunk you are right. You have got to presen-e that incentive. But when you do permit the incenth·e you also crea,te a. price increase that wouldn't ordinarily be justified by your policies. You have now exempted retail stores that se11 less than $100,000. That is 15 percent of all retail sales-15 percent of the amount, but a very large proportion, far more than half, overwhelming majority of stores, I think. Dr. GRAYSON. Seventy-five percent. Senator PRoxMrnE. You also exempted used cars, yon exempt many. many other things. In yonr initial order you exempted about 17, 18 percent. Dr. GRAYSON. About 18 percent. ~enator PROXMIRE. How many are ext>mpted now? Dr. GR,\Ysox. I don't h:n-e the cumulative fil,.!nres up to date. I would say it isn't significantly lar~er under the CPI. I would say 20 perct>nt. Senator PRox~nRE. Do you have any organized method of determinin~ how you are going to decontrol, that is to the extent to which you can continue to exempt small firms and other firms, how do you operate that? Dr. GRAYSON. I directed a small group within the Commission to beg-in an explicit study of decontrol techniques. Senator PROXMTRE. That has not begun yet? Dr. GRAYSON. They sta1ted maybe a week or two ag-o to work on strategies, and they are coming back and discussing it with me now. Bnt our major emphasis, -as I haYe said many times, is going to be on making the control mechanism work first. 1Ve are not unmindful of the fact that we ought to have a decontrol stratt>gy, but right now we are primarily interested in control of price increases. Senator PROXMIRE. You don~t han the nower to decontrol yourself? Dr. GRAYSON. No. that is a recommendation to the Cost of Lidn!! Council. · · ~na.tor PROXMIRE. They are the ones that make a decision? Dr. GRAYSON. That's right. Senator PROXMIRE. How long did it take you to persuade them to decontrol the small firms, those sales of lPss than $100,000? Dr. GRAYSON. ,,:rel! , they acted on it within a week after we made the recent recommendation.to them. Senator PROXMIRE. Recent recommendation? Dr. GRAYSON. Yes. Senator PROXMIRE. There was one before that? Dr. GRAYSON. In the early part. of the program we recommended the exemption of these firms and they decided to defer the reqtwst until later. And on our recent recommendation. they accepted it. Senator PROXMIRE. One other question. I am just about through. The Commission has awraged 2.9 percent, I understand, in iiH·reases gfren. Since exempt prices will probabl~, be more than the 2.5-percent Oiq1t1zed by Google 44 goal, docs this mean that the control prices must be held ,wll below 2.5 percent? Dr. GnAYSON. One important consideration &>nator. The 2.9 pe1wnr figure is the average increase for the firms that have come in. Half of tier 1 has not been according to the rc>sponses I got in December. ilO percent of the firms in tier 1 indicated they would not come in for price increases any time in the near fnture or that t.l1ey would hold the line to very small increases. To add another statistic, if you take the price increases that have been granted and apply them across tier 1-a.nd we are trying to hold price increase;, ncro;;s the economythe mcreases granted represent only about 0.5 percent of the sales of all of the tier 1 firms. Senator PRonnRE. Mr. Grayson, as I said before, I am very impressed by your personality, your intelligence, your willingness to tackle one of the toughest jobs in Government. Because you do have this enormous power, there is just no denying it-greater economic power than normally any group has in a democratic so<>iety-1 would hope that you would do your best to have public hearings, to make more information available than has been made available so there is this kind of check on the just.ice and the wisdom and the justification for the price increasPs that are permitted. Dr. GRAYSO:S-. ·well, Senator-8Pnator PnoxMIRE. Oh. yes; I do want to a>'k :von about your coordination with the Pay Board. We are having Judge Boldt up. Obviously you can't haw an anti-inflation program unlC>ss the two work somewhat together. There was great concern on the part of some members of the Senate that they shouldn't divide this. It has to be coordinated and done right together. Others disag-ree with that. The Pay Board has permitted some enormous increases. We are going to pursue that with Judge Boldt. But how has this affected or is likely to affect your operations? Dr. GRAYSox. One, we do have liaison functions with the Pay Board n,nd an individual who keeps informed of their deliberations. Senator PRounnE. You have a particular person? Dr. GRAYSON. Yes. Senator PROXMIRE. Do yon work with Judge Boldt i Dr. GRAYSON. I see the judge on occasion, we talk to each other at least once a week about matt-ers that are going on in the Pay Boatd and the Price Commission respectively. ,ve do ask for general data if an industry is coming before us, but we do not exchange individual company data. Now our policy is still related, but these bodies are independent and they make their decisions on their own criteria. Naturally, when a request coming to the Price Commission has a labor component in it we look at that, and we are doing our best to say that we hope the guidelines will be respected so that price increases won't exceed the 2.5 percent across the economy. Senator PROXMIRE Thank you. The CHAIRMAN. Any other questions? ·· I want to say just this, Dr. Grayson. I am most grateful to you, I am sure we all are, for your action with reference to the small retail stores of this country. I was 'impressed by the large number involved Oiq1t1zed by Google 45 but the relatively small volume invoked. But I think it has mennt a great dea] to the little store, the family store, the neighborhood store, and so forth. And I am very g]ad that you took that step. Dr. GRAYSON. Thank you. The CH.AIRMAN. And I commend vou for the work you lun-e been doing, and I join in the expression of the others with reference to the importance of this job and how we must commend you for being willing to undertake it. Dr. GRAYSON. Thank you, sir, and I hope I can lh·e up to the responsibility. The CHAIRMAN. I hope you will ha,·e a very successful tenure of the job and get to go back to Texas a contented man with a job welJ done. Thank you very much. Dr. GRAYSON. Thank you. The CHAIRMAN. Next we have Judge Boldt. Judge Boldt, will you come around, please ? Judge, we have your biographical sketch. That will be placed in the record. (Biographical sketch follows:) Biographical Sketch of George H. Boldt George H. Boldt was born in Chicago, Illinois December 28, 1003, son of George F. and Christine (Carstensen) Boldt; went to Montana ns roung child; graduated Stevensvllle High School 1921 ; l\ISU BA 1925; LLB 1926; LLD (honorary) Coll. Puget Sound 1954; LLD (honorarr) ~:lSU 1961; admitted to Bar Montanft 1926, Washington 1928, and all federal courts, including Supreme Court. At ~ISU various undergraduate activities, including yell king, Straughn Scheuch scholar, Aber oratorical prize, Oxford-~Iontana debate 1924 and president student body 1925. Married Eloise Baird, ~ISU 1925, Nov.17, 1928. Children: Joan (~frs. Hugh Sobottka), Virginia (Mrs. Thomas R. Riedinger), George B; eight grandchildren. Law practice Helena, Mont. 1926-27 associated with W. D. Rankin, Helena, Mont.; Seattle, Wash. 1927-1945, partner Ballinger, Hutson & Boldt; Tacoma, Wash. 1945-{'i3, partner Metzger, Blair, Gardner & Boldt. July 27, 1953 appointed by President Eisenhower as U.S. Dist. Judge for Western District of Washington. During law practice served as special assistant attorney general representing State of Washington in litigation re Tacoma Narrows Bridge collapse and again in acquisition of Puget Sound Ferry System. Varied and extensive trial practice, including many important public and private cases. Served as Chief Judge, U.S. District Court, Western District of Wash. from March to October 19il; became a Senior U.S. District Judge Oct. 30, 1971. Active service U.S. Army 1942-45, dis· charged Lt. Col. ; Service with OSS in Burma campaign and China theater. Distinguished· unit citation and three battle stars, graduate Command and General Staff School Fort Leavenworth. Judicial service includes many special assignments on Court of AppeaL<; 1111d sitting as trial judge in almost every section of U.S., including New York. Phlladelphia, Washington, D.C., Detroit, Alaska, Mississippi, Callfornla. Arizona, Oregon, Montana, Guam, Honolulu, Chicago and Puerto Rico. 1955 official delegate representing U.S. at First UN Congress on Prevention of Crime and Tre11tment of Offenders at Geneva, Switzerland. Member Amreican, Washington State, federal and Pierce and King County bar associations; Phi Delta Phi (legal) 11nd Sigma Chi (grant trustee), American Legion, Presbyterian, Mason (32nd degree Shriner); Seminar of federal judges on protracted cases at NYU Law School 1957; discussion leader first Criminal Sentencing Institute, Boulder, Colo. 1959 ; member U.S. Judicial Conference Committees on Administration of Criminal Law, Standing Committee on Rules of Practice and Procedure for federal courts, Coordinating Committee re discovery problems multiple lltigation; Committee on Operations and Appraisal, Federal Judicial Center; ABA-AIA Committee on Judicial }'acilities; Trustee. University of l\Iontann Foundation; Member Institute Judicial Administration, International Inst. Judicial Studies, American Oiq1t1zed by Google ✓- 46 Judi<'ature Society; and Member American Law lnf<titute. Horne, 0144 Eclgewnter Drive S.W., Tacoma, Washington. Office, Federal Buildings, Tacoma and Seattle. Judicial Conference Representative on the Secretary of State's Advisory Committee on Private International Law, Appointed Chairman of the Pay Board, Economi<' Stabilization Program, October 22, 1971. Has presided at criminal and civil trials extensively throughout United States including Southern District New York. District of Columbia, Eastern District Pennsylvania, Eastern District of Michigan. Alaska, Hawaii, Guam, Puerto Rico, Oregon, Southern District of Mississippi, Arizona and California. NOTEWORTHY TRIALS Crimin(J,Z l".S. v. Dave Beck (Tax Evasion) Tacoma. U.S. v. Mickey Cohen (Tax Evasion) Los Angeles. U.S. v. Lev et al ( Smuggling and bribery conspiracy) New York. U.S. v. Benchwick (Bank Fraud) Honolulu. l".S. v. Althouse (Mail Fraud) Detroit. Posttrial matters, including sentencing. U.S. v. Carbo, et al (Extortion) Los Angeles. U.S. v. Marshall et al ("Seattle 7") trial, Tacoma. f'i v il Rayoner v. r.s. (Olympic Peninsula-1''orks fire) Seattle F.S. v. Northern Pacific Ry. (Truffle clauses invalid under Sherman Act) Seattle Pacific Queen Fisheries Y. Atlas Assurance Co. (Marine insurance re ship explo,Jion) Tacoma P.S. v. Washington Toll Bridge Authority (Federal tax re state ferrief-) International Canadian and Pennsalt Chemicals v. Frank (Validity of Western Hemisphere Trade Corporation) Tacoma An·icl!<on and Whiteaker v. Reynolds Metals ( Claims re fluorine damage to cattle) Gorusch v. United Security Life ( Stock Fraud) Phoenix :\kDonough ,·. GEICO (Civil Fraud), Anchorage One of the judges handling the nationwide civil antitrust litigation in the electrical equipment industry-about 2,000 cases in 40 districts inYolving 25,000 i-eparate claims for damages running into billions of dollars. The most extensive litigation involving numerous difficult and complex questions of law and fact eYer to he adjudicated. All claims terminated within 5 years. STATEMENT OF GEORGE H. BOLDT, NOMINEE, TO BE CHAIRMAN OF THE PAY BOARD The C11AIIC\L\N. "~e also have your financial statement. I have looked at it and made it available to the other members. And I ham rend the statement, the certificate by the counsel that savs in his opinion there is no conflict of interest. Yon heard what I said about the. treatment that will be given to it, and it is for the tenure of the office plus 1 year. I told Mr. Sheehan this morning that might be n long-. long- time. I hope yom'S won't have to be so long. And I believe it is that kind of an end to which yon are working, isn't it~ :'.\fr. RoLDT. It is. indeed. The CtL\lRMAN. Get things settled. We are very glad you are here, and I have observed your work. I say to you what I just said to Dr. G-rayson, I commend you for undertaking this most difficult job, and I surely wish you well in it. l\fr. BoLDT. Thank you very much. Senator. I should say that I han, submitted a written statt'ment which brieflv summarizes-The CH.-\IR~L\.N. All right, and before we can fo1· questions give us that. Oiq1t1zed by Google 47 l\Ir. BoLDT. I don't care to read it. It is a condensation of the progress of the Board to date. and I think the gentlemen of the committee will find it interesting and informatfre. It is deliberately intended to be a condensed statement. The CHAIRMAN. ·wen, we appreciate that very much. ,ve are very j!lad to have it. I am sure each of us will read it with interest, and if there is no objection we will print it in the rPcord. I think it will be of 1--rencral interest. Mr. BoLDT. Thank you. sir. ( StatemPnt of.Judge Boldt follows :) STATE.MENT OF GEORGE H. BOLDT, NOMINEE, To BE CIIAIR~L\N OF THE PAY BOARD I greatly appreciate the opportunity to appear before this committee regardIng my nomination to serve as Chairman of the Pay Board. This is a welcome occasion to present to the committee an accounting of my stewardship since my appointment. It provides an opportunity to explain the steps we are taking to effectively implement the Econom,ic Stabilization Act amendments enacted Oil l)p("('lllher 22. Hl71. Tilt> Pay Board did not. like :Minerva. "i-pring full-blown from the head of .Jnpltn". Rather. it was 1mt togPther from the remnants of the µbase I 1irogram. pins i-m:h other assistanee as was avnllahlP from various agendes of the Gowr11111ent, and ha!< de,·elopPd from there. '.fhe Pay Board was created for the purpose of restraining inflation and protecting the national economy. As a part of an overall stabilization program it is ,·ital to the acl1ie,·ement of this national objecth·e. Restraining inflation is not a goal that will be reached o,·ernight nor one that will be easily achieved. It also is not something that can be done by flat. Instead, it is •a goal that will be reaehed be('ause in the best democratic tradition a tripartite board of publicspirited ('itizens will carry out the mandate of the Congress and the President. This is not an easy ta><k and is sometimes a thankless one. But it serves the hest interests of the American people ·a nd will help maintain the strength of our e<·onomJ. The joh will be done through the Pay Board and a very small, but i-killed, staff'. The Board is composed of distinguished members whose diYerse backgrounds provide a valuable rei<ource of skill and experience. Because they represent the major segments of our economy, they also ai-sure the Board of both pragmatism in its decisions and widespread support for its actions. Regarding the staff' that supports the Board, we are indeed fortunate that it ii" of high quality 11nd devoted to the public welfare. I might add, we are grateful to those GoYernment -&l!enciei- which ha\'e 11llowed ui- to borrow or take on a J){'rmnnent hasis some of their ablest and most devoted employePs. \Ve are 11lso grateful to hoth the labor movement and the business community for helping us to r{'(•ruit some extremely capable persons from hoth of these areas. We have made particularly strong efforts to obt11in the services of persons from both lahor and management because we feel they will help bring to our work the prn<·tical experience and pragmatism that are needed. Since its inception the Board has met 34 times. has accomplished a great deal. and has l11id the foundation for its future work. It has developed standards, issued regulntions, made policy decisions, and decided some very difficult cases. It has also taken prompt action to implement the statutory amendments en11cted at the end of last month. In addition, the Hoard has deYeloped an extremelv cordial and Pff'ective relationship with its sister agencies, the Coi-t of Living C'ouncil, PrieP Commission, Internal Revenue Servi<-e, Coni-tn1ction Jndustrv Stabilizntion C'onunittl'e, and the Committee on State and Local Gm·ernmei1t Cooperation . .Jni-t a wPek ago-on .January 20-the Board unanimously delegated to the C'hairman hroad authority to rule on pay -adjustments, while retaining the right of any party of interest to appeal to the entire Board if nnsati;;fled bv the d{•cision of the chairman. Thi!;i delegation has already resulted in a significant reduction in the backlog of cases which wns beginning to build up. Oiq1t1zed by Google 48 In the past two months the Pay Board has passed upon such momentous matters as the National Bituminous Coal Agreement of 1971, the contract between the Brotherhood of Railroad Signalmen and the Railroad Carriers, the six aerospace cases, and the contract between the United Transportation t:nion and the National Railroad Conference. In addition, the Board bas delegated to the Treasury Department, subject to the general policy guidance of and coordination of the Board, authority to interpret, implement, monitor and enforce the stabilization of wages and salaTies pursuant to criteria, standards and procedures established by the Board. The Board bas also authorized the Construction Industry Stabilization Committee (CISC) to administer Pay Board policies with respect to wages and sataries und other economic adjustments in the building and construction industry. An amendment of this latter order was just agreed upon two days ago by the Pay Board and the CISC, A joint public release is planned for tomorrow afternoon setting forth the details of the agreement that has been reached with respect to the substantive policies to be followed by OISC. The CISC and the Pay Board will encb have a tripartite liaison committee to consult regularly and coordinate procedures, policies, and general activi•ties of CISC and the Pay Board insofar as they relate to matters delegated to CI SC. The Pay Board has issued policy decisions regarding the calculating of maximum permissible increases; merit •p ay (but a revision of this policy is under consideration) ; executive compensation; reporting forms and procedures; challenge procedures; retroactive pay; and a delegation of authority to the chairman. Xo date, the Pay Board bas: Reviewed 23 Category I pay adjustments. Eighteen have been approved and fil"e have been disapproved. Those cases approved, weighted by the number of employees -in each in.stance, al"eraged 5.49%. (This does not include the United Transportation Union cnse, which was decided after these figures were prepared.) Approximately 584,000 employees were affected. Reviewed 62 Category II pay adjustments and <letermined them to be in an amount less than 5.5%. The weighted average increase for those cases for which complete data were submi-tted is 4.2%. 74,000 workers were affected. Ruled upon 57 exception requests for Category III pay adjustments. Thirtyseven were denied and 20 were approved. Of those approved, no increase was in exc~ of the 7% Pay Board exception standard, and, for those companies which complete data were submitted, the weighted average was 6.55% and approximately 850 employees were affected. ,Forwarded 1,915 inquiries and actions delegated to other agencies to the Internal Revenue Service, the Construction Industry Stabilization Oommittee, the Price Commission and other agencies for appropriate action. In the week since the delegation of authority to the chairman, 122 cases have been completed, of which 60 were acted on as il direct result of the delegation of authority. These constitute a significant record of achie,·ement for a board that has been in existence such a short period of time. While this is a very creditable record, we can, and shall, do better in the weeks ahead. The reason is simple. . We have: Thoroughly discussed the points of view and attitudes of the Board members. Become more tolerant of each oth~rs' YiewpointR. Established major substantive and procedural policies. . Developed smooth operating procedures with other agencies involved in the Economic Stabilization Program. Delegated to the chairman ahthority to take action in many areas. Constituted subcommittees In a number of areas. Made great progress ·in assembling a professional and permanent staff'. The large degree of nnanimity in a number of important Board actions in the lai;;t two weeks reflects the Board's progress ancl augurs well for the future. The Board 1dU succeed in discharging effectiYely the responsibilities ,·ested in it. In 19 years as a Federal judge, l have learned to listen patiently while each side presented its case, to weigh the evidence and the law carefully, and to reach a decision on the merits. While the Pay Board is not a court and I am only one of 15 members, nevertheless. as chairman, I ha,·e felt an obligation to be patient and understanding, to give all persons of interest an opportunity to be Oiq1t1zed by Google 49 heard, to consider the matter carefully and fairly, and to reach decisions as promptly as is feasible. I have also felt very keenly my responsibility to put the public interest first. I 8hall be pleal!ed to answer any questions which the committee may wish to address to me. MAJOR Poucy DEClSlO:S-S BY THE PAY BOABD, OCTOBER 27, 1971, TO ,TANUARY 27, 1972 October 27, 1971-l<'irst Pay Board meeting. :N'ovember 8, 1971-Board adopted comprehensive procedural and substantive policies. November 13, 1971-Board authorized IRS to enforce its regulations; and authorized CISC to carry out Board policies in the construction industry. November 10, 1971-Bonrd provided a definition of "tandem" relationships re: retroactive payments authorizing exceptions to tlJe ban on retroactive paymenti-. Xovember 23, 1U71-Ho11rd delegnted to IRS the authority to process challenges. December 2, 1971-Board explained how to calculate the 5.5% standard. December 17, 1971-Board announced criteria to general wage and salary standard (tandem, attract employees, catch up) . December 27, 1971-Board ndopted Executive Compensation Committee Report to conform with recently enacted legislation. December 30, 1971-Board drafted reporting and prenotHication forms to conform with the new legislation and distributed them to the IRS offices. January 11, 1972-Board established procedures for handling deferred increases. January 13, 1972-Board unanimously approved payment retroactive pay with certain limitations, to conform with provisions of amendments to the Economic Stabilization Act. January 20, 1972-Board approved by a unanimous 14--0 vote a broad delegation of authority by Pay Board Chairman. January 26, 1972--Adoption of revised delegation order to CISC agreeable in all particulars to the Pay Board and CISC. January 26, 1972-Board unanimously adopted resolution excepting Fair Labor Standard Act minimum wage payments from wage and salary standards. From its inception to present, the Board has considered and adopted numerous procedures related to Board organization meetings, hearings, etc. The Board dally has considered and acted on a variety of minor substantive policy issues, as for example defining an "appropriate employee unit", deciding to cost pay adjustments on "time worked" basis and recommending to exempt Puerto Rico and U.S. territorial possessions from the wage stabilization program. The Board has adopted, and in some Instances revised, regulations implementing Board policy decisions. The CHAIRMAN. Senator Tower. Senator TowER. Mr. Chairman, I have no questions of Judge Boldt at t.he moment. The CHAIRMAN. Senator Proxmire. Senator PnoxMIRE. Judge, I think that as you may know, I believe in really coming to the point and stating the facts no matter how embarrassmg they may be or how difficult they may be. I have gotten to like you very much. You appeared before our ,Joint Economic Committee, and I was most impressed by your demeanor and your attitude. But. I must say I am very disturbed by the way the Pay Board has operated. I think the best way to get into this so that you have an understanding of just what is in my mind, be able to respond to it, is to read four short paragraphs from an article that appeared in the New York Times--:-you are probably familiar with it-by Philip Shercoff. This Diq1tized by Google 50 was a terrific indictment, and I would like to hnYP your responsP. It is dated December 28, about a month ago. The Pny Bonrd by the tei,,tlmony of a representative cross ;;('(>tion of its llll'lllht>r:s has been ineptly led. a <'rimonlously divldP<l. and lnrgely ineffe<>h111I in the fir:st mouths of the second phase of President Xixon 's l'conomie stalJilization program. Rt'C'ent talks with publk. business. and labor mf'mbers of th1> Board, who spoke freely. but asked not to he identifil'd by naml'. indicate that its l'IHly operations haw, bel'n severely disrnptl'd hy poor orirnnization and pnrtisan <-ontlict between labor on the onl' side all(! bu;:ine;;:s. pnhlic member,: 011 the otlwr. 'l'he Board has ruled on only two contracts. htt8 allowed a huge hacking of case,: to ll<'(·nmulate. ia;1wnt endll'ss hour,: In dehatt> without comi11i.: to ('(Ill· <'ln:<inns. Poli<'y deci,-ioni; have sown in C'Onfusion. rai,:l'd questions ahont the lt>gnlit)· of thl' pro<'edurl's, thl'8l' ml'mhers say. One ml'mber who was optimistic wlwn the Board was first formed now givl's It no morl' than a tlghtin~ d1nnC'e of holding wages to noninflationary levels nl'xt yl'ar. · "\Voukl yon like to respond? I think )'fem hers of the Congress and public have known abont this riew. nnd I would like to he.:ir vonr exnl:rnation. · Mr. BoLJ)T. I agree that it is unflatterini:.r. I note. homwN. that there is a total anonvmity in the article as to who made thes(' statements. whi<'11 is a striking thini:.r about it to me. In my profession we are not given to anonvmitv in accnsations of that kin<l. Rnt I have g-rown to become accustomed to it since I am in this new situation. I would say in general. whiC'h is what yon asked me. the earlier week,; of the existence of the Pay Board were indeed turbulent. extrenwly difficult, highly contentious, vituperative. Nevertheless, during that same period within a very short time the Board came np with a policy and standard that tlms fnr have not b('en criticizP<l. Senator Pnoxl\JIRE. Ha Ye not bec>n what? )fr. BowT. Criticized. "\Ye prm·ided for the various categories of situations thnt we were going- to be confronted "·ith, and this was adopted on November 8, at a time when we couldn't have had any more than abont a dozen staff members, hastily gathered from other agencies. "\Ye labored morning. noon, and night literally, Saturdays and weekends. in the bringing ont of that policy statement. "\Vhatever others may think, in my opinion, it was a minor mirncle. .And we had it published, the regulations implementing it. published, so as to be effective on No,·ember 13 to avoid any hiatus between the freeze and phase II. Now all I can sav is that. in my opinion, patience, restraint, and moderation and fair.dealing with all concerned has its rewards. During the past 3 weeks we have had the most remarkable rapport, cooperation, genuine dialog, with practically no vituperation or the like. There is a harmony developing in the Board that I would like to think is partly due to the fact that I did not respond as sometimes I felt was a;ppropriate, but I responded in a dignified, restrained, and moderate manner. And I hope and believe that every single member of the Board, even those who are or may be critical of me, will acknowledge tha.t I hare dealt fairly and I have given everyone a full opportunity to be heard, that I have been extremely concerned to see to it that every point of view was expressed. Sometimes they were expressed at some considerable length and with considerable rnhemence, and I D,qitized by Google 51 might have been inclined to shut off the debate. I did not, because I felt that in a democratic organization, such as the Pay Board is, where we have a remarkable group of able, outstanding men, for me to arbitrari,l y attempt to foreclose de,bate and the exJ?ression of opinion on important matters would be a very ill-advised tlung. Had I followed that course or attempted to take this firm hand, I am confident we would not have the relationship among the members of the Board that we lun·e today. And I daresay that not any single one of the Board members, nor their representatives, who participated in our deliberations the last several weeks, would deny that this has occurred. Senator PRox11rnE. Judge, I want to get into that a little later b0r-ause I think there are contrary views on that, too. But I want to see if I can set the groundwork by seeing the truth or lack of it in some of the allegations in this article. I think they are still serious, although the article was written 1 month ago when you had been operating about fi weeks. The CHAIR::\L\)<, May I suggest that he only received his charter Decf'mber 22 whf'n the act ,vas signed. Mr. BOLDT. That is correct. Senator PROXMIRE. This article says. "One nonlabor member of the Board says, ''Ve ha,·e really b('en working in a fog because of our failure to get a staff organized; because our staff hasn't been lining np problems and assembling data, we just haven't been able to make good decisions.' He adde<l the Board had not even fully discussed ways it conld make use of the field rPports of the Intnnal Revenue S('rvice to review wage decisions and keep a deluge of r-ase"·ork from descending on its own desk." How about that? vYhy did it take so long to organize a ::;taff', and whv didn't you nse the Internal Revenue Servi<'e more vigoronslv? Mr. BOLDT. There is no question but what re<'ruiting staff for tllf\ Pav Board was a verv, verv difficult and time-<'ons11mine: task. I rccogniied this from the very first day I got then'. when. incidentally, I was the only one there at the beginning of the day, and during the <'m1rse of the dav severa 1 other people r-ame in to join ns from ,·arions age1wies. Now. I think the problem was primarily twofold-Senator PROXMIRE. Let me inst sav the Pri<'e Commission. the Chairman of which inst testified, a•jJpareritlv "·as ahlf' to get a staff and go to work in an efficient way-a staff to which I think mavbe he delegated too mnch power, but it was a staff, it was efficient. pff'ective. and thev had the same pr~blem you had. They had a very shurt period hefore they had to get gomg. J\fr. RowT. Th('v had qnite a different prohlem than we had, and that is what I wanted to point ont to answer your <1nest.ion. In the first plae(', I thought it dPsirable, and I still think it desirable, in a tripartite board that each segment of the Board haw something to say about the staffing of the organization. I had thP prerogative under the act as it. was before it was amended to have made those appointments, and I was somewhllt tempted at. times to nmke them prematurely. As it turned ont, perhaps it is hetter to he hwky than smart-as it turned 011t., that judgment wns a nry sonnd one because about a month ago at long last we acquired :m Execntfre Director of a D,qitized by Google 52 a top rank who was not only approved, but enthusiastically accepted by every member of the Board. And likewise regarding the Administrative Director or a second ma.n who also is probably as knowledgeable in the field of Government operations and in the tasks he has to perform as any man in Washington. And the two of them combined together ham meshed perfectly. They are in complete unanimity, and in that mont~'~ time, Senator, we have just made enormous progress toward obtammg able people for all of our top jobs, and we are rapidly filling in the lesser grades. I think that waiting to get that kind of people for the job was worth while. Now, the reason that we couldn't get people quicker, in my opinion, came from three factors: First, the desirability of having people who would be acceptable to all members of the Board; second, the uncertainty that existed concerning the life of this agency. You may recall there was a considerable q_uestion about whether or not the act of 1970 would be continued, and 1f so, how lonO'. And a final thing was that there was no security provision for people in Government to come and join our staff. That has been rectified approximately a month ago, so that there now is a provision for reemployment rights for Government employees transferring to the Board's staff. The Civil Service had been asked to take that action from the beginning, but going through the machinery of Government in those matters took considerable time. Now, those factors very plainly have a very important part in explaining why we were delayed in getting our people. Senator PROXMIRE. Maybe you would like to include in your response the fact that there were two specific examples. I won't read the article because of the time, but one member i,aid that the merit pay confusion, confusion over merit pay which they said was an utter fiasco, that they wouldn't have made such a stupid error as they made in making a decision that had to be reversed if they had had adequate staff work. Staff work was so bad that this mistake was made, and it was completely avoidable. The second was the inability of the Board to provide forms for companies and unions who must notify of wage increases in advance. There was another one, and apparentlv it took 2 months--for more than a month after it was formed, the ·Board was unable to agree on a suitable form. Then when they did agree on a form, they had a form that apparently was so complicated that at least several. including vV. L. Gullandler, president of the National Association of Manufacturers. complained it was too complicated and too burdensome and expensive to execute. Apparently both of these, according to this article, were the result of inadequate. incompetent staff work. Mr. BoLIYr. vVell, Senator, the appraisal of the writer of the article and what basis he had to judge, of course, I don't know. S<'nator PROXMIRE. "\Yell, he quoted members of the Board. l\fr. BowT. But not identified members. Never. Senator PnonrmE. "\Vell, you can nnderstand that. ~fr. BoLDT. "\Vell, I can understand it, but it is a little difficult for me to ernlnate the statement if I don't know who made it. Some of Oiq,t,zed by Google 53 the statements could well have been made by some of the people that were causing the alleged confusion and chaos. Senator PROXMIRE. He said nonlabor member. Mr. BoLDT. I beg vour pardon? Senator PRoxxrnF.: He did identifv them as nonlabor members. Mr. BoLIYI'. That still is not very sp.ecific. You are narrowing it down a little. Senator PROXMIRE. ,ven, it takes five out of the act. My time is up. Senator BROCK. I share the discontent of a number of people in labor and management and public life as well as to some of the very early decisions, the coal agreement, the railroad agreement. Mr. BoLDT. I am on your side on that one. Senator BROCK. I know you are and I thought vou were unfortunate to be chairing them. But ·1 must admit a good ·deal more confidence in recent weeks. I am particularly pleased with the action of the Board in delegating a great deal of authority to the Chairman. I think in the instance of the Price Commission this has proven to be a highly efficient affair and an expeditious method of proceeding with the work of the Board. I have one particular question, though, about a delegation of authority that is not so satisfactory to me. That is the delegation of authority to the Construction Industry Stabilization Committ~e. It is my own personal feeling that construction costs. prices, wages. and others, have been a :fundamental and highly significant fa.ctor in the inflationary spiral we have experienced. ·Construction prices hM·e gone np at a rate far in excess of virtually any other industry. Now, the Constrnction Industry Stabilization Committee was created before your Board in an effect to address that problem in that one industry. I frankly did not feel they did an adequate job during the performance of that function and I had hoped that your Board would move into the area with a great deal more restraint than had bee~ practiced previously. Now you have delegated it back to them agam. There are some very serious questions coming up this year. For example, what about the wage increases that were signed in a contract prior to the creation of this program that are going to come dne this year, some ranging as high as 20 percent? Do you haYe any assurance that that particular committee will act to control the inflationary spiral in the construction industry? I guesss it is the most fundamental industry in this country in terms of its impact on all segments of society. What kind of assurances did you get when you made this delegation of ant hority? Mr. Bourr. Well, to answer the question simply first, as witnesses should, we do. Now let me go back and exnlain that answer. I met with Mr. Dunlop and some of the members of his group Yery early, I think within the first week or two of my tenure. and from that time until now the matter of our rc>lationship to each other has been a problem. I can only tell vou that as a result of my appointin2: the liaison group-three members of thP Board-to act and work with three nwmbers of the Construction Industry Stabilization Committee. jnst this Oiq1t1zed by Google 54 week-in fact, to be announced tomonow in a statement of their function and a statement of our function and a statement of their obligation to confine themseh·es within the policies and standards of the Board. Now, the ways and means of doing that are largely left to the Construction Committee, but Dr. Dunlop has personally assured me-and I believe him-that they are on their way. It is a very unusual industry, sort of different than any other, and it has enormous complexity-but I am confident that if the document which we both have agreed to completely and unanimously is complied with, as I am sure 1t will be-at least there is the presumption of innocence applicable here as elsewhere-we wilJ ham action in the Construction Committee that will be in conformity to the standards and guidelines that our Board has established. Xot only that, but there are ways and means of keeping close rapport and contaet so as to he sure that things are going as they should be. So that now, I would say we are in complete agreement with the gentlemen that are doing that work, what their responsibility is, and I think it wi11 put at rest all problems of conflict between us an<l hopefulJy bring about proper results. If it does not, it will not take long for us to find out, and in that case we will take some other action. Senator BROCK. ,Tudge, I am perfectly wi11ing to ignore the past and presume innocence prospectiYely if I have adequate assurances, and I assume that yon are saying that you feel that we have those assurances. )faybe it is not falr for me to ask you a question of this type at this time-I know it is diflkult-but let us take an instance. L<>t us take the instance of a contract which ,ms a :~-year contract of 20-percent increase per year, and there are such contracts, one year of which was in effect before the contract and that 20 percent was granted. The second 20 percent comes due in May of 1972. "\Vould you consider that contract o:f 20 percent to be within the standards as established by your Board? )Ir. BoLDT. Of course not. Senator BnocK. It would not? )Ir. BoLoT. I would not so consider it. Howernr, I should comment on one phase of the construction industry situation. Such progress as the constrnction committee has made since last March-and it appears to be substantial-not as much as one might hope for, but nevertheless substantial-of bringing that industry within some reasonable range of eompliance with what we now ham as a standard, they need, so they say, the flexibility to deal on a basis of a,·erag<>s. In other words, in some situations, in some localities, a girnn wage, because of peculiar situations there, may be necessary; whereas. in others, less. Their objectirn is to deal with the::e in such a way as to bring them out with nn arnrage weighted total that will be within the guidelines. I do not know ''" hct her I ha n' made that plain to you. That is the nub of the situation. In other words, yon might pick out some part icnlar contract that was high, and ignoring n11 others, feel that nothing much had been done or there was no restraint at all. On the contrary, often, that particular situation has been made in the light of the peculiar circum• stmwes applicnhle to that situation and a gi,·e-and-take has occurred Oiq1t1zed by Google 55 in resolving the matter that will result in a satisfactory overall performance for the year. Senator BROCK. "'ell, I will tell you this: I do not know of a situation wherein the VV percent of the community who are limited to 3and 4- and 5-percent pay increases, if any-manufacturing plants, sen·ire eomp~nies, d:ugstores, grocery stor~s-where you are going to have an easy time sell mg a 20-pereent wage mcrease to the rest of the people of that community. Mr. BoLDT. No. I would agree . . Sen!itor BROCK. I know of no monopoly in America in any _specific s1tuat1on that has more strength than the monopoly of the hmng hall and I think the rest of this country deserves the consideration of equity here as well an<l I am not sure they have received it. I remember last year-I think I remember correctly-a settlement in Kansas City whereby an unskilled laborer, as a result of a contract, ended up drawing $10 an hour. That is more than adequate in the State of Tennessee. I am simply asking that in the delegation of this authority, that you exercise close and continuing scrutiny of this particular committee to insure equity for those who are not covered by this decision but are coyered by yours. l\fr. BOLDT. You may be assured that the understanding which we ham now reached in writing will be gh·en, and provides for, close and continuous scrutiny. By the way, I certainly agree with. the thrust of your remarks about the 100 percent and so on. I daresay 1f Dr. Dunlop were :;;eated here and yon were to ask him, he would say the same thing. It hink he would. Senator BROCK. I appreciate that. My time has expired. I simply conclude with a statement that, in my opinion, the only people who have consistently acted in the public interest are the public members of the Board. l\fr. BoLDT. Thank you. Senator BROCK. A1id I appreciate that. Mr. BowT. Thank you. ,ve have tried to do that and be ever mindful, Senator, of our "tremendous responsibility to those who do not have any other representation on the Board except us five people, and it is a responsibilitv we are keenly conscious of, and in many instances has aecounted £or "the action we have taken which in some instances has not prevailed. Senator BROCK. Thunk you very much. The CHAIRMAN. Judge Boldt, I shall be very brief in my questioning. I want to ask you this: In the act as we finally passed it, we provided a degree of retroactivity and payment of back contracts that have been negotiated or agreed to. We did provide in there that they must not be--what was that expression-Senator BROCK. Unreasonably inconsistent. The CHAIRMAN. Unreasonably inconsistent with your guidelines. That did not cause you any trouble; did it? Mr. BornT. Senator, complying with the law of the United States never causes me any trouble. I have been applying the laws of the United States for 19 years without the slightest limitation. It is the Oiq1t1zed by Google 56 function of the first branch of the Government-it came first in the Constitution-to legislate, and I respect it completely and I follow it implicitly. Now, I even went to the point of underscoring in the new amendment those words that said "promptly," "The President shall promptly," and we promptly acted on those first before we went to others. The CHAIRMAN. Yes; you did. Mr. BoLDT. Now, there are several more that still remain to be acted on and we are debating them and deliberating on them this very week. Hopefully by the end of next week we will have all of those matters completely detern1ined in a way that will meet with the approval of at least eight or more members of the Board and, hopefully, the way the trend is going, unanimously. The last several ma1or matters have all been adopted unanimously, including this very great delegation of authority to me. And I find it a little bit difficult to understand, when 14 members of the Board-all of them-gave me that authority, where that unknown member was who had so little confidence in my ability to run this Board. He ap_parently voted this authority to me and, incidentally, there was no criticism of any kind expressed during the debate on that measure, and it seems to be some evidence-however weighted it may be is your business to evaluate-that at least now we have a united board ready to go ahead and do business. Incidentally, since a week ago when that. resolution was adopted. we already have disposed of 122 pending matters in that period, and when we get our full staff on board-which, as I said, I hope that would be in a week or two-we will do even better than that. So I look forward to the future with great optimism and confidence that we are going to achieve the objective that we have been given. The•CHAIRMAN. Well, that is a very fine report and I appreciate it. I want to say this: You do not know just how hard we worked on this back-pay proposition. That was not an easy matter for us. Yet I believe every member of this committee and I think the Senate felt that we were doing only the fair thing, ·a nd it was unanimous. Furthermore, we ihad consideralble heJlp from the administration in working this out. While I have seen in the paper many times the statement made that the ,administration opposed this, I understood that in the final form in which the Senate passed it and I believe in which the conference committee worked it out, t,he administration supported it, at least had no objection. Mr. BoLDT. Well, in the final form, lfr. Chairman, there is very little real difference between the policy we enacted and the one t:hnt you enacted. The CHAIRMAN. ·we tried to safeguard-Mr. BoLDT. And it switches the emphasis. That is the major thing. The CHAIRMAN. We tried to safeguard your guidelines that you had already announced and I was pleased with t,he comment that representatives of labor made regarding it. I think Mr. Meany put out a very fine statement on it. I had a very fine letter from the lel!islative reprPsentatives of J,rubor. I had statements from many ot.her sources, and I real1y would like to pat ourselves on the 'back a little bit for working it out so wel1. As someone said to me, he said, "I never Oiq1t1zed by Google 57 dreamed that you could take these two versions and get the best out of each one of them and put them together." Well, that is about all I have. I want to commend and compliment you for the work you have been doing and I am pleased to hear you say that you have got an unanimous Board. I was very much concerned when there was dissatisfaction in the beginning and "'"hen it looked like the Board might be ruptured. I am very glad that the ]a1bor members decided to stay. I hope they do stay. I hope they participate ·actively in these various matters that are taken up with the Board ,as a whole, and I think you have achieved a high degree of cooperation and unanimity, and I commend you for it. Mr. BoLDT. Thank you, Senator. The CHAIRMAN. Senator Tower. Senator TOWER. Mr. Chairman, I do not have so much •a question as a comment. It occurs to me that the very nature of the tripartite makeup of the Board tends to mitigate against continuing harmony, particularly when you have such sharp philosophic differences represented on the Board. MT. BoLDT. That is a Yery reserved statement of the matter, Senator Tower. Senator TOWER. Mr. Chairman, with your permission, I would like to read ·a te1egram which was addressed to you, so I should like to ask your permission if I might to put it into the record. The CHAIRMAN. Go right ahead. Senator ToWER. It is addressed to the Honorable John J. Sparkman, chairman, Committee on Banking, Housing and Urban Affairs, U.S. Senate, Washington, D.C. We have been prlvileg('(l to serve as memibers of the Pay Board under the Chairmanship of Judge George H. Boldt. During our tenure on the Boa.rd we have come to a,pprecl-ate ,and ·b enefit from his judicial qualities and his personal integrity. He came to the job as Chairman of the Pay Board on short notice, interrupting a distinguished cart>er as a U.S. District Judge. In a short period of time, with patience and civility, and under the extreme pressure of events, he has had to guide the establishment of a new and complex administrative machinery and to insure the development of policies and regulations necessary to achieYe the goal of economic sta1bilization. These tasks are difficult in their own Tight 'but the ,problems have been made more demanding by the fact that the Pay Board is tripnrtite In natui-e and brings together spokeRIIlen for different and often conflicting points of view. This aspect of the Pay Board has meant that Judge Boldt, as Chairman, has had to exercise great t,act, skill, ,a nd, a-bove all, fairness in the performance of bis duties. In our judgment he has clearly demonstrated these attribute~ in the fa<'t' of inten~e controversy. Moreover, because he assumed his position with no rigid views on many of the technical issues associated with labor-management ,relations, he has ,provided a 1b road perspective and fresh insight that otherwh;e would be lacking on the Board. Under Judge Boldt's l«>adership, in less than three months thE' Pay Board has recruited a highly quail-fled staff, become a going concern, and has s11ccessfully weathered several controversies •w hich have causl'd other. wage f<tahilization agencies to founder in the past. Thro11ghout these difficult early months Judge Boldt has performed his duties with a dedication to the national interest that sets a high standard of public service. We are plen,;ed to convey to the Committee our confidence in the leadership of .Judge Boldt and to strongly urge his confirmation by the Senate as Chairman of the Pay Board. Judge Boldt is not aware that we are sending this message. •Sincerely, Public and Business Members of the Pay Board, and all nine have signed: Robert Hassett, Ben Binggini, William Caples, Virgil Da:v. Kermit Gordon, Nell Jacoby, L. F. McColluw, Rocco Siciliano and Arnold Weber. Oiq1t1zed by Google 58 Mr. BoLDT. I first heard about that when we came in the room this morning-and I am delighted with it. Senator TowER. I have no further qu{'Stions. The CHAIRMAN. Sf'nator Broek. Senator BROCK. I have no further questions. The CHAIR::II.\N. Senator Proxmire. Senator PRox::111RF.. Judge Boldt., I want to pnrsue this and I want to soo if I can denlop whether or not there has been t.he kind of hnrmony and -i mprovement that has develope·d that you indioate. I think you are being very optimistic. . . . . First, Jet me g:et into an area that I thmk 1s rnry d1sturbmg. I understand that a number of lawyers have asserted that there haye already been conflicts of interest involving members of the Board that mig:ht make vonr dc,cisions determined eventually as unconstitutional. Let me be specific on that one. One membei· of the Board, N ei] Jacoby, did disqualify himself in one case to rnte on the coal settlement because he was a director of the Occidental Petroleum. :Mr. BoLIYr. That is right. He is the only one who has. Senator PROXMIRE. It has been pointed out that Leonard McColl um, who is chairman of Continental Oil who has extensive coal holdings, voted on the coal decision; and Mr. Ben Biaggini, chairman of the Southern Pacific Railroad, not only ,·oted on bnt, in fact, proposed the resolution governing the railway signalmen's (·ontrnct.. There is also the presenc{' of tlw two labor unions involved in the present aero• space conflict, Mr. ,voodeork and Mr. Smith. are both members of the Board, and on the aerospace matter -the conflict. of interest is conspicuous. They raised a question-and you are a legal expert, .Judge, wit.h a fine repntation-how about this? Is it not possible that your decisions are likely to be determined as unconstitut10nal in the future because oft his conspicuous, clear, patent. conflict of interest,? Mr. Bm,oT. ,vell, I would rather be more amply briefed on the snbjeet before I deliver any legal opinion on it. . . Senator PnoxllIIRE. Do you hare your counsel workmg on tlns? }Ir. BoLDT. _.\_}] I can say about it is this: That as far as I am concerned. if any matter comes before the Board in which I have any interest.. however insignificant, I would not choose t o - Senator PRonnRE. There is no question about that. You are covered by the law. Yon are the only one that is. vVe covered vou . . Mr. BOLDT. would you just ]et me finish? • Senator PRoxl\nRE.'Yes, sir. I ,a m sorry. :Mr. BoLIYr. That would be the way I would react to it. Howe,·er, I think that the matter of whether or not a member of the Board should disengage himself from the particular situation in which he has an interest is a matter for his conscience and not for me to dictate. Senator PROXMIRE. V{ell, as one Senator and one only, let me urge you to reconsider that. It seems to me that rules ought to be developed and they ought to be followed by all members of the Board. Otherwise, the conflict of interest does not mean an)1hing. If these men who are president of a company-president of the Southern Pacific Railway or whatever it is-make a decision with respect to the wa~ for his people who work for him, the conflict of interest is pretty oovious. D,qitized by Google 59 I am sure you abide by this. You are a judge who understands these things. But these other members are not abiding by it and they ~ll'e not going to, obviously, unless yon have regulations and enforce them. ~enator BnocK. ,vould the Senator yield~ Senator PRonnRE. First, let Judge Boldt reply if he would, and then I would be happy t,0 yield. My question is, Do yon intPnd to issue regulations to pre,·ent rnting bv a member when there is a fin:rncia,l conflict of interest? Your init.ial response in<licatc•d you had no intPntion of doing that. ::VIr. BoLDT. )J_v first. response to this, SC'nntor Proxmire, would be that inasmuch as Cong-res has just recently made a wry t.horongh reYiew of the 1970 ad and promulgated a wry considerahle number of amendments. it ,,·011 Id S<'t'lll to mP that t lw C"oll!!l'l'SS itself. if it had some concem ahont that. would haYe done somethin!! about it. That is answer No. 1. · Answer No. 2 is that. if we are going to have a tripartite hoard of the kind that ,ve have-· Senator Pnonnm:. Let me just interupt at that point to say that we were told that time was of the essence and that we had to act on this law and that these men had been appointed and we were in a position where it would have been difficult. for us to take any other course. Mr. Bourr. I am not being critical. I already explained my rewrence for our American institutions and particularly for the lPgislati,·e branch. and I ham been meticnlons not to try to intrude on its functions as a jud~e, and I think it can ne,·er he poi11ted out where I han' e-rer deviated from that. Now, getting back to thl:' mat.ter at hand, these people are selected for the very reason that they are what they are, representatiws of labor and industry, and thl:'y ha,·e been chosen from among the most eminent people in those respective fields. Senator PRonnRE. Let me jnst respond to that becanse I think that is a very good point and ensilv misunderstood. There is no question bnt that we decided on a tripartite board. There is no qnestion that there is a generalized notion that. there is some conflict when yon have labor and business members deciding issues, but I am talking about specific cases where you have a man who has a specific interest. whether it is a labor nnion head or a corporation head, and that particular labor union or that particular corporation is directly inrnlved. I do not know how vou can have a more conspicnons conflict of interest. than yon have there. Of conrse you ought to haYe labor people. That ,ms decided. Mr. BOJ,DT. There is not. any question abont that at all. That is trne. 9ne ameliora,t ing factor perhaps I should mention here is that in ea"11 mstance the members haYe acted through what we formerly called alternates and will now be called representatives. but under the recent. legislation. of conrse, a representative is only empowered to ,·ote with the express apprornl of the person he represents, so it docs not get away from the problem. Senator PROXMIRE. ,vell. I hope yon will reconsider this and discuss it. with yonr Board and see if yon can work out something that you can ftbide by. Oiq1t1zed by Google 60 I am raising a different notion than the notion that labor members should not get involved in anything involving labor. Obviously, they should. But where you have a particular union involved or a particular corporation involved, that is something else. Mr. BoLDT. Any suggestion that you or any other Senator or Congressman of the United States makes to me will receive prompt and thorough thought and attention and such action as appears to be appropriate in view of our situation. Senator PROXMIRE. I yield to Senator Brock. Senator BROCK. I just wanted to raise the point-I frankly agree with the concern that the Senator has expressed, but also to point out that if we are going to disqualify people for conflict of interest, then George Meany could not sit on the Board because every contract comes under his jurisdiction. Senator PROXMmE. I am talking about quite a different kind of situation where you are the president of a big corporation whose profits will be determined by the level of the wage increase in that particular field. Senator BROCK. But the Senator is making exactly-Senator PRoxMIRE. That is why Mr. Jacoby was absolutely right in disqualifying himself. Senator BROCK. The Senator is making exactly the point I was trying to make earlier. I did not like the tripartite board and I still do not. I do not like anybody but public members representing the public because by the very nature of the tripartite board you require representatives of special interests which are not necessarily consistent with the public interest. You are bound to have conflict of interest in this condition. If you want to reopen this thing up I would just relish the o_pportunity to have this committee go back into the complexion of tlus Board and make a determination as to whether or not we should have a specific statute covering conflict of interest or whether or not we should go, I think, the pure route, that as a public board, as the Price Commision is, and resolve the question in the public interest. I very much question the Senator's statement that we did not have time. e considered a huge number of different amendments during the hearings on this particular bill. We had more time than we needed to consider this fundamental question. Senator PROXMIRE. I am talking about the fact that we already had a board created at the time we acted on the bill and at that point-Senator BROCK. And the Senator and every other member of the committee were aware of these problems. Senator PROXMIRE. Judge Boldt, you have indicated your high respect for the law and your intention of always abiding by it. Section 207 ( c) of the Economic Stabilization Act requires public hearings on significn,nt requests for wage increases. That is a requirement of the law. It is required that you do it. H<_>w many public hearings have you. held in response to that reqmrement? 1\fr. BOLDT. To this date, one. Senator PROXMIRE. Only one? Mr.Bowr. Yes. Senator PROXMIRE. Do you consider that compliance? ,v Oiq1t1zed by Google 61 Mr. BOLDT. ·well, that is the only one we have had since the amendments went into effect. Senator PROxMmE. It is the only what i Mr. BoLIYI'. The only major matter that has come before us since the amendments went into e-ff ect. Senator PROXMIRE. You have indicated all the decisions you have ma.de in the last week. Mr. BoLDT. These are not hearings. They are not that ty)?El of thing. The people make submissions of the data concerning their situation and we act upon their submission. This relates to hearing, as I understand-or at least I thought your question related to that--and, incidentally, we never ever have precluded public hearings and we have never denied anyone the right to have a public hearing. No one has asked for it; not even the people who had one asked for it. We did it hoping to show you that we read-Senator PRo.nuRE. I hope this is not the only one that you are going -to have. I hope you make an effort to have these frequently, because you are never going to get a party at interest neoes.garily to e&ll for these things. It 1s the public that has the interest. Mr. BOLDT. Senator, you plainly indicated in the amendment that this is the desire of Congress tha.t these should be held as frequently as the circumstance reaonably permit, or whatever the language is, and I am going to give effect to that and every hearing, whether 1t is even .as significant as the statute calls for, then anyone who wants to have a public hearing wiU have one. Senator PROXMIRE.Judge, let me get back to the purpose of this hearing, your qualifications to be appomted; and once again, I &J?Ologize for laboring the point. It is difficult for all of us but I think it 1s something that has to be brought out. One business member described the judge as ''a hard-working, straightforwa.rd man who has eaTned the respect of every member of the Board. He is a saint who has ta.ken a tremendous amount of abuse without compl&int." Bl!lt another and perhaps more representative view ef the Board was expressed by a nonlabor member who declared, "To throw an elderly and inexperienced judge into the bearpit was just not sensible. He has guts all right but he just doesn't understand what's hitting him." Another nonfabor member asserted, "One of our chief ditlioult1es is the lack of substantive leadership. The judge is a fine gentleman and I have deep persona.I regard for him, but he doesn't mulerstand the issue and he is unable to enforce the issues among the conflict of interests. This is a rough league and the judge is0oone tocreatehannony." I have said many times these are a.n(')llymons statements and, of course, you can understand why they are. Seaator TowER. If the Senator would yield, -we have a signed statement on the other side. · Senator PRoxMmE. Frankly, if I relied on statements that people ma.de about rne in letiiers to me or for me, I would not get at the truth . .. , Mr, :Sowr. I have had a }ot,o fth.at in my life. Senator PROXMIRE. These anonymous statements are likely to be far more frank, for obvious reasons. · Oiq1t1zed by Google 62 Mr. BoLDT. I am not sure I agree with you, but if that is your view-Senator BROCK. I would say they are more likely to be far more fraudulent. Senator PROXMIRE. Let me ask you : What are your qualifications to head a Pay Board that has to deal with economic issues, that has to deal with labor-management issues? ,Vhat experience have you had in the labor-management area? What training or experience have you had on these economic issues that are involved here? · Mr. BouYr. Well, as I told you once before at the prior hearing, I am not an economist. I am not a statistician. I never e,·er personally negotiated a collective bargaining- agreement either for management or for labor. But in my long lifetime of experiences as a lawyer and a judge, I have dealt numerous times with collective bargaining agreements in one way or another. I have heard a great deal about collective bargaining in a variety of ways. So that I have that much experience. Now, that is not expertise. I do not claim to be an expert. Neither do I claim to be an expert in a lot of other things about which I have had to listen to experts and judge between them as to which one I thought was correct. Senator PRoxMIRE. What puzzles me is why a person with John Dunlop's background, a man who has won the support-not the support, I should not say that-but won the respect as a technician, as an expert of both business and labor, why John Dunlop, a man like that or John DunloJ.) himself, was not given this what I think is one of the biggest jobs m our Government. You are a fine man, as nice and gentle and decent a man as I have met, but generally, in mv view, I just do not-~ Mr. BoLDT. I have a fine opinion of John Dunlop and I would not want to wish it on him. Senator PROXMIRE. Well, that is true. That is another point in your favor, that you have taken this difficult job. . · Let me ·ask you: Is it true-this is something that was raised by Senator Brock in a different way'. Is it true that the Pay Board has requested the construction committee not to publicize over 123 deci.sions since last December 3? · · · · Mr. BOLDT. Nothing of the kind. ·. . · Senator PRonnRE. Have they, in fact, publicized them? Mr. BOLDT. I do not know. • Senator PRoxMIRE. It is strictly' within their jurisdiction~ Mr. BomT. That is right. · . · ·· . Senator PROXMIRE. As far as you are concerned as Chairman of the Pay Board, you would be willing to have them publicize them~ Mr. BoLDT. Certainly. . · ·. · · ' · · Senator PRoxMIRE; And you have made no such request and to the best of your knowledg-e no ~e!llb~r. of .:v.our staff has~ Mr. BoLDT. Never. Directly or mdirectly. · • ·. _·· . . Senator PROXMIRE. And you state· •that for the Board · as a whole·f Mr. BOLDT. If any staff member did make such a request-and I have n~ver heard of ftt,.,-:.I would certa~ly_veto•it immediately in that it w~ without authority, but I do not thmk 1t happened. · · · , . ·· ·. · Oiq1t1zed by Google 63 . Senator PROXMIRE. All right. Xo,Y, let me get into another situation now. vVe have been over ancient history here. The CHAmMAN. Before you get into that, may I inquire ·about how much longer you think it will take? · Senator PRonnRE. ,vell, I apologize, Mr. Chairman. I had hol_)ed these nominations would he up on separate days, but I think I am gomg to take probably anothe1· rn minutes. The CHAIRMAN. I had a luncheon engagement at 12 :30 and I would like to get to it. If you gentlemen are willing to go ahead, it is perfectly agreeable to me and I will get back just as soon as I can. Senator BROCK. e are beginning to cross a number of conflicting engagements in all our sche<lule3. The CHAIBMAN. How would it do to break now and come back at 2 or2:30? Senator BROCK. I can stay for another 30 minutes. · Senator PROXMIRE. I can wind up easily in that· time with Judge Boldt. Of course, we have another witness and we certainly want to hear from him. 'Dhe CHAIBMAN. Mr. Biemiller, would it inconvenience you if we went on and finished with Judge Boldt and then have you come back at2:30? Mr. BIEMILLER. That is all right. ·· · The CHAIRMAN. ,vell, suppose we do that. If you will carry on and let me go ahead, I think it will work out very well. · Senator PRoxMIRE. Judge, you have made a big point, and I understand it, of the fact that authority has now been delegated to you similar to the authority-although not neady as complete-that tfr. Grayson exercises. You have the authority to act in some pay cases? . · · . Mr. BoLDT. I have authority to act in all cases but only of course, within the guidelines·and standards. : Senator PROXMIRE. And subject to challenge by another member of the Board? · Mr. BoLDT. 0:r $Ubject to review by the Board and any party feelingtha~ . , · .. · , Senator PROXMIRE. Yo~ see, Mr. Grayson does not have that review. He makes the decision and it is fin~]. · · . Mr: BoLDT. So Iheardthismorni,ng. . . . Senator PROXMIRE. All ri~ht. So that your authority is still limited. Well,. it seems to ~e .that_tn~ .Board must become desperate, pecause you had been meetmg. fo,r a ~ouple of ~onths and you had a11 enorr mous backlog and ~ere mak~ng. very little progress, and the_y had to have so.me delegat~on of this .kmd or vou would not be able to act. This had to be done and I am glad they did it.· I think perhaps they 3hould have done it before, hut the fact that. thev did do it., I think that was the only option available to them whether they agreed. with yonrjudgmentornot.. · . . · · Mr. BOLDT. I would not have thought so from the· discussion of the matter. At the time it was discussed no member, not even any labor ~emb~r, expressed that point of view during the discussion in adoption of the measure. ,v Oiq1t1zed by Google 64 Senat.or PROXMIRE. How many requests for _pay increases are now pending in the Pay Board in category I, that 1s 5,000 employees and more1 Mr. BoLIYr. If you want the precise number I have it here somewhere. It would be somewhere in the neighborhood-Senator PROXMIRE. I have 128. Is that about right? Mr. BoLDT. Right. That is the figure I had in mind. Senat.or PROXMIRE. Now, we have been talking about the progress we have been making. Since Thursday-and this was a report in the newspaper this morning and you may have actod since then-but sinee Thursday, a week ago, the Board has mled on three: A 5.1percent increase for one firm, Springmills; 5.5 percent for Weyerhaeuser; and 6.4 percent for Eastman Kodak; and a full reque.st was granted in each case and you made that decision. Is that correct? Mr. BoLDT. All within the guidelines. Senator Peonmm. There were only three decided of the 128, so you still ha.ve 125 pending. Is that right? Mr. BoLIYr. We are trying to deal with them as they oome along. In other words, to reach them in the priority in wh.ieh they were received as far as possible. Oftentimes, Senator, these matters come in with incomplete data and we have to send them back and get additional information that is necessary. Senator PnoDnRE. In the whole experience of the Pay Boa.rd, how many category I cases have you decided? How many have you approved and how many have you denied i Mr. BOLDT. Twenty-three. Senator PRoxHIRE. So you have 128 pending and you h&ve acted on23? Mr. BOLDT. Yes, in the last week. Senator PROXMIRE. Do you consider that expeditious action f Mr. BoLDT. I think so, considering the fact that we have had three meeting days in that period already and are still engaged in meeting . days now. Those are long meeting days, too. SenatO!' PROXMIRE. Now, I undenitand that of ~ r.eqnests for exceptions in category III units, 57 have been processed since Thursday. Is that ritmt¥ Twenty approved and 3'7 were not1 Mr. BOLDT. believe that is correct. Senat.or PROXMIRE. How many were dis&pf>roved becal'lse of inade· quate information, Mr. BoLDT. I do not think any of them were disapproved for that. When there is inadequate information they are sent back for further information. Senator PROXMIRE. Thirty-seven were just disapproved, period, ~nse. they did not comply with what the anti-inflation policy is; 1s that right, · · Mr. BoLDT. Right. Senator PRox11nBE. Why were not the names. of the companies and .~he dete:i_ls of their.cases disclosed so we could j~dge your performance . · ·, • : · · . . · m !?ranting exceptions? · Mr. BoIJDT. They. are not ~n any way ~cret. They are opeiL .A:ny· · ·· body who wants the mformation can have 1t. r Oiq1t1zed by Google 65 Senator Pnox~nRE. WeII, the reporter on the New York Times complained that he was not able to get it. You say he could have gotten it if he asked for it~ Mr. BoLDT. I heard about that complaint and I checked it out and it was just somebody in the office who made a mistake. He should not have done it. I do not know who it was, bnt I have immediately issued an order to make it plain that the details, the names and so forth be available. ' Senator PaoxMIItE. Your Board has claimed that your approval of pay increases, weighted by the number of employees involved in each case, has averaged 5.49 percent; that this is right at the 5.5 percent. Mr. BoLDT. Category I, 5,000 and over employees. Senator PROXMIRE. But I understand that conclusion is a very, very distorted statistic because yonr decisions cover large units with very small, partial fringe benefits granted that may come back with other increases. For example, Kresge, one-twelfth of 1 fercent for their pension benefits; J.C. Penney, about one-fifteenth o 1 percent. Whet1 you take the number of people covered by Kresge and Penney and figure all they got was one-twelfth of 1 percent, of course, you can bring your arithmetic average down. So you do not have much evidence m that statistic that :vou have been able to get·compliance with the 5.5-percent guideline. You are probably way above it. Mr. BoLDT. The occasion for decision w&s not chosen on that basis. Senator PROXMIRE. I am sure they are not. As Chairman Grayson was indicating, you do not have cumulative records. These firms will be back I would think. They are certainlv not going to get away with a. one-twelfth of 1 percent ·wage increase and fringe benefit increase during the year; is that right i . Mr. BoLDT. If they come back, we will deal with the situation as i,t is presented to us. · Senator PROXMIRE. Of course, you will, .but since you granted this 5.5 percent virtually so far, I would have to come to the conclusion that you are going to overall exceed your guideline by a very substantial amount on the basis of many of these firms getting increases later. lfr. BoLDT. That may occur; but as I say, I am having plenty of woi•k to do to deal with what we have now and what is presently before us, ra,ther than anticipating rulings on matters that may or may not arise. Senator PROXMIBE. ,Judge, during the debate on this we did some work to determine what the experience has been with covering local and State workers. In World War II they were covered for only 6 weeks. In World 1Var II we had a far more difficultinflationary situation, far greater shortages, enormous pressure to increase. wages, veri low unemployment. People were raiding each other to get bodies. Ana yet, we decontrolled State and local workers after tnat short time. It seems to me that you should give very careful consideration or recommend this consideration if you do not have the authority to do it-do you have the authority, incidentally, to decontrol? Mr. BoLIYI'. Well, there is a question in my mind whether we have it. I think it is the Cost of Living Council. Senator PJt?XMIBE. At any rate, as the Price Comn;iission has made recommendations- Oiq,t,zed by Google 66 l\fr. BoLDT. "Whether we have the authority to do it or not, we certainly have the authority to recommend. . Senator PROXMIRE. In view of the fact that there is terrific pressure on State Governors and State legislatures and on mayors and city councils to hold down salaries and wages, in view of the experience that we had in World War II, I would think that you would give very careful consideration to recommending that you exempt those workers. Mr. BOLDT. We will give careful consideration to it. However, I nrn!"t call your attention-perhaps you already know-that we have an advisory committee on State and local government and that committee 1s a very active one and they are a very distinguished group, by the way. I think there are two or three Governors on the committee, and we have been working in close harmony with them. Senator PROXMIRE. There was a substantial vote in the Senate, ~-ou know, to exempt them right at the beginning. Mr. BOLDT. We have been working in close and very harmonious relationships with that committee and that probably would be a means of exploring this matter further. Senator PROXMIRE. Now, one other question I want to get into very briefly. It has been said that one of your handicaps is you do not know your way around in Washington, that you did not get a secretary for some time, that instead of going to the people who countr-John Connally, for example, to get action, a man who could give you action and give it promptly, you went to somebody-I think the term used was about nine levels down in the bureaucracy, that in view of your position and your great responsibility that vou ought to be more ag· gressive in seeking out the people who can 1nake decisions and getting action from them. · ·what is your response to that? Mr. BoLDT. When I came, I had little or no experience in getting around in Washington. I had held court here for several weeks at a time on several occasions. I was familiar with getting around in that sense, but as to getting around in the sense of Government, I had very little knowledge about it. I have acquired very considerable knowledge the hard way, but I now have as my administrative director I think one of the ablest men in that respect there is in this city, a man who won a large award here a couple of years ago. Senator PROXMIRE. Who is that? Mr. BOLDT. Mr. Millard Cass. And if there is anything about getting around in w·ashington that he does not know I have not found out about it. ell, Judge, there just is no substitute for Senator PROXMIRE. the principal getting around. My administrative assistant, HoW11rd Shuman, I think is about the best on the Hill. He is widely respected. But if I want to see somebody and get some action, I have got to go myself. Howard is respected but you have to go. You haYe got to be the one to push the button ·a nd go in and ask for it. Mr. BoLDT. And when the occasion arises. Millard will tell me who he is and I will contact him. I probably already know him by now. I am meeting quite a few folks around here. It is a very hospitable city I have found and I suspect when that time comes I will be weJl advised by l\fr. Cass as to the protocol involved and whom I should ,v Oiq1t1zed by Google 6:' see and how to get things done. In the meantime, he is getting an awful lot of things done t.hnt I frankly would not have any idea how to get them done; but I did not understand I was hired for that purpose. Senator PROX:!\IIRE. Judge, finally, I jnst cannot see that you have made real progr~ss here. You have had these enormous settlements Senator Brock referred to. It is true you stayed within the guidelines of two of the three you personally decided recently, but you gave them everything they asked. I do not see that you have been able to have a tough, effective anti-inflation result in your operation. I wish you well but I must say I also am very concerned abut the fact that although you are a wonderful gentleman-Lee Metcalf told the Senator that you were a fine pole vaulter back in Montana, that you won a track meet singlehanded-::\Ir. BoLDT. He got me mixe.d up with someone else. Senator PROXMIRE. No. He said at that time-this was about 40 years ago--you went over 10 feet. :Mr. Bourr. I thought you were talking about recent pole vaulting. Senator PROXMIRE. Maybe you can use that to get out of some of the spots you are in. Mr. BoLDT. ·wen, you know, I have been in a lot of bad ones in my life, Senator, and somehow or other the Good Lord seems to come along and provide ways and means of doing whateYer the job is. Senator PRonnRE. With all due respect, I think you are better qualified to be on our Olympic team this year than you are to be on the Pa,y Board. Mr. ·BOLDT. \Vell, that is a very charming compliment. Thank you. Senator PROXMIRE. Thank you very much. Senator BRocK; I only have one concluding comment and that is regarding the judge's qualifications. I think one of the fundamental prol)lems in this country has been that too often the public is absent at the bargaining table. \Ve have labor with its enormous power; we have management with its enormous power; but there is no voice for the public sector from the average American; and, Judge, I cannot think of anybody who is more qualified than a man that represents the people of this country and no special interests, and I am delighted you are there. :Mr. BOLDT. Thank you very much, Senator. Senator PROXMIRE. The committee will stand in recess until 2 :30. (Whereupon, at 1 :25 p.m., the committee was ~ssed, to be reconvened at 2 :30 p.m., Thursday, January 27, 1972.) AFTERNOON SESSION The CHAIRMAN. Let the committee come to order, please. Mr. Andrew J. Biemiller, director of the department of legislation, AFLCIO, my old friend, Andy. Glad to have you back before the committee again. Bill, Andy used to be a congressman from your State. Senator PROXMIRE. You bet. One of the very best. I'll never forget the part he played on the civil rights platform in 1948. They talk about Hubert, you know, but I thought Andy had the best speech. Oiq1t1zed by Google 68 The CHAIRMAN. I served in the House with him. Andy, we are glad to have;ou back again, and we have your printed copy of your statement. I yon want to read it-you may present it any way you want to. We're glad to have you. STATEKDT OF ADREW 1. BIElfllLER, DiucroB., DBPilfllEll'l' OF LEGISLATI0li, AlfERICAlf PEDERATI0• OF LABOR A:RD 001'- GRESS OF mDUSTRIAL ORGAJf.IZATIOliS Mr. BIEMILLER. Thank you, Mr. Chairman. As you lmow, I am here on behalf of the AFlr--CIO, and I also want the record to show that I am authorized by the United Automobile Workers to say that they concur in this statement. I am here today to specifically oppose the confirmation of Judge George H. Boldt as Chairman of the Pay Board. At the outset, I want to register labor's strongest ob-jections at the way the administration has stacked the deck against workers and consumers by its selootion of so-called public members of both the Pay Board and the Price Commission. President Nixon has himself said that the public members should be "not beholden to any special interest groups." · But in naming the so-called public members of the Pay Board and Price Commission, he paid no attention to his own admonition. · All five of the so-called public members of the Pay Board have either close and continuing ties to corporate America or to government 1 or lmtlL · Six of the seven "public" members of the Price Commission have ties to corporate America. Against that background, we have strong reservations about Dr; C. Jackson Grayson as head of the Price Commission. But since our dayto-day work deals direetly with the Pay Board, we intend to concentrate on that matter and simply register those reservations about Dr. Gray~on without taking any position either for or against his confirmation. The committee will recall that in our testimony before this body last November 4 on the economic stabilization bill, we urged in the strongest terms that all of the public members of these two boards be appointed with the advice and consent of the Senate, rather than by the President alone. vYe hnd no ohjPction to requiring Senate confirmation, as well, for the labor and management members of the Pay Board. But we noted that this seemed less essential because the labor members and the management members are chosen precisely because they represent particular economic interests. . The relationshiI?, between management and labor is by its nature an acl rnrrnry one. l'hns, if a tripartite structure is to "·ork, the public members must be knowledgeable, thoroughly fnmiliar with the needs and goals of both management and labor, and absolutely neutral. In our November testimony we pointed out that in the critical area of the selection of public members for the Pay Board, a potential exi-:tpd for presidmtial action to stack the deck. And the stacked deck we warned about had already beeri dealt. Oiq1t1zed by Google 69 On the Price Commission there is no member speaking foc the consumer. So there was no dissenting voice on the Commission when the Cost of Livi~ Council voted to remove price controls for 75 percent of the Nation s retailers and nearly 50 percent of the Nation's rental units. Does anyone believe that this "golden" silence would have prevailed if even one of those seven members truly reflected the interests and views of consumers or tenants~ Turning now to the Pay Boa.rd, let me quote from a November 8 article on the editorial page of the Washington Post by J. W. Anderson, who wrote: . . . The unions were profoundly offended by the character or the Pay Board. They had demanded-and were granted-the principle or a trlpartite board repreeentlng labor, manag~nt and the public. The model firmly implanted in the union tradition is the customary arbitration panel, in which the public member brings nothing to the bargaining table but bis own expertise in both sides' needs, and bas no stake but his own professional reputat1en fur fairnees. Bnt on the present Pay Board, one 1Dfluenttal public member is Arn.,ld Weber, 110tll t:ais fall a member of the Nixon AdministratJ.on, and an influential figure in devising its wage policy••.. To find Mr. Weber waiting for him, in the role of the adjuclicator, suggested very forcibly to l\Ir. Meany that he bad been delh·ered into the bands of his enemies. I have read you the Washington Post's description of Mr. Weber's background. Let me summarize three others briefly. Mr. William Caples has spent a lifetime in industry on the. management side of the bargaining table. He has been vice president for industrial relations of the Inland Steel Co. and a vice president of the National Association of Manufacturers. ·we see no reason to believe that 2 years as a coll~e president has changed his basic outlook in any nuraculous way. Dr. Neil Jacoby spent 12 years as a member of the board of directors of the Occidental Petroleum Co. and is now chairman of the executive committee of its board of directors. · Dr. Kermit Gordon, now of the Brwkings Institution, has spent much of his adult life as a government official. He has absolutely no experience in labor-management relations. I would like now to address myself to Judge Boldt's qualifications as chairman of the Pay Board. We have no criticism of Judge Boldt as a citizen or as a judge. We have no doubt that he is qualified to sit on the Federal bench. But we do say he has no qualifications to sit as the impartial Chairman of the Pay Board. And we see no reason for anyone so unknowledgeable in labor-management relations to receive such expensive onthe-job training. At this point I should like to put into the record the account Mr. Meany gave on November 17 to the AFL-CIO Convention of the circumstances surrounding Judge Boldfs appointment. Mr. Meany reported on a telephone call he had received on Saturday evening, October 16, from Secretary of La:bor James Hodgson. Mr. Meany said: He (Hodgson) asked me if I knew a judge hy the name of Boldt out in the State of Washington. I said, "No." He said, "Well, try to get some information on him. Be is being considered for Chairman of the Pay Board." I said, "Well, I will SE>e what I can do. I will get back to you maybe by Tuesday. I am not going to get any information on Sunday." Oiq1t1zed by Google 70 It I knew what I know now, I would have sent a glowing letter recommending that fellow in the highest terms, and then he would have surely been . turned down. But on Tuesday morning, Jim called me. He said, "You know that fellow Boldt?" I said, "Yes." He said, "Forget him." Then he said a rather odd thing, he said, "He would be 'long gone ln a short time'-! don't know just where that expression comes from"He would be long gone in a short time ..." Hodgson continued, "He is totally and completely unfit for this job. He has absolutely no experience in this field and he just couldn't handle it at all. He knows nothing about it." I thought, "Well, that is the end of Boldt." 'l'hursday night I was informed ·by Hodgson that Boldt was going to be chair·man. I said, "What the hell are you talking about? He is going to be chairman after your description ?" · He said, "Well, there are some people around there that don 't agree with my estimate of his abilities, and besides, we couldn't get anybody else." Since the convention, some administration spokesmen, speaking anonymously to the press, have criticized l\Ir. l\Ieany for this breach of confidentiality. . Mr. Meany is the elected spokesman of 131/ 2 million trade 1mion members. He has an overriding responsibility to his constituents, and .to the public as well, to inform them about how the administration treats union members' vital interests. Therefore, we think it important that this account of how J11dge Boldt was appointed be put i_n to the ·record. ·' . To appoint an inexperienced, unknowledgeable man, who 1s still being paid by the Federal Government as a member of the judiciary, as Chairman to conduct affairs of this magnitude simply because "we cou'l dn't get anybody else" is no way to run a railroad, much less a government. As for Judge Boldt's neutrality, let me quote again from President Meany's remarks to the AFL-CIO Convention : The Judge • • • says, "There is a vital principle involved here." And I said, "What the heU is the vital principle?" He says, "We've got to go along with the President." Now that is not neutrality. That is rubber stamp subservience to the administration. Mr. Nixon has said-and we fully agree-that this entire program cannot and will not work unless the American people cooperate. Anybody who expects cooperation from the American people when the deal is stacked against them, just doesn't understand the American people. . Lrubor agreed to serve on the Pay Board because of public assurances that the Board would be autonomous, that it would not be dominated by management, by the Government, or by any other party. But this Board is not free; it never was free: and it was never intended to be free. The character of President Nixon's appointees, as so-<>alled public members, proves that conclusively. Therefore, we urge this committee to recommend that the Senate reject Jndge Boldfs nomination. e reject the concept that the President cannot find a man of stature, competence, knowledge and independence to fill this post. Twice before; the Nation imposed economic controls-both times during war. On both occasions, the then President was able to find men of the qualifica- ,v Oiq1t1zed by Google 71 tions we believe this position demands. We do not believe that all such Americans have disappeared from the public scene. · And if the President felt that he could not go outside the Governnient to find a chairman who was knowledgeable and who had a proven record of neutrality in labor-management affairs, why did he not name someone from the Federal Mediation and Conciliation Service, which service is by its very nature dedicated to la!bor-management neutrality 1 The CHAIRMAN. Thank you very much. It seems to me that you are almost certain to have some kind of friction or difference in a board that is made up of three distinct groups. I go along with some of those ,...-ho commented this mornin~ tfiat have preferred a straight public board, a board made up of public members, subject to confinnation by the Senate. . But we didn:t appoint the Board, and I understood-as I recall from ·the press, this tripartite-hoard arrangement was really worked out in agreement between the President, or at least his administration, and ~fr. Meany. l\Ir. BIEMILLER. Yes, that's correct. But---The CH'.,HRMAN. And it seems to me you almost-if you have a. board like that, you almost are·bound to have some kind of a breaking away at one ~oint or the other. · . ·· . · For mstance, now, one of the first contracts that the Wage Board handled-I think I ani right in this-was the coal contract. And I think the country was pretty well shocked with the. first news reports that went out on that contract. . And if I remember correctly, that contract was arrived at by a joinmg together of the five labor members and the five management n1embers. Now it may be that somebody on the five public members could have .made the same complaint that you are making now on this. In other words, all I am trying to say is, I don't see any escape from this kind of trouble developinu. · . Mr. BIEHILLER. Mr. Chairman, our point .is that we don't regard these public members as public members. . . When we were talking with the administration, we were talking on the basis of the experience that we had during World War II, and the I(orean war, with comparable boards. There they had real public members, not people who had come from Government or industry. The CHAIRMAN; Yes; well I said I would have preferred that kind of arrangement. straight across. Mr. BIEJIILLER. No. They weren:t straight across. They were tri~ .pa rtite boards, in orld ,var II and the Korean war. There is no secret about that. We were insisting we wanted a tripartite board. Both of those boards, in our opinion, function very well. There was no labor trouble worth talking about during w·orld War II, and very little during the Korean war. · . · But the public members on that board were all men who were absolutely neutral, but who were also knowledgeable and expert in the field of labor-management relations, and that is what we do not believe we have at the present time. · · · · The CHAIRMAN. Were they subject to confirmation by the Senate i ,v D,qitized by Google 72 Mr. Ruw:uu;R. The World War II people were, about the middle of the war. The original board was not. Then the Korea.n people were subject to confirmation. The Cru.IRHAN. Well, now, you heard Judge Boldt testify this morning, and you heard him telling about the degree of solidarity at the pre.sent time. He pointed out the many different decisions that were reached with no difference of opinion. Do you feel that it is working together now all right i · Mr. Brnurr..LER. The labor members, as I have said, have very little oonfidence in the neutrality and knowledgeability of the public members. When you have people who in two instances have be&n very close to oorporat.e America, and really that is where their background is, we don't see how they can be public members, so-called. We feel Mr. Kermit Gordon has no knowledgeability in the field of labor-management relations. We have known Kermit Gordon for years, but this isn't an area in which he has expertise. And the judge, we think, knows nothing about labor-management relations. He is the first man to admit it, and we think this is a bad way to put the Board oogether. The CHAIRKAN. Now you realize tho~h that we don't appoint this Board. All we can do is to say "yea" or 'nay}' Mr. BIEMILLER. That's right. . . •. The CHAilllll.AN. To the man that the President sendS ·\lP. Mr. BIEMlLLER. That's oorrect. The CHAIRMAN. And I think that is the thing we have to keep in mind. Mr. BuJ:MILLER. We are ur,z:ing you to say "nay." The CHAIRMAN. 'Ye don't have the right to say, you appoint this one, or even a ~rt&m type to the Boa.rd. That has been dooo. What about the operations here of late f You heard what the judge said this rnoming. He seems to be coming along .a,}l right. Mr. BIEMII,LJ-,R. There seems to be some reason to believe that at long last-it's taken a long time-that a ·competent staff is being assembled. For a long time there mtsn't any staff'. For a long time we found a real gang-up that worried us. You were talking this morning, Mr. Chairman, about the vecy fine joo that this committee did on the question of retroactive pay. It happens that the amendment that this committee sent to the Senate, and which was passed by the Senate, was almost identically the proposal which the labor members had made to the Pay Board at t~ very beginning of the Pay Board, and which was turned down. That whole controversy could have been averted if the public members had looked, as they should have, intelligently on what that proposal was. Now this is the kind of thing that has the labor people very upset. The CHAIRMAN. Let me say this. I think in all fairness we have to remember that there was a period of time in there, shortly after the Board was set up, that of course everything was conf'llsed. They didnit have a staff. And I think we ought to keep those things in mind. I am glad the labor members did decide to stay and even if there are rough times Oiq1t1zed by Google 73 ahead, I hope there ''"on't be, but if there should be, I think they ought to stay on. · And I think that for all of them. And I am hopeful that we will work things out. · Of course, as I said this morning, this committee was unanimous that the fair thing to do was to grant retrooctivity, with the safeguard, which I believe you fully approved. Mr. Bre11nLLER. That safeguard was in the proposal which the labor members of the Pay Board had made about the second day the Pay Board met. The CHAIRMAN. And as I said this morning, I see it's still in the press sometimes, that the administration was opposed to the settlements we made. I think they were very pleased with it. Now I don't have that word on it. But I have good cause to understand that to be true. Mr. BIEMILLER. Takei for example, Mr. Chairman, just to give you an illustration of what I am talking about, probably the 'best known decision of the War Labor Board was the little steel formula, as it beciune known. The CHAmYAN. I remember. Mr. BIEHILLER. Now that little steel formula, was decided by a combination of the public members and t.he management members. The labor members dissented from that original deal. But because of the great respect that the labor- membent of the '\-Var Lal>or Boo.rd had for the public members, there· w&S never any problem about getting that decision enforced. Now it"s tha,t kind o-f a spirit we'd like to get into the present Pay Boo.rd, and it's pretty difficult when yon have the type of so-called pnblie members that now exist on the P1ty Board. The CHAIRMAN. Well} I have taken an of my time. We appreciate your presentation, and I will call on Senator Tower. SenatOI' TOW.ER. Mr. Chairman, I don't have any particular questions, exeept I 1tm a little amazeid to hear th.is accusation that the Pay Board is stacked, 11·hen you consider the fact that most of the eomvlaints I have gotten about the Pay B(')ftrd have been that they ha-ve been too soft on wa,ze increases. So I don't regard it as a stacked deck at all. Thafs all I have to say. The CHAIRllCA~. Do you have any comment on that? Mr. BIEMILLF..R. No. The Senator is certainly entitled to his opinion. It's a difference of opini-on. I am not quarreling with .that. Senator TowER. You lrn°'v the coal decision raised all kinds of ruckus. There was considerable reaction agairn~t the Pity Board. Mr. BIEMILLER. It was a catch-up decision over l't period of several years. The CHAIRMAN. That's the way I tried to explain it, but nobody accept~d my explanation. It's pretty difficult to get across. Senator Proxmire~ Senator PRox11nRE. Mr. Biemiller, it was on October 16 that the Secretary of Labor talked with Mr. Meany? And at tliat time :vou say he said that Judge Boldt is "tot11Jly and completely unfit for this job-. Oiq1t1zed by Google 74 he ha~ absolutely no experience in the field, he just couldn't handle it atalV' Mr. Brn11nLU:R. That was on October 19. It was on October 16 that t;he Secretary of Labor made his first contact with Mr. l\Ieany and said he would talk with him on T11esdny, and it was Tuesday, the l!>th: ,v lien he tol<l him the ,J u<lgc couldn't handle the job. Senator Pw1x)rmE. At any rate, it was 2 or 3 months ago? Has he ever repudiated this, ever said he didn't say it.? :Mr. Bn:11n1,r.rn. To the hE>st of my knowledge, no. · Senator PROXMIRF.. In fact, he said he resented the fact that the confidentiality was breached, which seems to me is a confession that he said it. Now we have the Secretary of Labor, presumably President Xixon·s ~~rtoo-. . . Senator TOWER. That's hearsay, and would neYer be admitted in a court of law. . , Senator PRoxMIRF.. This is not a, court of la.w, to the best of my know ledge, in spite of the legal expertise of :M:r. Tower. . . At any rate, the Secretary of Labor has never denied this, !l.lthough it was pnblicly expressed by l\fr. Meany. .. . I indicate,(:l, in rf'adinf! from.the Xf'w -York Times this m(?rning, that nonlabor members of the Board share the same view; , . · . To the bf'st of your knowledge. how widf'ly held is th\s 11otfon ,tlrnt Secretary Hodgson expressed, that ,Judge Boldt is not qualified? · Mr. BIE:mLLER. ·well. ,I have never hear<l ,anything but great confusion coming ont of the early days of the Hoard, particularly because of this £act, that people di<l, not think that, however comp_etent and decent a citizen ,Judge Boldt is-and we u 1l agree 011 th~~that. he simply wasn't qualified £or this job, and certainly we got that reaction from many, many people on the Board at the time. · , , . . . . ·, Senator PRonnRE. Now this morning we had the yiew exprt>ssed not only with respect to Mr. Boldt, but with respect to Mr. Sheehan. that it's a good thing to appoint somebody who doesn't know a~ything about the job. The less he know$, the better job he is going to do. He comes with no preconceptions, no experience, no training, but with an open mind on which can be written nothing but . objectiYe judgments. · · •· . · This seems to me to be the only argument I can think of for ap· pointing a man who is kindly, gentle, perhaps a goqcl judge, as you say. . . . . What is your reaction to this kind of an argnment, that here is a man who at least comes here with no preconceptions? He does come from Government, but he hasn't been identified with either sideeither labor or management. Mr. B1Dm,LF.R. ·we1l, it's our opinion that this is the last place in the world that you should, as we put it in our statement, give on-thejob training to somebody who knows absolutely nothing ~b9ut labormanagement relations. There isn't a more delicate problem in American society . than the relationship between management and organized labor. .'There are many people in our Nation who have expertise and are strictly neutral, Oiq,t,zed by Google 75 and these are the kind of people that we expected to see appointed to a tripartite board. And those are the only kind of people, in our opinion, who ought to be appointed. We think that to appoint someone who has no background, know ledge, or expertise in the field is a mistake. Senator PROXMIRE. You made a tellin~ point when you sa.id you are looking for an arbitrator. They take a great deal of training and experience and judgment. There 1s an enormous difference in excellence. One of the great arbitrators is Wayne )Iorse, who has performed great service throughout the years. Sumner Siblicter, John Dunlop. These are the men who have the confidence-not prolabor or promanagement; not anti either ~roup. But they come in with enormous experience and background. Then when they make their judgments; they have to be respected, because they are made on the basis of knowledge and experience. Is that what you have in mind~ ·· :Mr. BIElIILLER. Nate Feinsinger in Wisconsin is another example,.. an impartial arbitrator in the automobile industry for many- years. Senator PRoXl\IIRE. As far as arbitration experience is concerned, as far as background that would give him the capacity to bring to :bear that kind of judgment, I don't see anything in Judge Boldfs back..,· ground,though,thatwouldgivehimcompetency.. . , · · . • . · There is another ingredient in this job-capacity as an administrator, to hire staff, delegate authority, organize and direct staff; organize ope-ration of the office. · Once again, does Judge Boldt have any experience as an administrator, that.you know oH •. · Mr; BIEl\U:LLER. Not that we know of. , , , Senator PROXMIRE. Has it ever been known· that. he is .an .effective administrator 1 Mr. BIE'!\IILI,ER. Not to the best of my know ledge. . Senator PRoxllIRE. 011' the basis of the records of the Board in the first months of operation, isn't it clear that this B00trd did lack effec-• tive administrative-leadership~ · Mr. BIEMILLER:Itwas hopeless·oonfusion. , , , Senator PROXMIRE. Now the judge indicated that the Board is now; beginning to harmonize and move well. Do you •think we can make a judgment based on the 1 week in which the judge has had this new power that the Board from now on has its troubles behind it? . ]\fr. BIEMILLER. I have heard no such expression yet from our people on the Board. Senator PROXl\IIRE. When the Board made this judgment that udge Boldt should decide eertain cases himself was this an indication of their faith in him and did the business and public members give him· this support as an eamest of their faith in his judgment? What did they have in mind, to the best of your knowledge? . lfr. BIEMILLF.R. Simply that they want to see the Board function as smoothly as possible; and for that reason they decided they had to set up this kind of a situation to handle the more 1•outine cases, because obviously you can't have the entire ·Board handling every possible case that comes along-. It's p:ot t o go down the, line, just as the ·war Labor Board and the ·wage Stabilization Board during the .r Oiq1t1zed by Google 76 Korean war had to set up certain guidelines and then let the top officials and the staff fit the cases as they came up into the slots where they did fit-and then only bring the major cases before the Board itself. That's obviously what they are trying to do. Senator PRoxMmE. I realize labor has a great deal of concern about the ,vhole approach to labor-management problems in the construction industry. After all, the use of the law to effect a. change in wage structure has not been exactly in the interest of organized labor. Nevertheless, there seems to be cooperation, efficient operation in that. In that case, what can you say about the people who administer that Board in terms of competence j Mr. BIEHILLER. Well, I think they are beginning to put some people into the slots who have competence in Government administration. I was here, as you know, when Judge Boldt testified. I would agree that Mr. Cass, for example, is an extremely competent civil servant, and I am delight~d that he has been added to the staff of the Board I think it will be a definite st:ep. Sena.tor PRox11un. It's a very important agency; far less im[)?r• tant than the overa.11 Pay Board. The Pay Bou.rd has responsibility with respect to the whole-I am talking about the construction. Mr. BIEMILLER. I am sorry. I mi8Understood you. I thought you were talking about the Pay Board itself. The Construction Boa.rd, I do not know very much about. As you know, it's been in existence for some .time. John Dunlop, who is the head of that B0&rd, is one of the most respeeted people in the arbitrator's field-to use that term in 1i general wily. And as far as I know, the Board has been functioning pretty smoothly. I haven't heard any howls about it, let's put it that way. Senator PRoxMmE. In this country1 wouldn't you say there are not scores but literally hundreds of expenenced arbitrators who are qualified from the standpoint of having decided numerous labor-management cases, who would bring expertise and would automatically and immediately command far greater respect than 80Dleone who comes in-maybe a fine person-but never had a.ny experience in labormanagement relations t Mr. BrnmLLER. The American Academy of Arbitrators ha.a several hundred members, most of whom are very highly respected. They are chosen jointly by l11bor and managemoot. in many instances, to handle disputes that arise in interpretations of contracts and the like. and there are many, as you state correctly, there are many, many such people scatttered throughout the American scen&--very competent people. Senator P1tonnRE. I'd like to ask you aboui something that has troubled a lot of people. At its convention in November, the American Federation of Labor and Congress of Industrial Organizations-your organization-was reported to have voted to adopt a policy of noncooperation with the Board. ,vhat does this mean, and what was it-is this an erroneous reP.?rt 1 Mr. BIEMILLER. There was a resolution adopted which I will be happy to furnish the committe.e a. copy of. Senator PROXMIRE. I think we ought to have that for the record, without objection. Oiq1t1zed by Google 77 ( The rt>solution is reprinted as follows:) EXECUTIVE COUNCIL Ht:l'O MllE"1IJATIO"1S TO Xo\'El!BEII 18, 1971 .-\l-'lr-CJO CO.S\'EXTIOX Ith, our duty to report to the membershh, of the AFir-CIO and to the working l•t'oplc of Ameri<'a that the wage control n1echanism e,;tablished by the President of the l'nitro States is IJeing mwd a s a devke to destroy the IJa:<ic American <•01wept of free colle<'tin~ IJa rg11i11lng. 1'he trade union mm•pment joined the Pay Hoa rd on the basis of a commitmt>nt from the Presi«lent that it would 1Je tripartite 1111<1 independent and that the puhlk memlJl•rs would IJe dtir.t•us of high rt-pute, knowlt•dgeauility aucl ueutrulity. That cou1111itment has nut ht'('n kPpl. "'e must now report that tht> public nwmbers. so-called. are not inclt-pendent but rather are harulm11i«h·ns of the Admi11istr11tio11. They are not neutral but ha,·e long ties eitllt'r to i11d11stry or to ~overmnent. In fact. one is ,;till on the ~overnnwnt payroll a11d another was a government official until the day I.Jefore hi,; apt1ointment to the l'ay Board. As out> of Its first 11ets. the Pay Bonrd- b~- a 10-::i vote with the i11clustry and the iaco-ealle<l public members acting in c·onent-nnllifiPd thousands of legal con• t rads <'overing millious of workers. \\·e flatly rejt•et the co11(·e11t that nnyune--be it Pay Bou rd or Pre><ident-has the power to alJrogate any legal collective bargaining agreement or any other contract voluntarily an<l legally entered into by American citizens or their representatives. If we were to take any other position, then every contract-mortgage, corporate uond issue, sales contract or any other form of agreement voluntarily entered into by American citizens-would be subject to abrogation in similar fashion, a concept we reject without equivocation. There is little hope that economic justice can be achieved by this Board, the majority of whom are guided by the dictates of the Administration or the interests of big business. Against this background, the AFL-CIO Executive Council recommends to the Convention: 1. That our representatives remain on the Pay Board only so long as a reasonable hope exists of securing recognition of the validity of contracts and of achieving justice for worl..-ing people generally-including, most particularly, those with low or substandard incomes and those without the protection of strong bargaining representatives. Until those objectives are assured, labor cannot associate itself \\1th the actions of the Board or encourage cooperation with their administration or enforcement. 2 . That the unions of the AFL-CIO insist at every level on the validity of their contracts in all their terms and in all their particulars, and that they take every lawful action at their command to insure that their contracts are honored. 3. That the AFL-CIO continue the legislatiYe effort in the Congre,;s to protect the validity of contracts. We will not relax for a moment our fight to increase the standard of life and livelihood for those at the bottom of the economic ladder-those whom the majority of the Pay Board seem to have forgotten. We repeat what we have said in the past: The American labor movement will not permit itself to become the scapegoat for Administration policies which have brought this nation to the brink of economic disaster. Mr. BmMILLER. In which we said our people will stay on the Bonrcl and cooperate to the best of our ability. Senator PROXMIRE. '\-Vas the noncooperation which was discussedwas that simply an inaccurate report? I quote from the New York Times on December 28, which says exactly what I have read you. "At the convention last month of the AFL-010 ... it was voted to adopt a policy of noncooperation with the Board." That is not true? Mr. BIEMILLER. I will send you a copy of the resolution for the committee. Oiq1t1zed by Google 78 Senator PROXMIRE. I believe my time is up, although I ham another question. Sena-tor Brock? Senator BROCK. I am interested in a number of particular points you raised. I find it somewhat difficult to follow the logic of the criticism of Judge Boldt on the basis that he doesn't have-I think you said somethm~ like a knowledge of the delicate nature of labor and management ctecisions, or something to that effect-an intimate knowledge. I don't think man:y judges have an intimate knowledge of the negotiations between any of the conflictin" parties that are brought before them. I think the purpose of the ju~ge and his legal responsibility is to try to make a determination on equity in the public interest and consistent with the law. It seems to me like we are raising an awful lot of questions about whether a man fits our criteria as a special interest criteria, rather than the criteria of equity, fairness, and proven experience in adjudicating matters that are equitable and consistent wit.h the law of the land as it exists. I think that is the prime function of this particular individual. I know your paper deals frankly with criticism more of the President and the Board in total thll>t it does Judge Boldt, but the only thing we have before us is Judge Bc:,ldt. Mr. Brn:llllLLER. If you had the other four members up, we'd be opposing them too. Senator BROCK. Well, just so we are fair with each other, if we had the whole 15 up, I'd oppose the Board as it is today. Mr. BIE:'IIILLER. You have a perfect right to your opinion. Senator BROCK. I'd rather have a Board composed primarily or entirely of public members. Mr. BIE:'IHLLF:R. We had that out in the Congress at the time of the Korean ,var ·wage Stabilization Board, and a motion was made in the House to change the Board into a completely public board, which was defeated. Senator BRorn::. w·e11, I think we have proven the value of a public board with the Price Commission. I think they have demonstrated tha.t things can be done more expeditiously and perhtips with a greater service to the public than we can with a board of advocates which had no requirement that they act in the public interest, because they are appointed to represent special interests. Mr. Brn:mLLER. But as I said in my paper, while we are not going to try to raise any trouble for the Price Board, we are very suspicious of the fact that six of the seven members have very close ties to corporate America, and we:d like to see some real public members on there too. Senator BROCK. Are you suspicious of anything that is associated with the President of the United States at this particular time~ Mr. BIEMILLER. No; that is not oorrect. Senator BRocn:. May I address one other brief point. Again, I find it highly inconsistent for this testimony, as vigorous a.s it is, to be presented in light of the fact that labor~management members did vote for Judge Boldt, and it was not · a delegation of limit~d authoritv in minor cases, as you seem to imply. It's a full delegation of authority. Oiq1t1zed by Google 79 And the only protection that you maintain for yourselves is a requirement that you can call a decison before the full Pay Board. Mr. BIEMILLER. That is correct. Senator BROCK. But every decison can be made from now on by Judge Boldt, and if you don't call the question, there will be no challenge. Mr. BIEMILLER. He is at the moment the Chairman of the Board. It is perfectly obvious that you have to delegate that authority to the Chairman of the Board if you are going to have the Board functioning at all. ~enator BROCK. ,:vell, you could have appointed, or delegated it to somebody else. Mr. Brn:mLLER. Not to any of the other public members, because we haven't any great faith in them either. Senator BROCK. So he is the best of the lot? Mr. BIEMILLER. No; you are faced with the reality that he is the chairman, and the normal delegation in a case like this is to the chairman, just as with the Labor Board. It was given to Chairman Davis, in whom the labor members had tremendous confidence and respect, who had a long background-he had been head of the New York State Mediation Board; cochairman of the Defense Mediation Board, and a man with a proven record of knowledge and expertise in the field of labor-management relations. Senator BROCK. Well, I have one other question that relates to labor and to the support-covert or overt-that is received by the phase II program. I have an article that I have read in which it was talking about, I think, Mr. FitzSimmons, and subsequently his statement was agreed to by Mr. Woodcock. He said the labor would shift now to negotiation on items which are not covered by the Pay Board, and they mentioned specifically fringe benefits and work rules. He said labor was going to attempt to substitute something of equivalent value for increased wages. If that is the case, if you are going to substitute equivalent value that simply isn't covered by the law as it is drafted for wages, can you really say you are supporting the program? Mr. BIEMILLER. I am not familiar with that particular statement. But I think what .Mr. FitzSimmons was obviously talking about was· the kind ofthin_gthathappened during World War II. The purpose of the Pay Board now, and the purpose of the War Labor Board, was to try to curb inflationary increases in wages. And it was actually out of the views of the public members on the War Labor Board that the whole idea of fringe benefits first developed because it was not an inflationary impetus to the economy at that time. And this is the kind of thing that I tnke it, obviously, that 1\Ir. FitzSimmons must have been talking about, although I haYe not seen that direct statement to which you refer. ~ Senator BROCK. Well, I think most eco1w111ists bl,liHe that a large element of our inflationary posture hns hl'l'll du~ to co~t-plus inflation. Oiq1t1zed by Google 80 Certainly these items do involve additional cost.. And therefore I don't see how we can say they are divorced from the inflation process or from the responsibility of. labor to participate _along with _the re:3~ of the body politic in supportmg a program to achieve econo1:mc stability. To clarify, I will quote you one paragraph of the article: If the President * * * [reading] * * * Woodcock warned . . . we will find something of equal value outside of the control of the Board * * *. That to me represents something less than cooperation or support of a program or willingness to really play the game fairly, as all the rest of these people in the country are being required to do. Mr. BIEMILLER. I am not authorized to speak for Mr. oodcock except in regard to this statement, as I said when I introduced it, that the lTA,v endorsed this statement. But I am not a spokesman for Mr. oodcock beyond that. Senator BROCK. ,vonld you speak for your organiaztion, then. in saying that if you find yourself limited in terms of wage increases that you will try to get something of equal value? Mr. BIEMILLER. If we are going to follow the pattern of W'orld War II situation, we undoubtedly will find ways and means of strengthening the position of the worker in the American economy. Senator BROCK. Regardless of the cost? Mr. Brnl\ULLER. And we will see what happens. No, it isn't regardless of the cost, because wages are the things that cause the problem of inflation. Senator BROCK. ,vha.t is the difference to a manufacturer whose cost components include not just wages but insurance benefits, pension programs, medical programs. vacation policy? All of these things affect productivity, cost of operation. You cannot limit the cost of business to wages. Mr. BIEMILLER. And they are all part of the collective bargaining. Senator BROCK. But not of the Pay Board's jurisdiction, and if you say you are going to ignore the guidelines in terms of these other items that are cost items-Mr. BIEl\IlLLER. If my memory serves me-I may be wrong-it was on the floor of the Senate that the exclusion of fringe benefits was added to the Economic Stabilization Act. Senator BROCK. But it was added on the assurance that the members of the labor organizations of this country were going to participate, going to try to support this program, and not just in adherence to the letter of the law but in total terms. Mr. Brnl\ULLER. ,,re are doing exactly that. Senator BROCK. My time has expired. Senator PROXMIRE. Do you want that article put in ,the record ? Senator BROCK. Yes. Senator PROXMIRE. Without objection, it will be included. (The following two articles from Business Week were received for the record :) ,v ,v Oiq1t1zed by Google 81 (1-'rum Buslne•s Week, Jun. 22, 1972) How TllE Us10:ss WILL GET Al!OU:SD WAGE Co!\'TKOLS-BENEFITS AND ,voaK RULES WILL GET TOP PRIORITY IN XEW CONTRACT DEMANDS Since wage controls are Ukely to inhibit demands for hefty wage increases, organized labor intends to concentrate on liberalized fringe benefits and work rules in upcoming contract negotiations. 'rhls was the warning issued last week by the presidents of the nation's two largest unions-Frank E. l<'itzsimmons of the International Brotherhood of Teamsters and Leonard Woodcock of the United Auto Workers. Their forum was the Federal l\Iedlatlon & Conciliation Service's 25th anniversary seminar in ·washington. The emphasis on fringe benefits and work rules could mean tougher and more complex bargaining, since the cost Implications of 1mch contract gains are often more difficult to gauge than simple wage boosts. Not sur11risingly, the labor mediators attending the meeting were told to expect a variety of new problems as the unions attempt to substitute "something of equivalent value·• for in• creased wages. When the FMCS sent out invirotions for the seminar, it announced that the theme would be •·Current and Near-Future De,·elopments in Collecth·e Bargaining." The theme turned quickly Into something more basic and specific-the Pay Board's controls and how to co11e with them. ACCORD Both Fitzsimmons and "'oodC'OCk are mPmhers of the Pay Board, and both made it clear that their two unions-and others-will insist that losses in pay must be made up by employers in areas outside the scope of controls. The Teamsters could be affected by a pending Pay Board decision on deferred wage increases. Its members are due 14% this year, in two lnstallment8. The UAW last. week had its aerospace settlement reduced from slightly more than 12% to 8.3%, with a suggestion from the hoard that it add the lost 4% to a second-year increase of 3% next October. "We can say that free collective bargaining is stifled until controls are remm·ed,'' l<'itzsimmons told the seminar. "But I can assure you that thPre are still real potentials for representing our membership at the bargaining roble." As Jong as the controls remain in et'fect, he said, the Teamsters would bargain for such items as antipollution clauses, stronger and more meaningful safety clauses, and work regulation.<!. "I believe other unions will be using the period during the COl)trols to to tighten up the language in their agreements, and this can only benefit collective bargaining." Fitzsimmons said. Woodcock basically echoed Fitzsimmons' belief that the controls program would force labor to turn its attention to contract language and fringe benefits that have had a low priority on the rank-and-file's lists of demands during the past years of Inflation. With costs rising, unionists ha,·e emphasized higher pay above all else. If the President's Pay Board limits wage gains for auto unionists, Woodcock warned. "We'll find something of equal value outside the control of the board." Woodcock did not mention any specific area for "equal value" gains, but be was clearly referring to the fact that most contract fringe benetfis are exempt from controls unless they are deemed "unreasonably inconsistent." PAY BOARD PROBLEM Fitzsimmons and the Teamsters represent one of the biggest problems for the Pay Board. Unlike the aerospace problem, which involved a contract negotiated after the basic controls program bad been announced, the Teamsters' contract with the nation'.<! trucking industry was negotiated more than a year before the controls. The question before the board is how much of the large second-year and thirdyear wage increases should be allowed. Management members of the board have Indicated they will challenge the second Teamsters raise in July. The first 25¢ an hour was within the board's guideline and was permitted to take et'fect Jan. 1. D,qitized by Google 82 Fitzsimmons, who warned earller this month that the trucking lndu,-;try would be struck if the Jan. 1 increases were not paid, Mid that the Team,-;ters would not be caught unawares if the board moves to curb the union's dE>ferred wage increases at midvear. "We in the Teamsters, like the Boy Scouts. try to be prepared," be said. Looking to future bargaining, be 1,1aid. "We will not have reopening els mes. We will device other techniques, not with the view of upsetting the announcro goal of containing inflation, but to protect our members." MA.NAGEYENT'S VOICE Virgil Day, a General Electric vice-pre~ident and spokesman for mnnagement members of the Pay Board, warned the seminar that "collective bargaining is not in a healthy condition." "We won't kill bargaining if, for a while, we subject the re!'ults to re,·iew nnd possible revisions [through the Pay Board] ...• The way to kill bargnin• ing is to undermine Phase II," Day said. Day then picked up on a theme sounded earliE>r in thE' seminar by Lnhor Secrf'tary .James D. Hodgson-a theme that Immediately raised the hackles of or· ganized labor. Mediators should remind negotiators of settlement limits in the Pha"e II program. "I am not asking you to plead to the bargainers on behalf of the Pay Board." Day said to assemblE'd mediators. "I do urge you to keep in mind the Pay Board policies and rullngs when you help the parties at the bargaining table." Hodgson insisted be was not advocating that federal mediators be "a protag• onist for or an enforcer of controls," but he said, "I visualize the mediator's job today as including up-to-date knowledge of the control board regulations. standards. and actions, as well as a responsibility to advise both parties of what they are. Today controls are very much a part of the total bargaining en'\"'lronment and as such cannot be Ignored." United Steelworkers President I . W. Abel, also a member of the Pay Board, was much more philosophical about future collective bargaining than Woodcock and Fitzsimmons. Abel devoted bis time at the seminar to the need for labor and management cooperation to help Increase productivity and to search for strike alternatives. [From Business Week, Dec. 11, 1971] A NEW TACK ON PRICE HIKES In price decisions on U.S. Steel Corp. and Dow Chemical Co. this week, the federal Price Commission otl'ered some solid guidance on how It will probably deal with major corporations in the future. In brief, the likely tactic will be increasing -r eliance, wherever feasible, on granting across-the-board increases Instead of .painstaking evaluation of product-by-product requests. Big Steel, for example, wanted 8.6% on its big-volume sheet products. Instead, after discm:sions witb commission members Robert F. Lnnzilotti and John W. Queenan, Steel withdrew Its request late on Tuesday and flied for an across-theboard 3.6%, which was promptly approved. The company has the opt.ion of juggling prices any way it likes, until Ang. 1, as long as the aggregate stays under that figure. It will probably start to take advantage of this flexibility once steel prices sta·rt to firm In the spring. Tbe same approach is being used with Dow. another company with a huge and varied product line. The commission statl' considered product-by-product evaluations nearly Impossible, and worked out -a companywide 2% ceiling; Dow hnd requested 2.'5 %. ,vhere an across-the-board approach is used, the commission may require eompanies to develop a sophisticated new monitoring tool: a weighted Index of its prices that will account for price in relation to volume. OthPrwh,e, the commission would be faced with the mind-boggling task of sorting out complianee among nil the varying price movements. The n·eighted indPx, suggests Lanzilotti. could also be used to monitor food chain pricing. Several major chains are willing to supply an index to the commission, ·b ut as of now would balk at putting it on display in their stores. Oiq1t1zed by Google 83 U0ICP'J'I01'8 Across-the-board price approvals are neither necessary nor desirable in all C'1lses, of course. As with autos and coal, for example, companies with clearly Identifiable dominant products will continue to file product-by-product. And conglomerates present their own set of problems. Few conglomerates have thus far requested price increases, and the commission has made no final decision on how to deal with them. Roy Ash, chairman of Litton Industries, for example, says that his huge conglomerate has asked for no price bikes because of the mammoth job of compiling all the necessary information. Within many conglomerates, the commission will flnd itself dealing with some subt;idlaries producing a dominant product, and others with product lines more varied than those of Dow. What is more, both situations must be related to the pa-rent corporation's profit-margin ceilings. "We wlll have to look at it both ways," guesses Lanzilotti. "The filings get to be sticky, messy problems." The commission's new across-the-board approach seems to have sutisfied U.S. Steel. Chairman Edwin H. Gott, in a statement after the announcement, declared that the approval plan "should contribute to the stability of the general price structure ,a nd provide a de,-:-ree of flexibility In pricing onr indh-idual steel products." This flexibility should help hold to a minimum the economic dislocations ca used by the price controls-a major goal of the commission. The commission treated the steel increase very diff'erently from the soft coal settlement In another way, too, although the labor costs-15%-were ni-arly identical. The commission allowed full use of the higher labor cost as justification for •a price increase for steel, since that contract agreement had been signed before the wage-price controls announcement last summer. The coal contracts were negotiated during the freeze and signed se,·eral days after the basic 5.5% guideline for wage increases was announced. So the commission allowed the mine operators to use only 60% of the increase in figuring price hikes. How TO DELIVER YOUR PRICE REQUEST At one point last month, there were, by actual count, 70 company representatives crowded along the maze of narrow halls on the sixth floor of the Price Commission's headquarters at 2000 M St, NW., In ,vashington. Most had come bearing requests for price increases and, to Donald Wortman, chief price analyst for the commission, It looked as if they were planning to stay until they got a decision. "They were just gumming up the works," groans Wortman. "My peO()le couldn't even get the requests off to the right analysts because everybody wanted a consultation then and there." Things have eased a little, but Wortman is still up to his ears in company reps. Hanging around does not do any good, he maintains. Instead, he suggests the following: If you are going to hand-carry a price-increase request to Washington, take two copies of it to Room 5008 at the headquarters. There, a member of the professional staff will stamp both copies with date and time and will return one copy to you. CHANNELS The application form has space to list the name, address, and phone number of the official whom the commission should contact to get further information or to addse when action is taken on the request. But if the person who delivers the request remains In Washington and wants the commission to deal with him, he should leave his name and how he can be reached with the commission official who formally accepts the request. The commission wlll notify by telephone when action is taken. If it is an approval, a letter and an order signed by the commission chairman will follow. If it is a denial, the letter probably will go out by Teletype, and the order will follow by mall. If a company has facsimile transmission facilities, perhaps some of the correspondence can move that way. What really drives Wortman up the wall ls probably the simplest thing of all, but many companies are overlooking it. "They are not getting the chief executive officer to sign the damned form," he complains, "and we won't process it until they do." Diq1t1zed by Google 84 Senator CRANSTON. I am not sure I heard one of your responses to Senator Brock: Would you say that if confirmation had been necessary, as you wish, for all members of this Board, you would oppose all of them1 Mr. BrnMILLER. All of them. Senator CRANSTON. So in effect, you are J?articularly vehement in your opposition to the Chairman. since that 1s your only opportunity to seek to achieve some balance from your point of view i Mr. BIEMILLER. Precisely. Senator CRANSTON. In regard to the type of industry-incidentally. one member you spoke of-Neil Jacoby-while he has been on the board of Occidental and quite possibly of other concerns, he primarily has been an educator; he was dean of the Graduate School of Business at UCLA for a long time and is now with the Center for the Study of Democratic Institutions and has mainly been in such activities. In regard to the ties to Government, particularly in the case of Jud O'e Boldt, at the top of page 4 you remark that he is still being paid by the Federal Government as a member of the judiciary. What 1s your basic concern there, since the judiciary obviously is different from the executive branch 1 Mr. BIEMILLER. "\,Ve don't believe that any Government official should be a public member of a t.ri partite board. Senator Cru.NsTON. I see. Mr. BIEMILLER. This isn't per se on Judge Boldt; it's a generical opposition. Senator CRANSTON. I understand. Particularly strong are your feelings about Mr. ,veber and his role before he went on the Board. Mr. B1EMILLER. Mr. eber; one night he was head of the Cost of Living Council, and the next day he is a public member of the Pay Board. It makes no sense to us. Senator CRANSTON. I think the point you make about the lack of a voice for the consumer, in any way, shape, or manner, is a very important one. In regard to the quote from Mr. Meany, and his conversation with Judge Boldt, could you amplify the circumstances? ,Vhat were they talking about that led them to this statement about the vital principle? Mr. BmMILLER. It was an argument about the question of the payment of retroactive wages, before the Congress acted and solved the problem, as I said just before you came in, Senator. Senator CRANSTON. I was here for your whole testimony. Mr. BrnMILLER. What was passed by the Senate was precisely the proposal that had been made by the labor members of the Pay Board. Senator CRANSTON. In discussing the matt.er of retroactivity, .Judge Boldt said it was a vital principle, and that is, going along with the President? Mr. BrnMILLER. Going along with the President. And he was assuming the President was opposed to the payment of retroactive wages. Senator CRANSTON. In regard to the other quote from Mr. Meany, relating to the conversation with Secretary Hodgson, Senator Proxmire brought that up in his questioning and Senator Tower stated that ,v Oiq1t1zed by Google 1 r 1 85 it is hearsay and wouldn't stand up in court, and Senator Proxmire made the point that this is not a court. In view of that statement, in view of Mr. Hodgson's role in the ~overnment7 it seems to me that we shouldn't let it go as hearsay. That 1s a very serious charge. I would not like-and it's a very serious judgment made by Mr. Hodgson of Judge Boldt's qualifications. Senator ToWER. Would the Senator yield? I just talked to Secretary Hodgson a few minutes ago, after this came out in the testimony. I talked to him on the telephone. He said these are Meany's words, not his, and his most recent view of Judge Boldt is, "considering the crosscurrent.a and difficulties under which the Board has had to operate, Judge Boldt's work is to be apl)lauded." Senator CRANSTON. I would be mterested in exploring further the views-I am interested in that current appraisal-but the earlier appraisal is also I think very relevant to our deliberations. 1 would not want to embarrass Secretary Hodgson unnecessarily, since he is in a somewhat difficult position, being in the administration and dealing with the administration's appointment by the President. On the other hand, I think this committee should know a little more about Mr. Hodgson's past and current appraisals of him, and we might well discuss it in executive session. I would prefer t-0 know more about it, before I voted on him, and if I had to vote at this time, I would vote against him until I was afforded an or,portunity to know more about Secretary Hodgson's viewpoint. Thats all I have at this ~~ . . Secretary TowER. I have already said what I intended to say during my time. I would like to point out that in criticizing the Price Commission, Mr. Biemiller noted that we removed price controls from 75 percent of the Nation's retailers. I think it should be noted that those 75 percent are small retailers that do only 15 percent of the retail business, The small "Mom and Pop" type operations. I think that should be noted. The CHAIRMAN. They didn't have the percentages at that time. Senator BROCK. The law passed by this body required the Board to make that judgment as soon as possible, to relieve small business of this particular burden. Senator PROXMIRE. I have a couple of very quick questions. First, how do you think business would react if the public members of the Board had the same kinds of affiliation with organized labor that the public members now have with corporate buisness? Mr. BIEMILLER. I would expect them to scream as loud as we are screaming at the present situation. I think they would object-and would have every right to object. I can't imagine my old Congressional colleague, 'President Nixon, appointing me to a pay board as a public member, but if he had, I would expect the chamber to howl about it. Senator PROXMIRE. The other question I had in mind is with respect to the good service that the AFL-CIO is trying ndbly to provide in monitoring the price operations. Diq1t1zed by Google 86 I think this is probably the most effective action by any nongm·emmental group; maybe more effective than governmental action. But how can you do it i How can you operate in view of the confusion that we have in our price regulations, · in view- of the very complex basis on which prices can be increased, in view of the secrecy that was indicated this morning¥ How are you aple to have this operation and what do you need-what should .we do as Senators on ~his ~mmittee to urge the Price Co~m.ission to reorganize and change its policy so you can do a more effective Job¥ · · ~r. BIE~II¾J:~· Well, ·the pel"S?n on our staff who is in. charge _of this operation 1s Mr. Leo Perhs, head of our commumty affairs division. He says that our people · &re utterly frustrated. They go into stores, they can't get lists half the time, or if they get a list it's unintelligible. So what we have been reduced to is comparative shopping, practically, and going back to the newspa.pers of the period prior to the freezes and so on, and trying to compare. Now we think it Would be very desirable if there was a much larger staff of enforcing people so that when you do have-when our wa;tchdog committees find a.n acknowledged violation, they have somebody to go to and get something done about it. Actually, the IRS does most of its enforcing by telephone a.t the present time, and I don't know how they ·think this is going to operate. · So we are anxious to see a much broader setup in the price-control operation where we can come with our grievances and get some action on them. We don't get any action today when we do discover what we consider to be violations. · · S~nator PRo~MI~ .. It's been. reported that you intend .to bring suit agamst any price mcrease. · : ·· Mr. BIEMILLER. This is what we are contemplating; · Senator PROXMIRE. How i There are so many hundreds of thousands of prices. · Mr. BIEMILLER. ·well our lawyers recognize this, and are trying to devise some way to dramatize the problem. I don't know how they are going to do it either. . ·· · Senator PROXMIRE. Anyway, your principal recommendation is that we do what we can to provide more adequate enforcement personnel? · · Mr. BIEMILLER. Precisely. Senator PROXMIRE. Thank you, Mr. Chairman. The CHAIRMAN. Any further questions¥ I was rather interested in this last exchange between you and Senator Proxmire. It seems to me ·if you brought a suit and you succeeded in breaking down the Price Commission, you would destroy the whole thing. And we'd be without any machinery on wacres and prices. I just don't think we want a situation like that to d'evelop. It seems to me the better way to proceed-and I am just thinltjng out loud-would be to find someplace where they make a· mistake, if t.hey make a mistake, and go after them. · ' . Oiq1t1zed by Google 1 87 For instance, you mentioned a few minutes ago, and in your paper, you mentioned these retail stores. They just don't amount to a drop m the bucket so far as inflation is concerned. And furthermore, the thing they were excused from was having to post a price on every single item in the store. And where you had a "Mama and a Papa" store, it's Yirtually impossible to carry that out. However, that is dealing with the Price Commission whereas we are dealing with the chairman of the Wage Board. No other questions 'I Thank you very much. Mr. BIEMILLER. Thank you very much, Mr. Chairman. The CHAIRMAN. We ap{>reciate the exchange we had. Now if all of those except the committee members will clear out of the room, we will go into executive session. (Whereupon, at 3 :30 p.m., the hearing was adjourned.) 0 D,qitized by Google