Statement About Signing a Bill Extending the Economic Stabilization Act of 1970

THE CONGRESS has passed, and I have signed into law, an extension of the Economic Stabilization Act. This legislation will permit continuation of a constructive and orderly program to restore price stability, and I congratulate the Congress on its action.

After 18 months of great progress against inflation, prices soared again in February and March. Most of the increases were in the price of food, an area that strikes home for each of us every day. In these circumstances the temptation was strong to go for the superficially simple solution--to freeze prices across the board or even roll them back. We carefully considered that alternative. We firmly concluded, however, that such a move, taken at this time, would have created more problems for the average American than it would solve.

If, on the one hand, the freeze had been brief, the country would soon have confronted all the old problems again with even greater urgency when the freeze expired. But if, on the other hand, the freeze were planned to last for an extended period, then our present rising prosperity would have ground to a halt, and the controls system would eventually have broken down.

Concerned as we are about the rise of prices, we must also recognize that there are some cases in which necessary supplies will not be available if prices are frozen or rolled back. We are seeing this now with oil and gas products. Similarly, if we had forced the prices of meat back to their January levels, as some have suggested, customers would not be boycotting meat today, but would instead be storming supermarkets to be the first in line for the scarce supply of meat.

There are times, of course, when a price-wage freeze is necessary. August of 1971 was such a time.

But the situation is very different today. The American economy is operating much closer to capacity than in the summer of 1971. As a result, there are many more cases today where freezing prices would cause shortages. More than that, today we have a flexible price and wage control system already in existence. If conditions require firmer action, generally or selectively, we are already well-equipped to take it.

The price-wage control system is part of a larger anti-inflation program the cornerstone of which is a responsible budget policy. The healthy expansion of our economy, which is creating more jobs and better wages today, could be transformed into a dangerously inflationary boom tomorrow if the rise in Federal spending accelerates. We must not let that happen.

At the same time that we are following fiscal and monetary policies to restrain excessive demand in the marketplace, we also are acting to increase supplies, the best of all ways to fight rising prices.

One area of special concern, of course, is food prices. We have been working in many ways to increase the supply of food. We have greatly increased the acreage of land available for raising crops and grazing livestock. We have sold the Government-owned stocks of wheat and feed grains. We are no longer subsidizing the export of food, and we have acted to increase imports of meat, dried milk, and cheese. These measures cannot immediately offset the food shortages we have recently experienced--including those caused by the blizzards and floods of the last few months. However, what has been done, together with the spontaneous response of farmers to the present high prices, will have the effect of increasing food supplies and thus holding down prices. In fact, retail food prices have been rising less rapidly in recent weeks than earlier this year. We will continue to explore every possible way to meet the food inflation problem.

We are also seeking to increase supplies of industrial materials by selling off stocks helot in the Government's strategic stockpile that are no longer required for national security. I have sent to the Congress the legislation necessary to effect this disposal and I urge its prompt enactment. I have also sent to the Congress a request for authority to suspend tariffs or other restrictions on imports where such action would be useful to restrain inflation; I hope this legislation will also be promptly and favorably considered.

The third element in the Government's anti-inflation program, in addition to checking the expansion of demand through appropriate fiscal and monetary policies and stimulating the expansion of supply, is the price-wage control system, now known as Phase III.

In Phase III the Government has set forth standards of desirable price and wage behavior which are essentially the same standards used during Phase II. In some areas--food processing and distributing, construction, and medical care-observance of these standards is mandatory just as it was in Phase II. For the rest of the economy, compliance is on a self-administering basis unless the Government, through the Cost of Living Council, finds mandatory control necessary. As I have said before, Phase III will be as voluntary as it can be and as mandatory, as it has to be.

Since Phase III began, we have taken a number of steps to ensure the achievement of its goals. Mandatory price control has been imposed on the larger oil companies. Ceiling prices have been set for beef, pork, and lamb. Those wage agreements that have appeared inconsistent with price stabilization have been held up pending further study. The Internal Revenue Service is checking on some 500 large companies to be sure that their pricing procedures conform with the standards of Phase III. The Cost of Living Council is meeting with representatives of a number of large industries to gain a better understanding of the causes of their recent price increases.

So that the Government can administer the Phase III price control program more effectively, I have directed the Cost of Living Council to take several further steps.

First, it will obtain from the largest firms a full and detailed report on price changes that have been put into effect since the beginning of Phase III, so that it may order reduction of increases that have exceeded the standards.

Second, a new system of prenotification will be instituted. If a major firm intends to raise its average prices more than 1.5 percent above the January 10 authorized level, it must notify the Cost of Living Council 30 days in advance. This will give the Cost of Living Council an opportunity to determine whether or not the use of its authority to stop the increase, or some other action, is warranted.

Third, firms not exceeding the 1.5 percent limit will still be required to report their actions quarterly, so that their conformity to the cost-justification standards may be checked.

Fourth, additional resources will be assigned to ensure that these strengthened efforts are carried out fairly and effectively.

The Cost of Living Council will provide the details of these actions.

This Administration will continue to do everything it can to fight inflation, but others must also do their part if we are to succeed. Everyone has an interest in restoring reasonable price stability without ending the present prosperity and without rigid suppression of free markets and free collective bargaining.

Our great need is for more production. Only with more production can we fight inflation while still providing the goods and services people want.

Today I address the call for more production particularly to the Nation's farmers, because it is the price of food more than anything else that now blocks the return of price stability. There are many grounds on which such an appeal can be based. Prices are high, world demand is strong, and economic conditions are such that farmers will improve their incomes by producing more. This is especially true of animal products--meat, dairy products, and eggs. Continuously rising food prices, on the other hand, would create greater pressure for controls, pressures which could be hard to resist even though the controls would hurt consumers as well as farmers.

The country needs more food, and American farmers have never failed to deliver when the country needed them. Although our farmers have had to contend with miserable weather conditions in recent months, their productive capacity is still not fully utilized.

Labor and management also can contribute to the fight against inflation by continuing to improve productivity. Rising productivity attacks inflation both by increasing supplies and by holding down costs. Progress on this front to date has been encouraging. Since the summer of 1971, output per man-hour has risen 50 percent faster than it has over the long term. It is imperative that we continue this excellent performance, even though it will become more difficult to do so as the economy reaches higher levels.

Labor and management have also been contributing to our stabilization efforts through responsible collective bargaining. The average size of increases in collective bargaining agreements was lower in the first quarter of 1973 than before the new economic policy began. I am also encouraged by the record to date in maintaining industrial peace. In short, the cooperation of American labor and management in the stabilization effort has been outstanding.

The American people look to labor and management to continue constructive behavior.

Although I believe that prices will not rise as much in the months ahead as they did in February and March, price increases will probably be higher than we would like for some months. We should be mature enough to recognize that there is no instant remedy for this problem. We are dealing with a condition that is worldwide in scope and indeed has been less severe and more effectively confronted here than in most other countries. Working together, the American people will solve the problem of inflation, but that process will require patience, cooperation, and understanding from us all.

Meanwhile, let us not overlook the great strengths of our economy. We have more people at work than ever before, earning higher real incomes and consuming more goods and services per capita than at any time in our past. Inflation is a potential danger to all and a present hardship for some, but nevertheless the American people are enjoying the fruits of an extraordinarily effective economic system. Any superficially appealing actions that would disrupt or abandon that system would ultimately cause far more damage than they would repair.