Price-Wage Restraints in National Emergencies

Report Outline
Inaflationary force in the economy
Price-Wage Controls in Peace and War
Alternatives to Direct Controls

Inaflationary force in the economy

The threat that another round of inflation will be set off by current business expansion and by government spending to meet the world crisis has made the Kennedy administration acutely aware of the need to take precautionary action. The President recently made an unusual appeal to steel industry leaders to hold down prices, and he promised to urge equal restraint on steel labor leaders next spring when a new wage contract is to be negotiated. When Kennedy addressed the nation on the Berlin crisis last July 25, moreover, he said he would ask Congress in January for any increase in taxes needed to balance the budget in the fiscal year 1963. Although the President seemed to soften that stand at a news conference on Oct. 11, Secretary of the Treasury Douglas Dillon took pains to emphasize to the American Bankers Association at San Francisco six days later that “A balanced budget for fiscal 1963 is exactly what President Kennedy intends to submit to Congress next January.” However, a large deficit is unavoidable in fiscal 1962.

Threat of Inflation in Present Critical Period

Economic experts agree that the combination of a strong business expansion, rising international tension, and a large federal budget deficit generates powerful inflationary forces. The upturn in business from the recession of 1960–61 has been steady though not spectacular. Unemployment has remained at close to 7 per cent of the civilian labor force on a seasonally adjusted basis, but total employment has risen to record high levels. Aggregate personal income is setting new records each month.

Soviet threats to the Western position in Berlin and intensined Red guerrilla operations in Southeast Asia led the President to ask Congress last summer for $3.5 billion more than originally projected for military expenditures. Combined defense and non-defense appropriations voted by Congress this year were the largest in peacetime—$95.8 billion, which was $12 billion more than the total appropriated at the 1960 session. President Kennedy expressed confidence, July 25, that the American economy was capable of sustaining appropriations of this magnitude, but additional strain will be imposed if the world situation worsens.