Wage-Price Controls

Report Outline
Political Effects of Inflation
Economic Controls in the Past
Other Anti-Inflation Proposals
Special Focus

Political Effects of Inflation

Carter's New Plan for Voluntary Controls

The rising cost of living is the problem that seems to concern Americans most — whether they are consumers, manufacturers or federal officials who decide how the economy is run. Public opinion polls this year have indicated repeatedly that a majority of Americans believe inflation to be the No. 1 national problem. President Carter announced in April that curbing inflation was his top domestic priority, and in a nationally televised address Oct. 24 revealed his long-awaited program to fight inflation based on voluntary wage-price guidelines, or “standards.”

Carter set a “basic target for economy-wide price increases” at 5.75 percent annually. The president asked businesses to hold price increases to at least one-half of one percentage point below what they averaged in 1976 and 1977. If those increases were extraordinarily high, the price increase would be limited to 9.5 percent. Carter urged that wage and benefit increases — except for workers earning below $4 an hour and those under wage contracts already signed — be limited to a maximum of 7 percent a year. Since the president does not have authority to impose mandatory wage-price controls — that authority must be granted by Congress — the new plan's chance of success rests largely on his ability to rally public opinion.

However, Carter as head of the executive branch, does possess some formidable weapons in addition to verbal persuasion, or “jawboning.” The new plan, unofficially called “Phase II” to distinguish it from Carter's earlier efforts to control inflation, envisions the use of “government responses” to ensure compliance by business and labor. For instance, the administration could withhold specific government purchases or construction contracts as a means of punishing recalcitrant companies, or it might threaten to raise import levels to gain leverage in an uncooperative industry. Carter said that the administration will also attempt to speed the process of deregulating various industries to increase competition and lower prices, following a pattern set by the airlines at the urging of Civil Aeronautics Board Chairman Alfred E. Kahn.