Subsequently, companies sought to enjoin the promulgation of that. second set of regulations. That whole issue was mooted without ultimate court guidance because of the termination of the economic stabilization program.

This example illustrates one of our underlying concerns that the issues raised by public disclosure of detailed business information will cause the kind of litigation to which we should not be required to devote our resources.

Mr. ASHLEY. I think it might be a good idea if you presented us with some alternatives to the extent that you wish to do so. In the absence of those alternatives, though, of course, we will proceed as the subcommittee sees fit. All I am saying is that if you have any alternatives other than what has been suggested, it might be useful to have those presented to the subcommittee.

Dr. REES. Mr. Chairman, we will present for the record a copy of a memorandum from Mr. Williams to me dated May 21, 1975, which discusses alternatives and provides alternate language.

Mr. ASHLEY. Without objection, that will be inserted in the record. at the appropriate point.

[Response to the inquiry of Chairman Ashley will be found at the end of this day's hearing on pages 63-69, Topic No. 1.]

Dr. REES. I should also mention that the language that I read a moment ago from H.R. 4594 was originally in S. 409 as it was introduced in the Senate. It was deleted in S. 409 as passed. And we find the periodic reporting provision in S. 409, although we are not in favor of it, less objectionable than that original provision.

Mr. ASHLEY. Mr. Schulze?

Mr. SCHULZE. Thank you, Mr. Chairman.

Thank you, Mr. Rees, for a very succinct statement. When we talk about the interest of the consumer, and the possibility of requiring product-line reporting through subpena, I see such reporting requirements as unnecessary and burdensome and also costly.

In a recent study by Murray L. Wiedenbaum, it shows that estimated startup costs for line-of-business reports by 25 major companies at $13.5 million. I see this possibility as not only burdensome, but costly with these costs being passed along to the consumer who ultimately pays the tab.

Do you have any comments on that?

Dr. REES. Well, I have not examined the basis for Professor Wiedenbaum's estimates, so I can't really comment on whether they are realistic or not. We are not opposed to line-of-business or product-line reporting provided that there are added safeguards against the disclosure of the reports by the receiving agency and adequate protection against the subpena of the company copy of the original report by third parties.

Mr. SCHULZE. Isn't the business community being so burdened with additional paperwork that it is difficult to function anymore?

Dr. REES. Well there is a very heavy burden. And that is why we don't support the periodic reporting requirement in S. 409. We would like to keep that reporting burden as light as we can make it and still carry out the duties that we have been assigned by the Congress.

Mr. SCHULZE. When discussing the subpena power situation last August when Mr. Ash testified before this subcommittee, he said:

The purpose of this task force is not to begin a march down the road to wage and price control. If we were given subpena powers, it would accomplish nothing in the way of getting useful information that is otherwise not available. In addition, it could well be perceived by many as a first step in a march toward wage and price controls.

And he further stated that the subpena power calls for enforcement. If we go to subpena powers, we are putting into this bill an enforcement power and authority which really is the first step toward other enforcement powers and authority.

Do you have any comment on these remarks?

Dr. REES. Well, I am familiar with that statement by Mr. Ash. I am not in complete agreement with it. I think he overdraws the picture a little bit.

Mr. SCHULZE. Do you favor a program of wage and price controls? Dr. REES. Absolutely not. I thought I had made that very clear. Where I disagree is that I don't think that subpena power really takes us very far down that road toward controls that Mr. Ash and I both feel would be counterproductive.

Mr. SCHULZE. Now, it seems to me if we are just going to use the subpena power a little bit and not very often, it is very much like the child who asked his mother just to hold the lollipop and promises not to eat it. Do you have any thoughts on that?

Dr. REES. Well, it is clear that if I were certain we would never use it, I would oppose having it. I would anticipate a situation in which, if we had subpena power, we would use it very rarely. And also, the fact that we had it might mean that we would get some voluntary submissions that we don't now get.

But I should say that the instances in which we do not receive the information we request are very infrequent.

Mr. SCHULZE. You are not saying it is absolutely necessary for you to have subpena power?

Dr. REES. No, it is not absolutely necessary. We feel we have been functioning quite well without it. It would be perhaps helpful in certain instances, but I think we could continue to do the kind of job we have been doing with our present powers.

Mr. SCHULZE. Thank you.

Mr. ASHLEY. Mrs. Sullivan?

Mrs. SULLIVAN. Thank you, Mr. Chairman.

Dr. Rees, how do you explain simultaneous inflation and recession? Doesn't traditional theory say that you can't have both at the same time?

Dr. REES. Well, it is unusual to have inflation and recession simultaneously. Part of it. I think, I would explain through lags in the system. Some of the cost increases that were incurred during the boom of 1973 have still not fully been passed through into consumer prices. There are some special factors in the current inflation-energy particularly. The increase by the OPEC countries in the price of petroleum was very badly timed in terms of the business cycle and may, indeed, have helped to bring about this recession.

And I think that is substantly responsible for the fact that we are seeing recession and inflation at the same time.

Another area where we have continuing serious inflation is medical. care costs. The demand for medical care from the Government and from insurance carriers has been such that the recession has done very little to reduce the demand for medical care.

Mrs. SULLIVAN. Has the Government been at fault in having this unusual situation we are discussing because of interference in trying to hold down inflation and hold down prices?

Dr. REES. I am not sure I understand your question, Mrs. Sullivan. Mrs. SULLIVAN. Frankly, I understand your answer just as much as you probably understand my question. Because I don't think we have an answer when we say that costs haven't reached down to the consumer because the consumer's price on everything has been going up, regardless of what happens to the cost from the origin of the product. I just wonder if when we had price control for that period, and we know that phase 1 and 2 period worked, when we finally ended phase 3 and then let the Economic Stabilization Act die of its own accord, wasn't it because the use of the control act was really misused by the administration.

Now, didn't that have some influence?

Dr. REES. There is no question there was an upsurge of price increases at the end of the control program. That is, certain price increases that had been restrained were then free to take place. And that rippled through the economy.

I would also think that there were some cases where price controls made it unprofitable for people to invest, so that we ended the price control period with inadequate capacity. And that may have contributed to the rise of prices after controls were removed.

Mrs. SULLIVAN. We saw the great surge and the difference of inflation and recession before Government intervention with the beginning of price control. So in your opinion, is it best to let the economy seek its own level, or is it best for the Government to try to interfere with some sort of statute calling for controls.

Dr. REES. I don't think we can afford to take a 100-percent hands-off view of the private sector of the economy, and just say that everybody out there can do exactly as they please. There is market power, there are noncompetitive forces in the private sector, in corporations, in strong trade unions, and in some agricultural cooperatives. And I believe that all of these organizations with market power have to be watched to make sure that this market power is not abused.

I think a monitoring or watching operation is very different from statutory wage and price controls where not even a competitive industry can raise a price without the prior approval of a Government agency. That imposes tremendous costs on the economy. It assumes that officials in Government agencies have some sort of superior wisdom in deciding which price and wage increases are justified.

I was a part-time employee of the economic stablization program from March 29, 1971, when the Construction Industry Stablization Committee was created, until April 30 of 1974 when the act expired, and I helped to make a great many wage decisions. I hope I made them wisely, but I can assure you that it was often very difficult to decide what was a fair wage increase. And I would much rather, as a permanent matter, have that process left to the parties in collective bargaining and have intervention only when it is very clear that a particular collective-bargaining situation is getting out of hand.

Mrs. SULLIVAN. Doctor, what rate of inflation do you regard as acceptable? I ask this because I understand the economic experts are forecasting higher percent inflation for the next couple of years. And we should remember that an inflation rate of a little more than 3 percent was enough to trigger the administration in 1971 into freezing the prices.

Dr. REES. The 1971 situation, in my judgment, was brought about more by international economic problems than it was by domestic inflation. The price freeze was done in conjunction with a devaluation of the dollar that was very necessary to protect American industry against a flood of imports.

I don't believe that domestic inflation alone at the rate of 3 percent a year would justify wage and price controls. I do regard a 6-percent rate of inflation, which is about what we have got at the moment, as still being unacceptably high. And I think that we have got to work to get it lower than that in the long run.

Mrs. SULLIVAN. Do you think that the programs that you have envisaged will bring inflation below the 3 percent a year from now?

Dr. REES. I certainly would not want to claim that a small agency with a staff of about 40 people could in and of itself bring the rate of inflation down from 6 percent to 3 percent. That kind of claim would be preposterous. I think there are places where we can help. And I think the situation is serious enough so that every little bit of help that you can get is welcome.

Mrs. SULLIVAN. You say, Doctor, that prenotification and delay powers cannot be helpful. Well, I agree with you that they can't be helpful in the case of wages, but the McFall bill explicitly excludes wage monitoring. Why do you think that prereporting and a short delay in the raising of prices would be seriously harmful?

Dr. REES. What I am afraid of is that if concentrated industries anticipate that every time they raise a price, that price increase is going to be delayed for 60 or 90 days, they will just announce those increases 50 or 90 days sooner. I don't think that happens under our present authority, because we delay increases so infrequently that we create an element of uncertainty. And I don't think that anybody has expected the rare instances in which we have asked people to roll prices back

Mrs. SULLIVAN. Can you tell me-how does the burden of prereporting on business compare with the present burden of continuing inflation?

Dr. REES. Well, that is a very difficult comparison. You are asking me to compare apples and oranges here. Obviously, the problem of inflation is a more serious one, but what I am suggesting is that prenotification and prereporting would not in and of themselves necessarily reduce the rate of inflation.

Mrs. SULLIVAN. My last question is: You quote Professor Beal's conclusions to show that the thesis underlying H.R. 4214 is invalid, yet the conclusions you quote directly support these two major essentials of that thesis, according to Beals, and I quote:

Prices in the concentrated industries behave somewhat differently than prices in the unconcentrated industries over the cycle. On average, they appear to rise less than competitive prices in expansions, but have recently fallen less or risen more in recessions.

Isn't this clear support of the thesis?

Dr. REES. It is clear support of Dr. Means' original administered price thesis as he expounded it in the 1930's. It is not support of the thesis of administered inflation which he has been expounding more recently.

I know, of course, that Dr. Means is present this morning, and he is going to be a witness before this subcommittee. He will, of course, have an opportunity to amplify all that himself.

Mrs. SULLIVAN. Aren't you misrepresenting H.R. 4214 when you sug gest that H.R. 4214 would involve permanent price control? The power to control prices could come into being only if this index of administrative inflation was rising at a rate of 6 percent a year or more and would cease when the rate of inflation was below 6 percent. And thus, it would only come into play in extreme situations and would be temporary unless inflation from this source were permanent at 6 percent or

more.

Do you expect that the 6-percent inflation will be permanent?

Dr. REES. I should certainly hope not. I think your point is well taken in the sense that it is not permanent price control, but it is permanent legislation. And the other bills before the subcommittee are not permanent legislation.

Mrs. SULLIVAN. Thank you, Dr. Rees. I have taken more time than I should, but I wanted to get the questions answered. Mr. ASHLEY. Mr. Kelly?

Mr. KELLY. Thank you, Mr. Chairman.

Dr. Rees, as I understand the basic purpose of the Council, it is to seek out reasons why we are not experiencing price stability and to expose the reasons that you find for the therapeutic value that they will have on the economy. Would that sum up, in part, the purpose of your Council?

Dr. REES. Yes; I think it sums it up very well.

Mr. KELLY. I have gone over the limited material I have which indicates what you have done and what you propose to do.

And I noticed that an inquiry into the energy situation is not included. It occurs to me that one of the very real aggravations of dealing with the energy problem in the United States today is the fact that the American public doesn't believe that the whole subject is on the level, that they do not believe the energy crisis we have is one created by external forces.

They are concerned that the oil companies are, in fact, gouging the public. They have many other misgivings about the whole subject. This makes it extremely difficult to ask the American public to make the kind of sacrifices that are required if we are going to deal with the energy matter, assuming that it is on the level.

Why has the Council avoided this which is the real "big" in the whole economy?

Dr. REES. Congressman, we haven't avoided it. We have devoted less effort to the energy situation than to some others partly because there are some much larger Federal agencies, particularly the Federal Energy Administration, which are devoting their resources entirely to energy problems. However, the Federal Energy Administration does file with us inflation impact statements on proposed new rules and regulations under the terms of Executive Order 11821, the inflation impact statement program.