ANUARY 1952 ECONOMIC REPORT OF THE PRESIDENT

MONDAY, JANUARY 28, 1952

CONGRESS OF THE UNITED STATES,

JOINT COMMITTEE ON THE ECONOMIC REPORT,

Washington, D. C.

The joint committee met, pursuant to adjournment, at 10:30 a. m., the caucus room, Old House Office Building, Senator Joseph C. Mahoney (chairman) presiding.

Present: Senators O'Mahoney (chairman), Sparkman, and Benton; -presentatives Patman and McKinnon.

Also present: Grover W. Ensley, staff director; and John W. Lehan, clerk.

The CHAIRMAN. The committee will please come to order.

This morning we are to hear Mr. Michael V. DiSalle, Director of Office of Price Stabilization, and Mr. Nathan Feinsinger, Chairn of the Wage Stabilization Board.

The television camera and its operators are in the room; and I think, both gentlemen will come up and take their seat before the microones, it will facilitate both the operation of the television mechanand facilitate the presentation of the issues that are before this mittee.

The issue, of course, which the committee desires to look into today ough the testimony of both you gentlemen, is the issue of wage and ce control, and the interplay of both factors, the effect of one upon other, the success or lack of success which has been achieved thus under the Defense Production Act, and the outlook for the future. Ir. DiSalle, the papers seem to announce that you are planning to e us shortly so, perhaps, it would be appropriate to begin with

TEMENT OF MICHAEL V. DiSALLE, DIRECTOR, OFFICE OF PRICE STABILIZATION

[r. DISALLE. Mr. Chairman, in view of my recent announcement, can rest assured that I listened with rapt attention to your coachwith reference to television performances.

r. Chairman and members of the committee, as I approach the pletion of my tenure as Director of Price Stabilization, I cannot d looking backward to the situation which prevailed when I took › just a little more than a year ago. I find myself contrasting the tion which prevailed then with that which faces us today, with › gratification for the improvement which has taken place. e certainly do not claim full credit for the striking contrast. ly, many factors have contributed to our success, not the least

of which has been the splendid cooperation of the American people. Yet I cannot help feeling that the efforts of our organization have played a substantial part in the remarkable reversal of the economic situation which has occurred. This feeling of having shared in a successful fight more than compensates for all the difficulties that are the daily lot of anyone who assumes the job of Price Director.

I am sure that you recall the situation which we faced a year ago. A year ago our economy was in danger-serious danger. Sober businessmen told me that they were deeply afraid-and well they might be. A flight from the dollar was in full swing-a flight whose severity has almost never before been matched in United States history. In just a few months, some prices had doubled-or even tripled-and the rate of increase seemed to be accelerating. Hard-headed business firms were frantically trying to build inventories out of all proportion to reasonable needs. Consumers were throwing caution to the winds and trying to beat the price rises and shortages that their own behavior was helping to create.

Let me emphasize again that the price freeze which we imposed a year and 2 days ago cannot be given all the credit for the sharp check of inflationary pressures we have experienced.

The CHAIRMAN. What was the date of the price freeze?

Mr. DISALLE. January 26-effective January 25.

The higher taxes and credit controls

The CHAIRMAN. Is that 1951?

Mr. DISALLE. 1951.

The higher taxes and credit controls, the allocations and other measures of the supply agencies must be given an important share of the credit. Perhaps they would have resulted in some reversal, at some time at some level. But without the freeze, the crest of the wave would surely have come later, and risen higher. And the succeeding plateau would have been at a higher level.

Further, the problems of readjustment would have been much more severe. We all know that the backlash of speculation has been as severely felt in textiles as anywhere else. But I was very interested to hear a prominent executive in the textile industry say that, if it had not been for the freeze, his industry would have been faced with even more severe problems in the last 9 months than they have in fact encountered.

The CHAIRMAN. May I interrupt to say at this point, Mr. DiSalle. that the Economic Indicators for January 1952-which is a monthly publication issued for this committee-contains material on all aspects of the economic picture gathered from objective statistical sources.

On page 3 of the January issue of Economic Indicators there is a chart showing the range of consumer prices, and a table which gives the index for all items for food, apparel, rent, fuel, electricity and refrigeration, house furnishings, and miscellaneous from 1939 on a monthly average through 1950 on a monthly average; and then for June 1950, November 1950, December 1950, followed by each month in 1951.

I am going to insert this chart and table in the record at this point d at this because it has a bearing on what you are saying. (The document referred to is as follows:)

The index has been revised, beginning with January 1940, to correct the downward bias resultaatimi the failure to take account of the differentials in rent between newly built housing and comparables dwellings. Certain changes, storting with January 1950, in comino lity coverage and weighting week into the index providing an improved and consistent series.

NOTE.

Prices are for moderate-income families in large cities. Source: Department of Labor.

The CHAIRMAN. The base of computation is the average price f consumers, of course, for the period 1935-39. That is taken as 100

In 1939 the monthly average was running at 99.4; in 1944 it her risen to 125.7, and in 1945 the monthly average reached 128.6. Th was the highest peak of consumer prices during World War II.

Price controls were abandoned, and in 1946 the monthly aver rose to 139.5; 1948 to 171.9; 1949 it dropped back to 170.2, and monthly average for 1950 was 171.9.

On January 15, 1951, it showed an index of 181.5; February. month after you imposed your general freeze order, the increa was 2.3 points to 183.8.

There has been a steady but very small increase since that time. illustrated by the fact that between February at 183.8 and Ag15 at 185.5, there was an increase of less than 2 points.

There has been a change, however, recently. In October it ju up to 187.4, November to 188.6, and the current price index is by the Bureau of Labor Statistics for all items as of December 15, 189.1.

Do those figures coincide with the information you have?

Mr. DISALLE. Yes, they do. Mr. Chairman, I was wondering view of the fact that I have demonstrated that I can read and the members of the committee do have this statement, in the inter of saving time, whether it would not be just as well to file the st ment with the committee, and we will get down to the question issue.

The CHAIRMAN. Of course, you have this advantage, Mr. DiSal you have written this statement, and you have read it before you car

here; but the other members of the committee have not had the portunity of reading it. Certainly, the chairman has not. Mr. DISALLE. I will be glad to continue.

The CHAIRMAN. If you will just proceed in the regular order.

Mr. DISALLE. It was the freeze that burst the bubble. No such bble could burst without severe repercussions, many of which we still paying for. But our situation today is infinitely sounder d more hopeful because of what happened 1 year and 2 days ago. Last January the causes of inflation were largely psychological. was impelled by fear. Fear of what? In part, fear of general r. But the basic international situation is today only little more ure than it was then. In larger part, it was fear of the economic ects of an expanded defense program. A year ago, we did not ve, except on paper, such a program. We had a budget surplus; actically no increase had yet occurred in the defense take of our terial and labor supply. What people then feared was precisely at is today rapidly becoming a fact.

Today the production level is higher and a much larger portion of total is going to defense; today unemployment is lower; today st raw materials are scarcer; today the Government is operating a deficit; today our world-wide commitments are greater. Today economy is rapidly approaching the situation the mere fear of ich a year ago caused frantic inflation.

either you nor I, however, could say or would want to say, forately, that the present situation is remotely as threatening to our nestic stability, or to our ability to defend ourselves, as it was last uary. The relative stabilization which has been accomplished more than all else been created by a return of public confidence t, although the value of the dollar is still seriously threatened, the ernment can and will deal with inflation, and no major economic up will be victimized in the process.

rom the excessive and highly speculative price levels at the time he wage-price freeze 1 year ago, sensitime commodities have fallen percent and wholesale prices about 4 percent. Resistance to inion abroad-in most cases less successful than in the United es-has been strengthened by our success. Prices paid by coners have not receded-in fact they have crept upward to succespeaks during the last 4 months-but their advance has been subtially slowed. While they are 3 percent above last February, have risen less than most of us thought possible a year ago. And idence in continuing stability is such that consumers are ready to rather than spend their dollars. And here success feeds on it-the increased savings rate in turn reduces the present pressure ›rices.

fact, the situation is so changed that some people question the I for continuing price controls at all; or, at least, whether a pardecontrol of "soft items" should not be immediately undertaken. I have repeatedly said-and I sincerely believe-that direct e controls should be removed as rapidly as we may safely do so. premature or unwarranted action could do much harm. Cononce removed-cannot easily, and should not hastily be posed.

ontrary to the impression gained from some quarters, OPS is under plenty of pressure to raise ceilings. Perhaps some of you