importantly, a rising number of States that are involved in this, too-so whatever happens, I am sure that hospitals and the health. industry as a whole will be responsible in responding to a recognition of the dangers of unnecessary inflation.

Mr. GETTYS. Dr. Sammons?

Dr. SAMMONS. I think, from the physician's standpoint, I would have to say that there will be a small increase in fees initially, and I would emphasize the word "small." Doctors in this country have, during these periods up to phase 4, aggregately elevated their fees less than what was allowed by the Cost of Living Council, so I think the increase will be small. Once it occurs, then I think it will stabilize and level off.

The reason for the increase is primarily labor cost. You see, we have not been able to increase our employee's salaries at the same rate that industry has, and consequently, we are beginning to lose some of our best and most highly trained people to other fields that are able to pay a better wage. So we are going to have to do this, in order to retain the highly trained people we have, and we have not been allowed to do that up to this point. But I think there will be a very small initial increase, which will then stabilize.

Mr. GETTYS. Mr. Crittenden?

Mr. CRITTENDEN. The American Nursing Home Association would like to respond in agreement with everything that is said from Mr. McMahon and Dr. Sammons and other panel members. Our industry is basically controlled, in that our revenues are 75 percent from medicare and medicaid nationwide, so you could relate that to the monitoring effect that we were talking about earlier, and say that where else could you find more monitoring than in the HEW field that we already have? You will see some increases, because our people certainly need more money to work in this particular field.

Mr. ADAMY. Mr. Chairman, let me just say that as to food, I would think that in the next 4 or 5 months after April 30, there would be no effect; that whether or not you have price controls, you are going to have as much movement up and down in prices as you would with them. On the other hand, if you take controls off, there is every assurance of a long term stability and downward pressure on food prices. If you leave them on, there is an absolute assurance of a longtime increase, massive increase in food prices by lowering production, and I sincerely believe that, sir.

Mr. GETTYS. Doctor, you predicted an 8 or 10 percent increase in inflation rate this year, with or without controls?

Mr. LINDAUER. With or without the controls. In the absence of reasonable Federal Reserve policies I would think it would be around 8 to 10 percent if we do not have controls, from 10 to 12 if we do have controls, with reasonable Federal Reserve policies, 4 to 5 percent. Mr. GETTYS. In other words-this was the point I was trying to make your testimony is that the controls, the extension of the law, would in fact have the reverse of controlling inflation?

Mr. LINDAUER. Right. The extension of controls would enhance the inflation rate.

Mr. GETTYS. On the short-term as well as the long-term basis? Mr. LINDAUER. Particularly on the long term. Though I agree that those few industries that are actually being controlled at the

present time, those whose prices are really being held down, might initially raise their prices.

Mr. GETTYS. This panel believes that even the monitoring may have a psychological effect, such that the continuation of that Council would be detrimental to the public interest?

Dr. SAMMONS. Absolutely.

Mr. GETTYS. Each of you represents an industry, so to speak, and we are confronted-Mr. Ashley, Mr. Burgener, and the rest of this committee, and the House and Senate-with the public interest, of course, first. You gentlemen are representing particular industries, and rightfully so. But do you believe that your testimony today, if adopted by the Congress, represents the public interest as well as the interest of each of the facets of the industry of the economy?

Dr. SAMMONS. Absolutely.

Mr. HEALY. Mr. Chairman, I think the other gentlemen on the panel did not direct themselves to this point. The point that I tried to make to the committee is that if we do not reduce the controls, and return the confidence of the farmer in the integrity of his market, we are leading to truly wildly inflationary pricing. We must let these markets seek their level, and there is a bullet to bite, but it is a much smaller bullet today than it will be a year from now.

Mr. GETTYS. I would like to thank again the panel for your appearance here. I know a number of you have come here under trying circumstances, and we appreciate it very much. I again wish that the whole committee could have been here to hear this testimony. I am sure that your testimony will be read by the Members of the Congress; and I speak, I believe, not only for myself, but for the chairman and the rest of the members of the committee. Thank you so much.

[Whereupon, at 12:30 p.m., the committee adjourned, subject to the call of the Chair.]

30-463 O-74-40

APPENDIX

[The following material was submitted for inclusion in the printed record:]

STATEMENT OF HON. ALAN STEELMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS REGARDING THE ECONOMIC STABILIZATION ACT

Mr. Chairman, thank you for this opportunity to submit testimony on the Economic Stabilization Act of 1970.

While deliberations continue before this Committee, cash registers across this land are ringing up higher prices, and consumers watch baffled, angered, and unaided while shortages become commonplace on supermarket shelves. Panic buying is almost daily induced with the report of possible difficulties in obtaining such commodities as cocoa, chocolate, paper, or even syrup and raisins.

This state of affairs hardly indicates an economy that is well or on its way to recovery. The symptoms of an unbalanced market system have only been aggravated since August, 1971, and it is time to seek other remedies.

It is apparent to most that something is terribly wrong in the manner prices are precluded from seeking their natural levels in accord with demand. This responsive mechanism of supply and demand that worked so well before the instituting of controls is the best hope for rescuing a faltering wage and price system.

Working men and women are being particularly hurt. All the "phases" the nation has passed through have produced a rise of consumer prices by 8.4% and food prices by 16.5% in a two-year period. Prior to controls the Consumer Price Index was advancing at a rate of 3.8% with food rising at 5%. It is speculative to try to guess what the rate of inflation would have been in the absence of controls, but the record since August 1971 shows alarming jumps in inflation in comparison to the pre-controlled economy.

AFL-CIO President George Meany puts it this way: "After two freezes and four phases, the annual inflation rate, which President Nixon found unacceptable at 4.8% in 1968, was 8% in the first half of 1973."

It would not be fair to cite all the dislocations as a result of a controlled economy. Worldwide shortages of foodstuffs and raw materials have played an integral role. However, after almost three years it has been proven that ceilings on prices are not an adequate long run solution. Accordingly, the Economic Stabilization Act must be repealed.

While the April 30th deadline in sight, Treasury Secretary George Shultz and Cost of Living Council Director John Dunlop have reluctantly concluded that the failure of controls necessitates a new approach. These gentlemen now endorse a decontrolling of all sectors, except petroleum and health. However, the dislocations will not subside in these areas either, unless the pocketbook is permitted to be the allocator and arbitrator.

Secretary Shultz and Director Dunlop are deserting a sinking ship. Secretary Shultz has indicated he is pleased about the hostility coming to the fore in denunciation of controls.

The Administration has been phasing out controls piecemeal from industry to industry, exempting them from Phase 4. Fertilizer was one product that was decontrolled last fall. Foreign prices were much steeper than U.S. prices, inducing the Cost of Living Council Director John Dunlop to recommend a domestic price rise to stifle the danger of continuing shortages. In order to be exempted, the fertilizer industry was agreeable to increasing production, resulting in moderate price markups. Thus, one sector of the economy is on its way to recovery, but this status is threatened daily by the continuing existence of ceilings in other interdependent sectors. Decontrolling industry by industry is hardly the answer.

Decontrol across the board is mandatory as demonstrated by the revival of fertilizer production.

C. Jackson Grayson, Paul W. McCracken, and William J. Fellner, all at one time economic advisors to the Administration, cite the hallmarks of the program to date: static paychecks outdistanced by controlled prices, lessening incentives for economic growth and investment, and general despair.

Professor Fellner pronounced Phase 4 as bad economics, as well as poor politics. Attacking the price control program, Fellner states that the treatment of an overexpanding economy is proceeding "by outlawing its symptoms"—higher prices. A far better approach he cites would be the cooling of expansion through the tightening of government spending and monetary restraint.

The following article, taken from U.S. News & World Report, which I submit for the record, is sobering in its impact:

[From U.S. News & World Report, Oct. 29, 1973]

LATEST THREAT TO THE BOOM: SHORTAGES WHEREVER YOU LOOK In one line of business after another, you hear this growing complaintShortages of key materials are getting worse, spreading from factories to distributors and on to retail customers.

Says an executive of a major industrial company: "Many Americans, for the first time, are finding they can't always buy what they want when they want it." A look at what lies ahead offers little comfort. In scores of key products, from steel, paper and plastics to heating oil, textiles, tools and motor bearings, supply troubles are expected to keep piling up for both producers and users.

Some typical developments:

A worsening shortage of chemical fertilizer is being felt throughout the U.S., casting doubt on whether farmers will be able to meet next year's production goals for fruits, vegetables and meat. Industry authorities say the fertilizer squeeze will last into 1975.

A pinch on supplies of cocoa and chocolate is pushing up the price of ingredients for candy, and fostering use of substitutes. A candy manufacturer in the Far West says chocolate flavoring increasingly will be made from substitutes as prices of cocoa butter and other basic ingredients go up in price and remain scarce, worldwide.

At the European assembly plant of a U.S. farm-equipment manufacturer, 300 small combines sit idle because of lack of a single part for each engine. The parts come from a Detroit supplier-and that firm, in turn, can't keep up with demand.

The basic-steel industry, plagued for years by foreign competition and lagging demand, suddenly finds itself with a huge backlog of orders that is taxing capacity of mills. Conditions probably will get tighter into 1974, say steel executives. This adds to supply problems in such steel-using businesses as autos, electrical appliances, farm implements, heavy machinery, office equipment and industrial construction.

A shortage of wood pulp, resulting partly from strikes at Canadian plants but even more markedly from foreign competition, has caused some newspapers and magazines to cut down on size and number of pages to ration scarce supplies of paper. One magazine publisher notes that there's "a natural tendency for wood pulp for papermaking to move abroad, where the open-market price is $350 a ton, compared with a Government-regulated price of $200 a ton in the U.S."

The list goes on and on-including most metals, petroleum, plastics, cotton textiles, corn syrup and raisins for confectionery and baked goods, bearings for motors, and dozens of other items.

Bottlenecks at the top. The falling-domino effect of shortages that spread throughout industry is summed up in a study by this magazine's Economic Unit.

"When the major materials industries reach their capacity," the study notes, "production is slowed in all other industries which depend on their products. It does little good to have excess capacity in industries down the line in the manufacturing process, if the basic-materials industries are not churning out enough raw materials for them to process.'

Says the plant manager for a Southern industrial company:

"Many people are just beginning to get an education in the interdependence of our economy. You interrupt supply at one point and things begin happening all down the line."