To these statistics there were three responses. The President, opposed to a formal incomes policy, believed in the efficacy of traditional fiscal and monetary measures. But even within his own Administration there was a feeling that this alone was not enough; Arthur Burns, Chairman of the Board of Governors of the Federal Reserve System, was the most vocal advocate of some sort of incomes policy. He suggested a Wage-Price Review Board, in effect a jawboning agency. In the Congress, controlled by Democrats, there were demands for intervention: either flexible controls or a wage-price freeze.

The President, in early 1970, was adamantly opposed to formal wage and price controls. He felt that the market distortions they would cause and the large federal machinery required for their administration would nullify whatever good they might do in dampening inflation or in maintaining public confidence in the ability of the Government to stabilize wages and prices.

The first step toward an incomes policy was tentative. In an address to the nation on June 17, 1970, the President proposed three steps: the creation of a National Committee on Productivity; the creation of a Federal Regulations and Purchasing Review Board; and "inflation alerts," to be called by the Council of Economic Advisers to spotlight significant price and wage increases. This was a response to public and Congressional demands for a more activist economic strategy—and growing pressure from certain members of the Cabinet to respond to those demands. The National Commission on Productivity, composed of business, labor, government and public members, would explore means of improving efficiency. The Federal Regulations and Purchasing Review Board would examine all Government actions to ensure that they did not result in increasing inflationary pressures. In addition, the CEA could announce "inflation alerts," although it had no authority to push back wage or price increases. The alerts were intended to demonstrate publicly the Government's resolve to dampen inflation while the Administration continued to rely principally on traditional monetary and fiscal policies.

On August 15, 1970, the Congress, controlled by Democrats, passed, over the strenuous objections of the Administration, the Economic Stabilization Act. This Act did not mandate wage and price controls, but it gave the President the power to impose them if he thought the state of the economy required such action. The passage of this bill reaped double political fruits for the Democrats: they could claim that they had done everything they could to get the President to take action on the economy while, at the same time, leaving with the President the responsibility for choosing when to

impose controls and determining their character and scope. The Administration felt that the Congressional action was a political ploy designed to embarrass the President on the eve of the 1970 elections. The 1970 election results suggested that the electorate favored the activist incomes policies advocated by the Democrats over the more conservative, restrained economic policies being practiced by the Nixon Administration; this fact did not go unnoticed by House and Senate Republicans. Republicans in the House urged the Administration to adopt a more activist stand. In December, 1970, one hundred and twenty Republican Congressmen, an unusually large attendance, aired their frustrations over the Administration's economic policy before Paul McCracken, Chairman of the Council of Economic Advisers, at the House Republican Conference. They saw the economy as the major issue of the 1972 elections and predicted that if the President did not adopt a more activist economic policy then all Republicans, the President included, would have rough going in 1972. Meanwhile, the Democrats continued their economic offensive. Throughout the winter of 1970-71, Democrats in the House of Representatives urged the President to adopt wage-price guidelines and to stand ready to impose mandatory controls if they failed. On February 11, 1971, Carl Albert, Hale Boggs and Thomas P. O'Neill, the House Democratic leadership, called on Mr. Nixon to impose an immediate wage-price freeze.

In a speech before the National Association of Manufacturers, President Nixon responded to these complaints with a move toward a formal incomes policy. While still rejecting voluntary or mandatory controls on wages or prices, he announced that he would intervene in private wage and price decisions where ordinary competitive forces were limited by the Federal Government. Then in early January, the Administration hinted that rather than relying primarily upon monetary policy to stimulate the economy, it would also resort to some fiscal stimulus. Also, the President tried to jawbone the steel companies into lowering their announced price increases-with limited success.

Rising Wages; Arthur Burns

Within the Administration, Arthur Burns had been advocating some sort of incomes policy since 1969; in mid-year 1970, in testimony before the Joint Economic Committee, he introduced the idea of a wage-price review board that would investigate wage and price adjustments and hold public hearings on these adjustments as necessary.

Dr. Burns felt that fiscal and monetary stimuli were needed to assure a satisfactory recovery in production and employment, but at the same time those stimuli threatened to add to inflationary pressures. The wage-price review board, he argued, would have a stabilizing effect on wages and prices while the Administration followed an expansionary fiscal and monetary strategy. This board would serve a key role in maintaining consumer and business confidence that the Federal Government was not going to let inflation run rampant, thus removing the psychological element in inflation.

A primary cause of this inflationary psychology, Dr. Burns thought, was the high pay adjustments being won by unions. Labor looked to large wage settlements as self-defense against inflation. But those pay increases put pressure on business to raise prices, and business put pressure on the government to "do something." At a Business Council meeting at Hot Springs in May of 1970, attended by George Shultz, the businessmen present voted overwhelmingly for wage controls. Shultz told them they were naive to think they could have wage controls without price controls.

Construction; CISC

Construction had been a particularly troublesome sector and, because of its visibility and spill-over effect on other sectors, of special concern to the Administration.

In September, 1969, a Cabinet committee on construction was established with the then Secretary of Labor, George Shultz, as Chairman. Within weeks the Construction Industry Collective Bargaining Commission, with representatives from labor, management and government, was created by Executive Order 11482. The Commission was intended to minimize the incidence of strikes in the industry through the use of voluntary tripartite procedures. Its only power was the ability to impose a 30-day period during which neither a strike nor a lockout could occur if the contract was a matter of national interest. However, continued wage problems in the industry resulted in growing pressure for more federal intervention. Finally, on February 23, 1971, the President, after rejecting a mandatory controls program, suspended the Davis-Bacon Act, which required contractors on Federally assisted projects to pay wage rates prevailing in the geographic area, i.e., union scale. But in March, in the face of some heated court cases, he rescinded the order, issuing instead Executive Order 11588, which created the Construction Industry Stabilization Committee (CISC).

These moves in the construction industry culminated in limited use of the authority of the Economic Stabilization Act; it would though

be a mistake to view the CISC action as the first step toward more comprehensive controls. Government actions with respect to the construction industry had begun almost two years earlier, and were aimed at achieving structural reforms in the industry that would permit free collective bargaining to operate without inflationary and disruptive results. While direct controls were one tool used to achieve this objective, they were part of a more comprehensive initiative. Thus, in one respect, the story of CISC is a different story from the Economic Stabilization Program. However, some participants in the policy discussions during that period believe that the Administration's actions in the construction industry helped to soften subsequent opposition to comprehensive wage and price controls among the President's top advisors.

Wages Continue to Rise; Pressure for Controls Increases

Throughout 1970, in other sectors, as well as construction, there was a series of strikes ending uniformly in large wage increases. The auto settlement and transportation settlement were particularly disappointing and fueled business demand for intervention.

At the same time, rising unemployment and inflation encouraged labor leaders to support some sort of incomes policy. On January 26, 1971, Leonard Woodcock, President of the United Auto Workers, in testimony before the Joint Economic Committee, echoed Dr. Burns' suggestion that a wage-price review board be established. In February, George Meany, President of the AFL-CIO, called for the President to impose equitable controls. Later, Meany, in a television interview, said that if he were President he would institute controls to solve the economy's problems. Finally, only a week before Mr. Nixon's announcement of the Freeze, the AFL-CIO Executive Council restated its February 1966 policy of support for controls if such restraints were placed equitably on all costs and incomes.

During March, the leading indicators showed the economy cooling and Congressional pressure for wage and price controls receded. Then in May and June, the statistics reversed themselves; the CPI climbed at an annual rate of 6 percent in May and 7.2 percent in June. Unemployment continued to hover just beneath 6 percent. Congressional pressure intensified on both sides of the aisle: Senator Jacob Javits reaffirmed his advocacy of wage and price controls, Senator William Proxmire called on the President to establish wage-price guideposts, and Senator Majority Leader Mike Mansfield called upon the President to impose a temporary wage-price freeze. On August 7th, 12 Republican Senators, with the aid of Dr. Burns, drafted a bill entitled "The National Commission on Wages and Prices Act" (S. 2413, 92d

Cong., 1st Sess.). Also, in July, the Gallup and Harris polls indicated that a majority of the people wanted wage and price controls.

JUNE, JULY AND AUGUST;

THE INTERNATIONAL MONETARY CRISIS

In June of 1971, two months before the imposition of the wageprice Freeze, President Nixon met with the Quadriad, his principal economic advisors, at Camp David to review the Administration's economic policies in the face of the disappointing GNP growth, a brewing international monetary crisis, and domestic pressure for a more interventionist approach to fighting inflation. Even within the Administration, some advisors had been urging greater economic activism, Arthur Burns being the most vocal and persuasive. Paul Volcker, Under Secretary of the Treasury, had been trying to persuade John Connally, since early 1971, that a freeze would be a desirable and effective voluntary adjunct to actions dealing with the international monetary situation. But despite these pressures-from both inside and outside the Administration-it was decided at Camp David that there should be no change in the Administration's economic policies.

In a gradual and undramatic way, those economic policies had been working; the inflation rate had dropped from the 6 percent range to the 4 percent range. But this improvement was coming about slowly and creating the public perception that the Administration was not doing anything about inflation. Paul McCracken urged an "economic Peking," a dramatic kind of policy announcement. There was talk of reinstating the investment tax credit and closing the gold window. By late June, Shultz and the President were alone among senior economic advisors in resisting a formal incomes policy.

At the June Camp David meeting, it was decided to publicize and explain the Administration's economic policies. John Connally was dubbed chief economic spokesman and given this responsibility. But his approach backfired. His "Four No's" speech outlined what the Administration was not doing and would not do about inflation; this reinforced the public's perception that the Administration was doing nothing.

During June and July, the international monetary situation deteriorated, and it was this, not domestic political and economic pressures, that caused the Administration to opt for what became the August 15 package: a wage-price freeze, closing the gold window, a 10 percent import surcharge, an investment tax credit, and reduced Federal spending. The general form of this package apparently resulted from