announcement of various aspects of the program, beginning with food and manufacturing on July 12. Export controls were an integral part of the proposal to continue the ceilings on meat prices. In the absence of export controls, it was expected that livestock producers would be squeezed by increasing feed prices to such an extent that production would be curtailed and near-term shortages might result. After the decision was made not to continue export controls, there was fear that the beef ceilings would come under too much pressure for them to be continued. As it turned out there was substantial pressure for termination of the ceilings, from the Congress and from farmers, and certain shortages at the retail levels developed as producers withheld beef from the market; still the ceilings were continued until mid-September. PUBLIC COMMENT ON REGULATIONS On July 19, the Cost of Living Council released for public comment the bulk of the Phase IV regulations. Comments were due by July 31. As of July 31, the Council had received 671 comments on the proposed regulations. Because of these comments as well as the Council's own internal review of the proposed program, more than 50 changes were made; on August 9, the Council released the new Phase IV regulations to be effective on August 13, 1973. (The appendix on Public Comments highlights the major changes in the proposed regulations.) After the proposed Phase IV regulations for manufacturing and service prices had been released, along with the announcement of stage A for food prices, the Council staff was able to look more closely at the compatability between the Phase IV manufacturing and service scheme and the practical realities of the food industry. In Phase II, volatile price authority (VPA) (see the price control mechanisms paper) and TLP's had been necessary to permit pass through of cost increases due to rapidly fluctuating agricultural product prices; the scheme had worked imperfectly but it was recognized that VPA or some other measure would be necessary for food processors in stage B. In the course of reviewing options for such flexibility, the CLC staff and the Food Industry Advisory Committee began to develop the concept of an after-the-fact margin control for food processors, which is explained more fully in the appendix. This scheme would permit retail prices to fluctuate as necessary in order to accommodate changes in raw agricultural product prices, while prenotification would be required for price increases justified by increases in other costs. This scheme was developed as explained in the appendix Substantive Planning and released for public comment on August 22. Observations An after-the-fact review of the planning which preceded each phase of the Economic Stabilization Program suggests some common characteristics. There is some risk in setting forth such apparent common threads; articulating them now, with the benefit of hindsight implies that they were uppermost in the minds of the decision-makers at the time. This is not necessarily true. Still, it may be helpful to review some of the factors which apear now to have influenced policy planning throughout the period. LACK OF THEORY During the life of the Economic Stabilization Program, economists could not agree upon a clear theory as to the causes of the inflation. Before Phase I was announced, there was discussion about cost-push inflation due to the expectation of more inflation; but no consensus was ever reached. Without such a theoretical culprit, policy planners could not proceed rationally to fashion a policy. There is no indication that the Freeze was adopted because the planners had determined it to be, in any analytical way, the optimal economic remedy. The fashioning of Phase II suffered from the same problem, though it later came to be rationalized on the grounds that those inflationary expectations still remaining after the freeze had to be "squeezed-out." The design of Phase III represented some change inasmuch as the planners focused on particular sectors which presented problems and analyzed alternative stabilization policies which might deal with those problems. There was no theoretical rationale for the general price standard which applied on a self-administered basis to most of the economy. Finally, in Phase IV, there was an analytical rationale: price controls, it was thought, could assist in "spreading the bulge" caused by the enormous increases in the prices for raw materials due to a world-wide commodity inflation. Until Phase IV, price stabilization policy alternatives could not be evaluated against a clear theoretical backdrop-except the one that said, "Don't do too much damage, and get out as soon as possible." Wage stabilization policies were somewhat different. An effective program would prevent inflationary wage increases from being locked into three year collective bargaining contracts, and labor cooperation with the program could prevent economic loss due to an upsurge of strikes. Further, CISC and the two wage and salary committees in Phases III and IV devoted considerable attention to improvement in the structure of collective bargaining and relationships between the parties. GETTING OUT OF CONTROLS In 1970 and 1971, it was generally accepted that a program of permanent mandatory controls could not work, even if it were desirable. Thus, from the beginning of Freeze I, policy planners were concerned about providing some exit; a variety of possibilities-with varying degrees of practicability-were considered. Periodically, for example, there was some analysis of the option of letting the program "blow up"-be destroyed by labor strife or widespread public non-compliance with price controls. But each time this option was considered, it was firmly rejected as being an irresponsible course for the government to deliberately pursue. The exit from controls, it was decided, had to be orderly and reasonably graceful. When Freeze I was launched, there was some initial hope that the next step might avoid formal controls through a relatively informal system of voluntary restraints, such as the program that Chairman Burns had advocated before August 15. But early in its deliberations, the Stein Task Force recognized that the unexpected high public support for the Freeze would make this approach politically untenable. As a politically more realistic solution, Phase II policy was designed to permit a gradual withdrawal from controls; Phase II operations were designed to be handled by a small staff so as to minimize organizational inertia to a phase-out. Although there was no orchestrated program of Phase II exemptions," exemptions were granted through the course of the Phase to minimize the need for additional staff resources and to reduce program coverage. The move to Phase III was also motivated in part by the continuing desire to get out of controls. Phase III was less interventionist and less visable; its timing was suggested by the perception that Phase II would have to be made tougher and larger to survive as the economic recovery proceeded. After the retreat from Phase III represented by the imposition of the meat ceiling and the second freeze, the planners turned to another strategy for getting out-sector-by-sector decontrol. The across-the-board approach represented by Phase III had not worked because of political opposition and unexpected economic events. The second freeze unlike the first, created the base of public disaffection with controls that made the Phase IV decontrol strategy possible. FLYPAPER SYNDROME The earliest staff papers prepared before the August 15 announcement pointed out the difficulty of terminating price controls. When prices are stable, the public thinks controls are working and should be maintained; when prices are rising the public thinks lax controls are to blame and urges that controls be tightened. This warning was prophetic. At Camp David it was determined not to develop firm post-freeze policies; the general preference, though was for a relatively simple Wage Price Review Board to follow the Freeze. Wide public support for the Freeze caused this approach to be rejected in favor of a more comprehensive and mandatory controls program. Phase III was a move away from mandatory controls, yet rapid price increases in early 1973, though unrelated to the change in controls mechanisms, resulted in irresistible pressure to turn to a controls scheme as comprehensive, and, in many respects, more mandatory than Phase II. After these attempts, the Administration was able finally to extract the economy from widespread control; because controls had come to be perceived as ineffective in controlling inflation, the sector-by-sector decontrol strategy of Phase IV succeeded. The public had grown weary of controls. Despite rising prices, the commitments obtained in exchange for decontrol provided some sense that the public was getting something in exchange for removal of controls. TIME PRESSURES Federal regulation of a trillion dollar economy is as complex an endeavor as any government could attempt; yet the policy planning which preceded each Phase of the Economic Stabilization Program was limited in scope and severely constrained by time pressures and manpower limitations. These time constraints forced policy planners to use blunt stabilization tools rather than policies tailored around the subtleties of different sectors of the economy. Only in Phase IV, when planners had considerable experience and knowledge about the details of earlier regulations, were they able to accommodate characteristics and economic conditions in different sectors of the economy. But even then, the initial desire to build a sector-by-sector controls scheme was only partially accomplished, as time pressures forced the adoption of the Phase II scheme as the basic model for the manufacturing and service sector. PUBLIC PARTICIPATION In a formal sense, the planning of the first freeze did not involve broad input from the American public. In fact, however, the long intensive public debate about the Administration's economic policies which preceded August 15 did provide policy makers with considerable information about the desires of different segments of the society. The same type of information was available to the policy makers before the second freeze was declared. The planning of the more flexible and therefore more complex policies of Phases II, III and IV involved more formalized consultation mechanisms. These mechanisms became more sophisticated as the planners gained experience, culminating in the release of proposed Phase IV regulations for public comment. In many respects, the commitment to consult imposed a burden on policy makers which was not cost effective. The views of significant interests were easily available through the press; their spokesmen often were unfamiliar with the complex problems posed by a comprehensive body of regulations and thus were unable to go beyond their public pronouncements when they consulted with the government. LABOR SUPPORT In a free society, labor unions, if they do not support a controls program, can quickly destroy it by striking for wage increases larger than the program allows. It was, therefore, thought essential to involve labor in the Program in order to insure labor's cooperation. Phase II, Phase III and the meat ceiling were major instances where the desire to garner labor support determined the character or direction of the policy. In both the World War II and Korean U.S. controls programs, active participation by labor in the administrative machinery was sought, and the 1971-74 effort was no different. The Construction Industry Stabilization Committee was tripartite in character, and came to be viewed by 1972 as a possible model for stabilization efforts in other sectors because of the productive relationship among government, management and labor which it fostered. During the planning of Phase II, there seemed to be a little doubt that the wage controls would have to be developed and administered by a tripartite board. After the withdrawal from the Pay Board by four of the five labor representatives, there was considerable fear that the program might collapse. This eventuality had been anticipated, however, and the Board was able to be reconstituted quickly with at least the appearance of continued participation by organized labor. Of perhaps more significance, labor did not proceed to destroy the program, but acquiesced in Pay Board decisions and participated in a variety of informal tripartite processes below the level of the full Board. Still, the approach of major collective bargaining activities in 1973 caused |