It is our understanding that the Comptroller General is excluded from the Administrative Procedure Act. Therefore, it would appear that a significant feature of the democratic process is bypassed by both bills, and this is worrisome in an operation such as the one that is contemplated. We believe it is important that rule-making authority be exercised through processes which provide for public announcement, and for hearings that would give interested persons an opportunity to comment on issues before rules are made which have the full force and effect of law.

The bills also seem to strain the democratic process by making the cost accounting standards board merely advisory. An independent board within the executive branch would be more in tune with the system of checks and balances inherent in most of our government operations. An independent cost accounting board could be patterned after many other independent governmental agencies which carry out regulatory functions effectively.

We are sure the accounting profession would be glad to cooperate actively in helping to establish a cost accounting standards board that is well conceived and constituted. Within the AICPA there is a wealth of professional talent that can be made available to such a task.

An example of the constructive force of the accounting profession lies in the administration of the securities acts. From the beginning, the Securities and Exchange Commission has looked to the AICPA to develop accounting principles. Similarly, a properly constituted cost accounting standards board might well look to the AICPA to do the bulk of the work in setting standards.

The bills appear to apply to all defense contractors regardless of the size of contracts and the relative importance of defense contracts to the overall business. The problems of maintaining records in accordance with cost accounting standards without regard to the materiality of defense business may be discouraging to potential contractors, particularly smaller businesses. A practical way of avoiding this would be to provide an exemption for defense contracts that are not material in amount. For example, the law could provide that no defense contractor or subcontractor shall be subject to the cost accounting standards requirements if its defense contract sales did not exceed $25,000,000 during its most recent fiscal year. A provision like this is contained in S.3302, which has been reported to the Senate by the Senate Committee on Banking and Currency. We can summarize our major conclusions and recommendations as follows:

1. The "new machinery" preferably should call for an independent agency appointed by the President, consisting of a small number of mebmers, such as five, all of whom should have competence in cost accounting.

2. At least two members should be drawn from outside the Federal government and at least one of them should be from the field of public accounting. 3. The law should not exempt the agency from provisions of the Administrative Procedure Act.

4. The law should require the agency to consult with the accounting profession and industry representatives.

5. The law should contain an exemption from the cost accounting standards requirements for contracts which are not material in amount. The American Institute of CPAS stands ready to aid in considering more specific legislative provisions in implementing cost accounting standards. We wish to express our appreciation for the opportunity to present this statement to you.

STATEMENT BY FRANK J. WHITE, JR., EXECUTIVE VICE PRESIDENT, THE ASSOCIATED GENERAL CONTRACTORS OF CONNECTICUT, INC.

On June 1, 1970 one of the biggest wage and fringe benefit packages ever negotiated by any building construction union in the country went into effect for members of the International Brotherhood of Electrical Workers, Local No. 35, Hartford. Connecticut. It is reported that the new three-year pact provides increases of $5.75 per hour, $3.75 in the last year alone, bringing minimum hourly payments to $12.70. This is an 83 percent increase for the three-year period.

In New Britain, Connecticut, Local Union No. 256 of the United Association of Plumbers and Steamfitters bargained for and won wage and fringe benefit increases of $4.10 per hour in two years. Beginning next year, employees covered under this Agreement will receive the benefits of $10.37 for each straight time hour worked. If there is need for tradesmen to work overtime, employers will pay more than $19.00 per hour per employee for such overtime work.

Many construction unions are now nearly doubling hourly pay every three years. To be charitable, however, if we assume that wages are doubling every four years, and if we further assume that this will continue unchecked for the rest of this century, construction workers will draw as much as $1,400.00 per hour in the year 2000 and, using 1970 rates, will pay their share of Social Security in less than 6 hours.

To be more conservative, if building tradesmen increase their pay by a constant 20 percent per year, and most have been able to do at least this well in recent years, they will be compensated at the rate of $870.00 per hour, give or take $50.00, in thirty years.

Of course, we will never reach the terminal points of the above illustrations because sometime between now and then, and it will be much closer to now than then, all construction activity will come to a grinding halt. Historically, demand for our products has been far less affected by internal price change than by the state of the economy in general. No, however, it is clear that what is happening in construction will not only affect construction demand, but it will disastrously affect the economic growth and social welfare of the country.

Because of current conditions in construction and other sectors there is a rising clamor for wage and price controls to be either selectively or generally applied. Some businessmen, labor leaders, politicians and others had been voicing an "if all else fails" attitude on controls. To have been only mildly in favor of controls required no admission of guilt by those of us most directly responsible for costpush inflation. Now, however, these same people, having offered nothing constructive themselves, are saying, "Well, all else has failed so we must encourage government actions to regulate the economy." If we listen to this we are fools.

In construction, the industry in which the greatest economic disequilibrium now exists, government controls could affect negotiated wage rates, materials prices and excess profits, but they could not stop unwarranted increases in contract or consumer prices. More important, without a very dramatic decline in public and private demand, direct controls would give rise to the biggest and best run black market operation in history. But let me explain these thoughts a bit further.

If we assume that controls could be effective in stabilizing construction wages, materials prices and profits, would there be a similar effect on contract or consumer prices? The answer is no. There would be no way to set price standards for installation of the many thousands of different materials used in different ways on each construction project. Even for two identical buildings built on the same site in the same location at the same time, obviously an impossibility, contingency considerations and the judgments of two contracting firms in competitive alignment would be different. If estimators had to contend with controls, the most important questions of judgment for each firm would be: How long will controls be in effect and what should we figure for possible added costs if controls are dropped in a month, six months or a year? But the assumption that controls would stabilize wages, prices and profits is erroneous.

Having had to work with inadequate resources during an extended period of great demand, we are already highly skilled in techniques of black market operations. To obtain a workforce today, many employers pay wages in excess of those provided in collective bargaining agreements, some guarantee employees a full work week or a certain numbers of hours of overtime work, others pay excessive travel allowances and premiums, still others keep more foremen and men than are required to do the work in progress. There is a myriad of schemes in use to obtain needed or wanted resources which are in critically short supply; and, given the fact that construction bid prices cannot be controlled, wage and price restrictions cannot stabilize the intermediate costs of construction.

With the coming of widespread black market operations in construction there would be need for expanding control by government. It is entirely possible, then, that the introduction of even limited wage-price restrictions would be just the first in a series of action-reaction measures leading to government regulation of all construction business activity.

We should not overlook organized labor's insistence that profits be tightly controlled if negotiated wage settlements are to be restricted. It is not wholly clear what the big unions have in mind, maybe some sort of compulsory profit sharing, but government could effectively eliminate "excess" profits only by taxation. This would do the consumer no good whatever. And how would a company be compensated if, after excess profits had been taxed away, there developed an unfavorable balance in the next time period? As there is no way to define consumer

price before the fact, there is no way to determine what a reasonable profit might be considering variable risk factors involved with each construction contract. In any discussion of such strong policy actions it is essential to consider the current state of disequilibrium in various sectors of the economy. If wages and fringe benefit contributions were to be frozen at rates in effect in May 1970, the differentials under collective bargaining agreements covering the same work in different Connecticut towns would be as much as $1.30 per hour. Indeed, members of some skilled trade local unions would be making less than unskilled workers in nearby jurisdictions. And these gaps will widen considerably, up to $3.00 per hour under contracts now in effect, as time goes on. It is doubtful that rank and file union members, the elite by virtue of money wages, will long tolerate this kind of imbalance.

In summary, those who advocate controls to end economic havoc in the construction industry have not bothered to look beyond the desired effects. It is thought that wage and price restrictions will permit us to continue business as usual with little change or hardship. Not only is this incorrect, it is misguided. If we are to solve our many complex problems, the construction industry must be reorganized and restructured. This should take place by the orderly process of planning and design and not in response to the serious market disruptions which must occur if the industry continues to act as irresponsibly as it has been acting. But the latter would be preferable to the introduction of regulations which would preserve industrial organization which cannot respond to needs of the economy. Unfortunately, there are no easy answers.

We have called for the creation of a politically independent government agency to lead and coordinate efforts to reorganize the archaic construction industry. Such an agency would have a Board of Governors and regional offices similar to the Federal Reserve Board. It would need to exercise considerable authority over the operations of federal contracting agencies, but it would engage in no contracting itself. It would sponsor legislation on all matters affecting construction and keep Congress tuned in on the industry. It would work closely with the Fed on money matters. It would advise Administrations on related fiscal policy. It would administer labor and other laws and regulations pertaining to construction. It would develop integrated training programs without regard for tradition. It would engage in and sponsor economic research of the most detailed and comprehensive sort. It would coordinate with state and local governments and private consumers and engage in market planning through its regional facilities. If such an agency did nothing more than coordinate all of the government programs that have bearing on construction, it would quickly pay for itself.

We ask that the Nixon Administration and Congressional leaders respond to our proposal at the earliest possible date. If it is found to be unacceptable, tell us why and offer meaningful alternatives. We must quickly find ways to begin reorganizing the nation's most important production industry so that it can and will respond to needs of the free market system.

STATEMENT OF THE NATIONAL ASSOCIATION OF MANUFACTURERS

The National Association of Manufacturers appreciates this opportunity of recording its views on the proposed legislation, to be entitled the "Economic Stabilization Act of 1970." The Act would authorize the President to regulate prices, rents, wages and salaries, for a period to expire on February 28, 1971. The only specific limitation on such authority would be that the President might not set prices, rents, wages and salaries at levels lower than those prevailing on May 25, 1970.

This Association urges that you not approve any such legislation. We are strongly opposed to price and wage controls on principle, since they are obviously inconsistent with the operation of a free enterprise economy. We are opposed to controls on the basis of experience, recalling especially the disruption in markets after World War II when an effort was made to continue controls during the period of reconversion to a peacetime economy.

Furthermore, we are opposed to the enactment of this particular measure at this particular time. The nation is in the process of curbing a severe inflation which has afflicted it for some five years. At the moment we are in a critical stage but definitely an interim stage-in that process. Enactment of price and wage control legislation at this juncture would not accelerate progress toward ending inflation nor ease the transition period. It would, on the contrary, retard progress and make the transition more difficult.

THE RECORD OF CONTROLS

The national experience with price and wage controls has been of two kinds : either controls have proven so unworkable and so damaging to the economy that they had to be abandoned in an atmosphere of crisis, or controls proved so pointless that they were quietly dropped with hardly anyone noticing.

The first type of experience occurred in the reconversion period following World War II. Controls were abandoned in 1946, not primarily because they had lost political or philosophical support, but because they had led to an impossible economic situation. The goods and services people wanted, and which our economy was capable of producing, were not coming to the market. The widespread shortages of beef, white shirts, and many other everyday products will be recalled. This kind of outcome can be avoided if controls are so administered that they do not prevent prices and wages from reaching the levels which would have been reached in the absence of controls. In other words, controls do no harm if they have no effect. This was the experience during the latter part of the Korean War. It may be noted that our economy is now in a transition stage, similar in some ways to the transitions at the end of World War II and the Korean War. This is the very worst kind of period to start a control program, since it will impede the necessary adjustments in our economy.

ADMINISTRATION OF CONTROLS

If the President were to use the authority granted to him in Title II of H.R. 17880, he would have to set up an elaborate administrative machinery to frame the necessary orders and regulations and enforce them.

The naive idea that this legislation could be implemented by a simple "freeze" order, forbidding anyone to raise wages or prices above their levels on some given date, is one that could not survive more than a few days. It would mean, for example, that any group which had gained a wage increase the day before the freeze date could keep it, but any group scheduled to get a wage increase the day after would be disappointed. In our complex economy price and wage changes occur all the time and there is no way to cut off that process at some given point without causing obvious inequities and, worse, unworkable price and wage relationships.

This means that controls have to be administered practically on a case-by-case basis. The magnitude of the job is frightening in our $960 billion economy, involving a labor force of 85 million people and over 10 million independent business enterprises. This would surely necessitate a huge bureaucracy and considerable administrative costs to be added to the burdens of taxpayers.

The problem of setting up this machinery would be a time-consuming one. Realistically, it could not be expected to be accomplished between the time this legislation might be enacted and its expiration date-only eight months from

now.

This leads us to wonder what possible consequences the present legislation might have. A comprehensive wage and price control apparatus could not possibly become fully operational in the time provided. Instead, the threat of such intervention might be a disruptive force in this transition period.

THE ECONOMIC SITUATION

The inflation which began in the mid-1960's has been the most serious and most prolonged inflationary episode in our post-World-War-II history. It is not surprising that it has done serious damage the disruption of financial markets, the depression of home building, and the present high interest rates are evidence of that. It is also not surprising that the process of liquidating that inflation is a slow and painful one.

It is clear that the inflation had its roots in the excessive growth in government spending and the excessive expansion of money and credit during the latter 1960's. For some two years we have been engaged in the process of reversing those trends. It will be essential to continue along that course or else all hope of curbing inflation must be abandoned.

Fiscal and monetary restraint has already produced observable results in cooling off our overheated economy. It has not yet accomplished the ultimate objective of reasonable price and wage stability. This simply means that we must continue to exercise the same restraint. The most dangerous aspect of price and wage controls is that they may encourage the illusion that we can avoid that hard necessity.

An overheated economy does not cool off instantaneously when the source of heat-excessively expansionary fiscal and monetary practices-is withdrawn. The cooling off occurs gradually over the subsequent period. This has been the record when past inflationary episodes came to an end.

Furthermore, the cooler temperatures reach various parts of our economy at different times but in a predictable sequence. First, profits begin to fall-this began in early 1969. Next, production ceases to increase this began in mid1969. Somewhat later employment is affected-this first became noticeable at the beginning of 1970. Price and wage increases begin to taper off still later and we have as yet only sketchy indications that this may be starting. The regularity of the sequence in past periods leads us to be confident that, if fiscal and monetary restraint is maintained, a clear abatement of the inflationary price and wage trends will shortly occur.

During the six months ending in May of this year, consumer prices were rising at a rate of 6% per year. No one can promise a quick and spectacular improvement, but we would expect that, by early 1971, the rate of price rise will be in the neighborhood of 4% to 5% per year. This seems to be indicated by the gradual cooling of the economy-still assuming that fiscal and monetary restraint will be preserved. Furthermore, we would expect the abatement of price trends to continue thereafter. By 1972 or 1973 we would expect that reasonable price stability-say about a 2% rise per year-can be attained.

Thus the proposed legislation would introduce price and wage controls at just the time when fiscal and monetary restraint is about to pay off.

In this atmosphere, standby control legislation is certain to do more harm than good. With markets softening, price and wage decisionmakers would normally be inclined to be cautious and avoid the kinds of action which lead to price increases. However, if they anticipate controls, they are likely to want to go into a control period at the highest possible level.

If and when price stability is finally attained, it will not be the result of all prices remaining at a constant level. In a dynamic economy that never occurs. Relative prices must continually be changing, to adjust the economy to the things that are always happening. This means that price stability must be the result of some prices going up while others are falling.

While the threat of controls hangs over producers, they will hesitate to reduce prices, lest they be locked in at a lower level. Thus standby controls are a positive impediment to the attainment of price stability.

The National Association of Manufacturers believes that wage and price control legislation is not needed to restore economic stability. We further believe that it would do great harm both to the economy and to political processes within this country. It would be a source of friction and ill-will among government, business, labor and consumers. It would involve government in a costly, meddlesome and futile opeartion. It would encourage the false belief that there is a quick, easy and painless way of controlling inflation.

One practical way in which the economic transition can be accelerated and eased is through seeking ways for removing impediments to productivity growth. The Administration is setting up machinery for doing this, which would involve participation by business, labor and the public. Our Association has offered its cooperation. The existence, or even the threat, of wage-price controls would interfere with that effort and reduce its chances of success.

We most earnestly urge Congress not to enact Title II of H.R. 17880 into law.

STATEMENT BY EDWARD F. RENSHAW, PROFESSOR OF ECONOMICS AND FINANCE, STATE UNIVERSITY OF NEW YORK AT ALBANY, ON AN EQUITY STANDARD FOR RESTORING WAGE-PRICE STABILITY

In a speech before the Seventeenth Annual Monetary Conference of the American Bankers Association on May 18, 1970, Arthur F. Burns has suggested:

There may be a useful, albeit very modest, role for an incomes policy to play in shortening the period between suppression of excess demand and restoration of price stability.

Murray Weidenbaum, Assistant Secretary of the Treasury for Economic Affairs, has also joined those in and out of Government who back some form of "incomes policy."

"There are several other reasons for supposing that the administration may reverse its opposition to wage-price guide lines. The first is retardation in labor productivity which is one of the root causes of the wage-price spiral. Since the