With respect to the subject of our hearings, the effort to fight inflation, I think the need is for efficient management, concentrating on operations and not financial reorganization. It frightens me to think of anything that would further inhibit the operation of a company representing roughly 20% of the railroad industry through encouraging diversion to other modes of transportation-particularly when a railroad can haul goods at a cost of about 1.1¢ per ton mile as against a direct cash cost of air freight of 3.5¢ per ton mile and a cost for most truck transportation in excess of 6¢ per ton mile (at least these are the figures our security analysts have given me on the basis of their appraisal of various transportation companies). This would be inflationary in itself. Permitting the Penn Central to go into bankruptcy, I fear, is not the best remedy for its present problems. The Penn Central does not at the moment as far as I can learn need a realignment of creditors. It does seem to me, however, that they are in dire need of short-term funds to meet working capital and cash flow demands. Those funds would not come from a bankruptcy and can, under present circumstances, only be raised from private capital under a government sponsored guarantee program. As an asset-rich carrier, Penn Central has the potential of achieving its originally conceived financial strength and independence and of providing sorely needed reliable rail passenger and freight service to the entire Northeast. This potential will only be recognized where creative and innovative management can be attracted and retained. That will not be possible during a bankruptcy, which will provide little more than a conservation of assets and maintenance of status quo. The Penn Central, to a large degree, I believe, has become a victim of circumstance. A number of factors-an unduly protracted period required to achieve the merger, high interest rates, a depressed economy, the history of massive governmental subsidies to competing modes of transportation (to which I have alluded earlier)—have certainly contributed to the prevention of Penn Central from achieving its expectations. I am not, of course, competent to judge. though I suspect, that elements of poor management have also had much to do with its plight. Forcing it into bankruptcy, however, will not accomplish the merger objectives which originally seemed sound. and in the national interest. The necessary interference which bankruptcy would mean for operations will only serve to injure the public, who are certainly not to blame for the Penn Central's present condition. Please forgive this very sketchy answer to your profound questions. I have done my best to respond promptly, at any rate. With respect and regards. Sincerely, Mr. BARRETT. And this next question ROBERT V. ROOSA. Mr. WYLIE. I want to ask one more question before we adjourn, if I might. But I will wait for you. Mr. BARRETT. I want to ask you one other question. Governor, you are a very practical man. You have had a great deal of experience. And you worried, as we all did, back when you were head of the OPA. And I was wondering, which is the more beneficial to this country, realizing the turbulence in which we live today, not only in this country but throughout the world, to have controls or not o have them. I think you will agree that controls will induce black narkets and racketeers. Some will be glad the controls are on, paricularly price controls and rent controls, and others will certainly be very much opposed to it and be embittered by it. And I was wonderng if we were aiming to create a condition in this country which would give us greater turbulence than we are experiencing today. What are your comments, Governor? I will take you first. May I add this. We had price controls in Korea. They are used now n South Vietnam. And we have more underground activity there upplying the products that the people want for much higher prices. And those who have money get the good health foods and products hey desire, and those who do not have the money get nothing. Mr. DISALLE. Black markets nourish in periods of shortages. We are not in a period of shortage at this time. We have a wage price spiral. Holding that, I think, it would be helpful in bringing the country together. I don't think price controls in and of themselves would add to the causes of division. I do think that this inflation has to be halted. And it is largely psychological, and the only way you can stop it is by a similar move. I do not think you have to keep the economy frozen for a long period of time. And many, many items could be de-controlled immediately. In fact, we did that during OPS. We de-controlled many items almost immediately. And over a period of 2 years we kept decontrolling. And the reason we did not have a sharp price rise in 1953 was because of the gradual de-control that had taken place over the periods of 1951, 1952, and 1953. Mr. BARRETT. The price of money has escalated tremendously, and we have been requesting the Federal Reserve and the big bankers to control the price of money the big corporations, the big conglomer ates, are paying the price-any cost for money to get it which they can afford, and then letting the price of their products filter down to the consumers. Isn't this the faucet that should be turned off and controlled? Mr. DISALLE. Interest rates are a universal element of any cost of doing business. And whenever you have high interest rates, either the Government absorbs much of it in lowered income tax returns, or the public gets it in increased prices. Mr. BARRETT. Mr. Roosa? Mr. Roosa. I would agree with everything Mr. DiSalle has said. I am quite satisfied. Mr. BARRETT. The question I am asking, where do we get into the more trouble, by putting controls on and then trying to control black markets? Which is going to be the most destructive on the American Government? Mr. Roosa. I do not think these recommendations would lead to the development of a serious blacket market problem. And therefore I do not quite take your question the way it has been put. I feel if we did at the present time impose a full mantle of detailed controls. and intended to keep them for a long period, that would be most harmful. The black market would create a disrespect for Govern ment that would be very serious. I think we have to have a mentality of national commitment that is only possible during a war to even be able to get away with this. And even then the black markets flourish. Mr. BARRETT. Mr. St Germain? Mr. ST GERMAIN. Thank you. I too wish to compliment the witnesses and thank them for their contribution. And getting to this point of black markets, about the only thing that anyone could deal in the black market is that item which is in short supply right now. And that is money, isn't it, Mr. DiSalle? Mr. DISALLE. Yes. Many businesses are forced to go to the black market for very high interest rates. They are paying small loan interest rates for foreign capital. Mr. ST GERMAIN. This definitely is happening. Mr. ST GERMAIN. But there is no shortage of tires or butter or sugar, we have loads of those, it is just the price that is high. Mr. DISALLE. Yes. Mr. BARRETT. Would the gentleman yield? Mr. ST GERMAIN. Certainly. Mr. BARRETT. I think the Government knows that the black market in meat was very active during the OPA. They were selling low-grade beef for high prices, but those with money could get high-grade beef. Mr. ST GERMAIN. That was because there were shortages. Would the Chairman tell me, is there a shortage of beef right now? Mr. BARRETT. I would tell the gentleman from Rhode Island that if you put controls on, that will not send meat into the market, and you will get a repetition of what we experienced back in the old OPA days. Mr. ST GERMAIN. Will the Chairman tell me this? Is there a shortage of meat? Mr. BARRETT. There will be if we put controls on, because the producers will not bring their meat to the market unless they can get an adequate price for it. Mr. DISALLE. We found out, Mr. Chairman-during OPA we had those kinds of threats. But cattle will not wait, when they are ready for market they go to market. Mr. ST GERMAIN. They will die and fade away. Mr. DISALLE. And the farmer just cannot keep it, he has got to get his money. Mr. BARRETT. That is what I am saying, he will get his not through legitimate channels. Mr. DISALLE. He will without rationing. Mr. BARRETT. Will the gentleman yield further? Mr. ST GERMAIN. Certainly. money, but Mr. BARRETT. I think the good Governor from Ohio knows that the people stood in front of the meat markets pleading for meat. Mr. ST GERMAIN. When? Mr. BARRETT. Under the OPA. Mr. ST GERMAIN. The OPA, World War II. It did not happen during the Korean war. Mr. BARRETT. If you want to call this a war, the Vietnam war, you certainly can get the same condition if you put controls on that you got under the conditions in World War II. Mr. ST GERMAIN. Mr. Chairman, remember Korea? Mr. BARRETT. No, sir. I do not think anybody remembers Korea. We remember the Pueblo. I think Mr. Barrett has made a valid point, in that there is some psychology or a considerable amount of psychology against wage and price levels. And I find this in the mail from my area. They are against inflation, but also against wage and price control. It is my judgment that cost overruns and modifications of Governent contracts contribute significantly to the inflation problem that we have, and that we might psychologically help meet this problem if we were to incorporate and I touched on this a little previouslyn this bill the simple language which would say, the President is authorized in connection with any Government contract to issue such orders and regulations as he may deem appropriate to stabilize prices. wages, and salaries at a level as of May 25, 1970. I think this might be more acceptable. Now, the next question that I have, and the real question that I have is, do you think that this might effectively do the job? Mr. DISALLE. I do not think in and of itself it can, because unless your defense contractor is able to buy material that is also frozen, he is at the mercy of the supplier. And if his supplier can keep on increas ing prices, then the Government will have to permit that to pass through to the contractor. Mr. WYLIE. The point I make is that I think you have to have som approval by the populace as a whole, by the people in the United States for wage and price controls. And I am not real sure that it is here yet. Maybe through this voluntary procedure through Govern ment contracts the people of the country would get the message, and the people who are supplying the persons who are entering into the Government contracts would also get the message. Mr. DISALLE. Our worst inflation was during World War I. We used nothing but a voluntary approach. In World War II we started a voluntary approach, and had to scrap it, it wasn't working. In Korea we started a voluntary approach and had to scrap it because it didn't work. Mr. WYLIE. Of course, you pointed out that during all those periods there were shortages of commodities, which we do not have now. Mr. DISALLE. During Korea we had no shortages, we had no ration ing, but we had a wage price spiral that wouldn't quit. Mr. WYLIE. And we had mandatory price controls. Mr. DISALLE. Yes. Mr. ROOSA. May I just make it clear before we adjourn that I d not share Mr. DiSalle's commitment to an initial mandatory wag and price control. My whole approach runs the risk of the voluntary approach. Mr. WYLIE. Would you care to comment on my question abou putting it in writing? Mr. ROOSA. I see no objection to that at all, to giving the Presiden that power. He can use it as he wishes, and it might prove helpful Mr. BARRETT. Thank you, Governor. All time has expired. And Mr. Roosa, it has been nice to have you here. You have bee very knowledgeable witnesses here this morning. You have done a excellent job. And we thank you for coming. All time has expired. The committee will stand in recess until 10 a.m. tomorrow morning The witnesses will include representatives from AFL-CIO, UAW and the U.S. Chamber of Commerce. Thank you very much. (Whereupon, at 12:03 p.m. the committee recessed, to reconvene a 10 a.m., Thursday, June 18, 1970.) TO EXTEND THE DEFENSE PRODUCTION ACT OF 1950, AS AMENDED THURSDAY, JUNE 18, 1970 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. The committee met, pursuant to recess, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Wright Patman (chairman of the committee) presiding. Present: Representatives Patman, Barrett, Sullivan, Reuss, Minish, Hanna, Gettys, Galifianakis, Widnall, Dwyer, Mize, Halpern, Blackburn, Brown, Williams, and Crane. The CHAIRMAN. The committee will please come to order. Today we continue hearings on the Defense Production Act. Our witnesses today again are expected to center most of their testimony on title II of the pending bill which provides standby wage and price authority for the President. Yesterday, President Nixon went on national television at noon to reassure the people that the economy was not collapsing simply because we had 5 percent unemployment; the highest interest rates in historyand, incidentally, he said that interest rates are too high, which is encouraging a depressed housing market that is building barely 42 percent of the needed homes, and continued high prices on nearly every consumer item. President Nixon's speech, in my opinion, was the very best testimony we could have on the pending bill. It clearly demonstrated that the Congress must take the initiative if the country is to be saved a devastating recession or depression. That speech clearly demonstrated the need to shore the President up, to give him some more muscle, some more will to do something meaningful-something besides more boards and commissions. In his speech, the President talked about vague voluntary cooperation to hold down prices and wages. It was unclear just what the President had in mind. But any type of voluntary cooperation which he is seeking would be strengthened if he has the type of standby authority that we have in the legislation before us. The standby authority puts muscle into any type of voluntary efforts the President might undertake. Without the controls which title II would provide, any attempt by the President to keep down inflationary price action would end up as a hollow attempt, indeed. Only by having the statutory authority to control wages and prices can the President make good on his actions. Our witnesses this morning include Mr. Andrew J. Biemiller of the AFL-CIO, Mr. Leonard Woodcock, the new president of the United |