groups with watching for federal purchases or regulations that would aggravate inflation . He also instructed the Council of Economic Advisers ( CEA ) to issue “ inflation alerts ” to call public attention to significant increases in wages or prices being put in place by various parties . That advisory board issued its first “ inflation alert ” in August , criticizing recent price increases in items ranging from coal to cigarettes .
That same month , the Democrat-controlled Congress purposely discomfited the free-market Republican President by passing the Economic Stabilization Act of 1970 and giving him the unwanted authority to impose mandatory wage and price controls . The President accused the legislators of playing politics with inflation , saying he was signing the multi-part Public Law 91-379 only because it included the much-needed extension of the Defense Production Act .
Throughout the second half of 1970 , a growing chorus of voices suggested that gradualism was not working and that a federal “ incomes policy ” restricting the growth of wages and prices should be implemented . The President continued to disavow any plans for wage and price controls , even as it was becoming obvious that the inflationary spiral was not only hurting the domestic economy but also pricing US-made products out of many overseas markets . Democrats in the House of Representatives urged him to adopt some formal pricing guideposts , and to take more forceful action if those guidelines did not achieve the desired effect .
In December , the CEA published its second “ inflation alert ,” criticizing the 13 % wage increase the United Auto Workers had recently won as they ended their 67-day strike against General Motors . This toothless pronouncement was met with the same degree of apathy as the first alert issued the previous summer . At the end of the year , Fed Chairman Arthur Burns joined several Treasury Department officials in suggesting the creation of a highlevel wage and price board to investigate instances of manipulation or exploitation and help tamp down inflationary expectations . The year-end statistics showed that the economy remained weak ; real GNP rose only 0.2 %. But the inflation rate rose again to 5.7 %; and unemployment rose steadily before peaking at 6.2 % in the fourth quarter , a rate not seen in 10 years .
In early 1971 , the CEA raised skeptical eyebrows by again predicting that
Collection of the Museum of American Finance
Cover of the August 30 , 1971 issue of Time magazine , featuring President Nixon ’ s wage and price controls .
the administration ’ s policies would lead to reductions in the rates of both inflation and unemployment . Secretary of the Treasury John Connally told Congress the President remained uninterested in imposing wage and price controls , but that he would accept the extension of his authority to do so in the form of the renewal of the soon-to-expire Economic Stabilization Act of 1970 .
In the first quarter , the President took two actions to address rising costs in the construction industry , a segment of the economy that had seen particularly large wage increases in the recent past . ( New contracts signed in 1970 had called for median first-year wage increases of 17 %.) First , he suspended the provision of the Davis-Bacon Act that required contractors on government projects to pay union wage rates . Then he established the Construction Industry Stabilization Committee ( CISC ) to review and approve any changes in that industry ’ s collective bargaining agreements .
The rate of inflation moderated a bit to 2.4 % in the first quarter . However , wholesale and retail prices spiked to annual rates of increase of 6 % and 8.4 %, respectively , in the second ; and the unemployment rate remained persistently high at 6 %. Fed Chairman Burns urged the administration to take additional steps to control inflation . A group of Congressional Republicans announced their plan to create a wage-price board to address the situation . And somewhat ominously , groups of
longshoremen , steelworkers and railroad workers all went on strike , seeking wage settlements likely to defy the administration ’ s jawboning efforts .
During the weekend of August 13 – 15 , President Nixon gathered his top economic advisors for a conference at Camp David to discuss ways to deal with inflation , the international monetary situation and other fiscal problems . In telling them of his decision to freeze all wages , prices and rents , the President emphasized the temporary nature of that action , as well as his refusal to consider a long-term program of controls . The freeze was meant only as a short-term respite to the inflationary spiral . Imposing it would give policymakers the time to develop a set of policies that would ensure the type of long-term price stability that had been missing for too long .
At 9 p . m . Eastern Daylight Time on Sunday , August 15 , the President told national television and radio audiences about his multi-part program to address the problems of inflation , unemployment and international currency speculation . The essence of the “ incomes policy ” noted in Executive Order 11615 he issued that night were sections that accomplished the following :
• “ Stabilized ” for 90 days prices , rents , wages and salaries at levels no greater than those that had prevailed during the past 30 days
• Established an eight-member Cost of Living Council ( CLC )
• Charged the CLC with both administering the freeze and developing the plans for maintaining a stable level of prices and costs after the freeze expired
• Allowed the CLC to redelegate its authority and use the resources of other federal or state agencies to carry out its responsibilities
Treasury Secretary Connally would lead the CLC , which would consist of half a dozen cabinet officers plus the chairman of the CEA and the director of the Office of Management and Budget . The President appointed Arnold Weber as the executive director , who then assembled an administrative staff of only a few dozen . This small group would not be able to administer the details of a wage and price freeze that promised to disrupt financial arrangements across the complex and diverse United States economy . So , the President encouraged the CLC to delegate the
www . MoAF . org | Summer 2021 | FINANCIAL HISTORY 29