Masonry Magazine January 1971 Page.29
theWASHINGTONwire...
THE DRIVE TO SLOW INFLATION HAS BEGUN
TO ROLL now, and government officials are quite optimistic about chances for success. They are aware of the skepticism among businessmen and of the substantial problems that still lie ahead especially on the wage side. But they feel these problems can be licked. The President's goal-a rate of inflation below 3% by the end of 1972-may not be achieved. The economy, though, could come close.
Most economists will concede the apparatus President Nixon has set up can do the job. The post-freeze program was carefully planned to line up a broad base of public support.
Significantly, labor's leaders are locked into the program. They sit on the Pay Board. And they are pressing hard for hefty increases. They won some points early in the game. But public members are now digging in. Price increases can be kept down as the Pay Board begins to brake wages.
BUT EFFICIENT APPARATUS MAY NOT BE
ENOUGH. Will labor keep going along if it doesn't get all it wants in every contract? There is a fear in the business community and in Washington-that some key unions will refuse to accept guidelines when their negotiations come up. Restive rank-and-file members could touch off wildcat strikes and force their leaders to defy the President and the elaborate structure he has so painstakingly established.
These walkouts might put pressure on the Pay Board to approve big hikes. If such pressure tactics work, many firms would face severe cost squeezes because they will not be so prone to buck the price curbs. And this might force the Price Commission to relax the rules for hard-pressed corporations.
AND IT'S NOT ONLY LABOR COSTS THAT WILL
BE CAUSING officials problems. For example, utilities need increased rates to cover rising fuel oil prices. Many companies have been waiting for a brisker pace of business activity to permit them to restore prices and profits-to pre-recession levels. But most economists feel that the problems will be solved as 1972 moves on. They expect a lot of grumbling, but most unions and companies will go along.
Opinion polls show that the general public supports the Nixon program. In fact, a majority of union men agree the President is on the right track. People are sick and tired of seeing their wage increases eaten up by higher and higher prices.
WHAT'S MORE, THE NEW PROGRAM HAS GOT
TO SUCCEED, at least moderately. The alteratives to a voluntary approach are just too rough to contemplate. The choices would either be permanent mandatory controls or more inflation. And Nixon simply cannot let his policies fail... for policital considerations. The success of Phase II-or lack of it could determine the 1972 elections. So the President will get tough if it looks as if the program won't work.
Government and industry economists are hoping that gains in productivity-output per manhour-will go a long way toward offsetting increases in labor costs. Then, only moderate increases in prices would be necessary. This would aid some corporations. But by no means would all companies benefit.
THE PRESIDENT CAN CLAIM REAL SUCCESS IN
BRAKING constructions wages. And that may be a very good omen for the economy-wide anti-inflation effort. Construction wage restraints have been in effect for about seven months now. Before last April, wage increases in building were running 15%-18% a year. Then Nixon moved in. He set up boards to review and slim down packages. His tripartite boards have rejected hundreds of contracts with large hikes. Significantly, their edicts did not bring strikes or obstruction from labor.
No one claims that the boards hit all their targets. At the start, they had to allow still-big wage increases of 10% or more. But second-year raises were held down to 6% or less.
MANY ECONOMISTS THINK INFLATION MAY
APPROACH 3% by the end of 1972. That would be a highly significant reduction from the 5% of the bulk of 71. Only a few expect the rate to get to the 2%-3% the President is aiming for. More pessimistic analysts believe we will not get much below 4% next year.
FURTHER DECLINES IN INTEREST RATES STILL
LIE AHEAD, in addition to the fall in bank-loan and bond yields that has occurred since the wage-price freeze was announced. The banks' prime rate could conceivably be cut again, if loan demand continues to lag. On the other hand, if the economy really begins to speed up at long last-bank loan rates could level out. But bond and mortgage rates could continue to ease down, moderately but significantly.
The Federal Reserve wants to see lower interest rates. The money managers would like to kill ingrained expectations of inflation that have operated to raise interest rates further than supply-demand justifies. But they don't want to overdo.
THE NIXON ADMINISTRATION IS EXPANDING