Observations on Phase II Price and Wage Controls.

This article criticizes the Phase II of the wage-price control program of the United States. A number of issues concerning the present program of price and wage controls divide members of the Brookings Panel on Economic Activity, as they divide economists generally. This paper does not deal with the more basic of these issues. Rather, it takes as given the decisions to freeze prices and wages last August 1971, and to follow the freeze with a program for Phase II having essentially the objectives of the present one. It considers how well the program is achieving these objectives and whether and how they might be achieved more effectively. The treatment is selective rather than comprehensive. Assuming that the administration knew what it was getting into in adopting mandatory wage and price controls, it surely deserves credit at least for courage in electing to use them. And having taken that decision, it did some things well. First, it gave no indication that it was going to take this course; the public, business, and the unions were taken completely by surprise. The result is in sharp contrast with the terrible mess created in 1950, when discussion of a possible freeze was allowed to go on for nearly six months -- and government officials themselves actively contributed to it.