ECONOMIC

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and natural gas. A complex set of factors can be blamed for this situation;the controls program intensified the problem but was not the only cause.Except for meat and petroleum products, shortages of industrial materialsdid not carry over noticeably to consumer markets. One reason is that firmswere able to substitute to some extent more plentiful materials for scarceones in the production process, especially in finished durable goods and inthe use of packaging materials. Inventories also helped to offset shortages ofmaterials; inventories of some products would probably have been higherif materials supplies had been greater.Flexibility in the administration of the controls program, enabling administratorsto exempt some markets, decontrol others, and allow exceptionsto the general rules regarding price increases, helped prevent shortagesfrom becoming more pervasive and acute. Attention was also given to casesin which controls, without limiting current output, might discourage the investmentneeded to supply future output. The need to stimulate investmentwas, for example, an important consideration in decontrolling the cementindustry and allowing a price increase by the paper industry.Despite constant reminders by the Administration that it regarded controlsas temporary, there was always the danger that the program mightresult in significant deferral or cancellation of investment plans. Probably thecontrols introduced an element of uncertainty that affected long-run planning.But the CLC did move to decontrol in important instances where itwas shown that controls threatened to limit investment. And many investmentplans with long lead times were undoubtedly undertaken on the likelihoodthat controls would be abolished by the time the new capacity cameon stream.In the agricultural sector the ceilings on meat prices contributed tosubsequent reductions in livestock production. That the controls program tosome extent limited the quantity of output and the investment required toproduce future output is not surprising. Even the anticipation of a controlsprogram can have this effect if producers raise prices, establish new marketingchannels, or divert investment from the United States to other countries.SUMMARYWe repeat what was said at the outset: the effect of the controls programon the rate of inflation in 1973 cannot be known with certainty either todayor ever.Controls could have worked in many ways, and economists' knowledge ofthe quantitative relationships determining prices is not so precise as to ruleout the possibility that inflation might have been even greater in 1973 withoutcontrols. We think it would not have been much greater, however, sincewith the controls the rate of spending was high relative to the money supply,and output was low relative to the labor supply.Still no one can disprove the thesis that the controls had a significant effect,although 1973 makes it a hard thesis to believe. Doubts of this kind should108
come as no surprise. There is much prior evidence that price and wage controlsof the kind tolerated during peacetime in free societies cannot significantlyrestrain inflation under the supply and demand conditions experiencedin 1973.The effectiveness of controls obviously cannot be judged by 1973 alone.The operation of the controls during 1971 and 1972, bringing about a goodbalance in the structure of wages, may have helped to avoid a repetition in1973 of the kind of wage spiral the country was experiencing before August1971. On the other hand, if controls did hold down prices during 1973, thepossibility remains that these prices will catch up in 1974 or later.527-867 O - 74 - 8109
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ECONOMICTRANSMITTEDTO THE CONGRESSF
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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of the inflation rate of 1973, and
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or permit incentives—including hi
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people of an easy time. Like our pa
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THE PRESIDENT:LETTER OF TRANSMITTAL
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CHAPTER 3. INFLATION CONTROL UNDER
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Page7. Unemployment Rates by Sex an
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Page53. Maximum Percent Change in E
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We have specific problems, too, asi
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This curtailment of supply does, of
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consumption we would not have chose
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outside the food and fuel sectors a
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about $14 billion from deficit to s
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8 percent, at annual rates. Continu
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A third method, which seems to have
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DEVELOPMENT OF LOW-COST ENERGY FOR
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would otherwise have been invested
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TRANSPORTATION REFORMLast year the
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constraints. Restrictions on entry
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In early 1974 the Commerce Departme
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Consumer SpendingConsumer expenditu
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Chart 1Changes in GNP, Real GNP, GN
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During the fourth quarter the downt
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A number of points may be noted abo
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income do not appear to have played
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Chart 2Changes in Real GNPPERCENTUN
Page 64 and 65: of essentially declining participat
Page 66 and 67: The unemployment rate for adult mal
Page 68 and 69: from job losers, the remainder of t
Page 70 and 71: to maintain a somewhat larger work
Page 72 and 73: Chart 3Changes in Selected Price Me
Page 74 and 75: TABLE 12.—Changes in selected pri
Page 76 and 77: production workers, and it is sensi
Page 78 and 79: the profits that companies report a
Page 80 and 81: Two measures of changes in income t
Page 82 and 83: About $8 billion of the growth in e
Page 84 and 85: effect of covered wage and employme
Page 86 and 87: Since these apparent stabilization
Page 88 and 89: MONETARY POLICY AND FINANCIAL MARKE
Page 90 and 91: lation requiring ceilings on all CD
Page 92 and 93: TABLE 19.—Offerings of new securi
Page 94 and 95: CHAPTER 3Inflation Control Under th
Page 96 and 97: (A more detailed presentation of th
Page 98 and 99: ate of advance in grocery store foo
Page 100 and 101: to the economy but also in the sens
Page 102 and 103: were imposed, limiting prices to th
Page 104 and 105: spurring of domestic inflation by e
Page 106 and 107: was more than twice as high in 1973
Page 108 and 109: wage increases in many cases, const
Page 110 and 111: TABLE 26.—Behavior of items in co
Page 112 and 113: Chart 6Changes in RelatedWholesale
Page 116 and 117: CHAPTER 4Energy and AgricultureFOR
Page 118 and 119: al gas have contributed to the low
Page 120 and 121: TABLE 30*—Wholesale prices, all i
Page 122 and 123: tion sector, which in 1972 accounte
Page 124 and 125: United States on oil imports, OPEC
Page 126 and 127: of old oil and prices of imported a
Page 128 and 129: LONG-TERM PROSPECTSThe price of imp
Page 130 and 131: important that the higher costs be
Page 132 and 133: improving the environment. The fund
Page 134 and 135: pollutants into the atmosphere will
Page 136 and 137: of research and rapid mechanization
Page 138 and 139: lion in fiscal 1972. Actually the a
Page 140 and 141: a minimum income. Unless prices fal
Page 142 and 143: The Administration supports the exa
Page 144 and 145: and estimates of some of these effe
Page 146 and 147: Since families typically pool their
Page 148 and 149: ability were not perfectly correlat
Page 150 and 151: Farm wages and farm income received
Page 152 and 153: TABLE 37.—Average usual weekly ea
Page 154 and 155: Chart 9Real Incomes for Men in Diff
Page 156 and 157: ecause they have acquired more expe
Page 158 and 159: whose owners or white workers have
Page 160 and 161: Several factors can be mentioned to
Page 162 and 163: y social pressures, however, which
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TABLE 42.—Relation of wage and sa
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ferences in their mix of occupation
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for public housing may be valued by
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8 to 20 percent for black females.
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sufficiently high to cover the addi
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TABLE 45.—Federal Government tran
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given to the problems of poverty du
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TABLE 47.—Trends in the employmen
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enefit increases greater than the i
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(Table 45). Medicare is chiefly des
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Public assistance is specifically d
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Then, subtracting equation (4) from
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policies, and the tensions among co
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In the fourth quarter the dollar ro
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which include trade, grants and oth
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tarily by foreign central banks, ev
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ply of oil, and by domestic price c
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in the United States. In view of th
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TABLE 52.—U.S. balances on intern
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esult from changes in market value
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TABLE 54.—Major changes in capita
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attempt was made to agree on a code
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The official price of gold was rais
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system, these demand changes were a
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What Pressures Should Be Exerted on
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The composition of reserves among d
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prices of approximately the same or
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tained, they would probably be felt
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Reducing Nontariff BarriersIn order
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Structural problems. Agreements on
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arrangements which are designed to
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capital and the means of putting th
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Canada and four smaller countries u
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currencies have appreciated relativ
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Effective Changes in Other Currenci
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Activities of the Advisory Committe
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Appendix BREPORT TO THE PRESIDENT O
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Report to the President on the Acti
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govern the exploitation of the reso
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Manpower and Social Affairs Committ
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Junior Staff EconomistsJames S. Fac
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Appendix CSTATISTICAL TABLES RELATI
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PRODUCTION AND BUSINESS ACTIVITY:Pa
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE C-2.—Gross national product
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TABLE C-3.—Implicit price deflato
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Page 263 and 264:
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TABLE C—8.—Gross national produ
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TABLE C-10.—Gross national produc
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TABLE C-12.—Personal consumption
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TABLE C-14.—Relation of gross nat
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TABLE C—16.—Relation of nationa
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TABLE C-18.— Total and per capita
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TABLE C-19.—Sources of personal i
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TABLE C-21.—Saving by individuals
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POPULATION, EMPLOYMENT, WAGES, ANDP
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TABLE C-24.—Noninstitutional popu
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TABLE C-26.— Selected unemploymen
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TABLE C—28.—Unemployment insura
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TABLE C-29.—Wage and salary worke
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TABLE C-31.—.•Average weekly ea
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TABLE C-33.—Changes in output per
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TABLE C—35.—Industrial producti
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TABLE C-37.—Capacity utilization
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TABLE C—38.—New construction ac
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TABLE C-39.—New housing starts an
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TABLE C-41.—Sales and inventories
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TABLE C-43.—Manvjacturers* new an
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TABLE O45.—Consumer price indexes
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TABLE C—47.—Consumer price inde
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TABLE C~49.—Wholesale price index
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TABLE C-50.—Wholesale price index
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194819491950.,1951195219531954Yearo
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TABLE C-53.—Commercial bank loans
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TABLE G-54.—Total funds raised in
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TABLE C-56.—Federal Reserve Bank
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TABLE C-58.—Bond yields and inter
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TABLE C-59.—Short- and intermedia
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TABLE C-61.—Mortgage debt outstan
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TABLE C-63.—Net public and privat
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TABLE C-65.—Federal budget receip
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TABLE C-66.—Relation of the Feder
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TABLE C-68.—Receipts and expendit
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TABLE C-10.—State and local gover
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TABLE C-72.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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TABLE C-76.—Relation of profits a
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TABLE C-77.—Sources and uses of f
Page 347 and 348:
TABLE C-79.—State and municipal a
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TABLE C-81.—Business formation an
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Year1929...1933...1939...1940...194
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TABLE C-85.—Indexes of prices rec
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TABLE G-87.—Comparative balance s
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TABLE G-88.— U.S. balance of paym
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TABLE C-90.— U.S. merchandise exp
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TABLE C-92.—International reserve
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TABLE G-94.—International investm
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TABLE C-96.—Consumer price indexe
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