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(A more detailed presentation of the regulations of Phase III, the subsequentfreeze, and Phase IV can be found in the Quarterly Reports of theCost of Living Council.) To reduce the mounting delays and costs entailedin submitting requests for price increases, having them reviewed, and seekingdetailed interpretations of increasingly complex rules, the basic principlesof regulation developed during Phase II were to be self-administeredin Phase III. The prenotification requirement was dropped in most sectorsof the economy. Report-filing requirements were maintained only for thelargest economic units. The Price Commission and Pay Board were absorbedinto the staff of the Cost of Living Council; and this staff, togetherwith the Internal Revenue Service (IRS) enforcement staff, was reduced.The Cost of Living Council retained authority, and subsequently used it, toimpose specific, mandatory regulations where restraint seemed lacking, butin most sectors of the economy the system was not mandatory withoutfurther action by the CLC.An important reason for the change to a self-administered program was theneed for flexibility in administering the standards for wage and price behavior.Phase II had, in fact, provided important instances of flexibility, butthe changed economic conditions suggested that even more was needed. Inone of its first public pronouncements, on February 26, the newly formedLabor-Management Advisory Committee to the CLC made the point thatno single standard or wage settlement can be expected to apply throughoutthe economy at any one time. This aspect of Phase III was important inthe decision of leaders of labor, many of whom had earlier withdrawnfrom participation in the program, to join the Phase III effort.The profit margin regulations were also modified in Phase III. The basisfor calculating the profit margin limitation was changed to increase thenumber of fiscal years from which a firm could choose the 2 years theyused in calculating their base. To permit firms to benefit from productivityincreases if they practiced price restraint, the profit margin limit waswaived if a firm's average price increase was no more than 1.5 percentin a year. A third change was to permit price increases "necessary for efficientallocation of resources or to maintain adequate levels of supply."Price changes were thus allowed in instances where economic growth ledto exceptional demand pressures in particular markets and the alternativewas shortages.The Construction Industry Stabilization Committee and the Committeeon Interest and Dividends were continued, and new committees were establishedin the field of health care. Special criteria were established for publicutilities, making the program voluntary and ending the requirement thatregulatory agencies obtain from the CLC certification that their actionsaccorded with Phase III controls.Special steps were also taken to counter problems emerging in the foodsector. Increases in farm product prices had led to a 7.1 percent annual90
TABLE 22.—Regulations of the controls program, Phases II, Ill, and IVProgramPhase IINov. 14,1971 toJan. 11,1973Phase IIIJan. 11,1973 toJune 13,1973Phase IVAug. 12,1973 to dateGeneral Standards:Price increase limitations..Profit margin limitations...Wage increase limitations..Prenotification:PricesWagesReporting:Prices... _Percentage pass-through ofallowable cost increasessince last price increase,or Jan. 1, 1971, adjustedfor productivity and volumeoffsets. Term limitpricing option available.Not to exceed margins ofthe best 2 of 3 fiscal yearsbefore Aug. 15,1971. Notapplicable if prices werenot increased above baselevel, or if firms "purified"themselves.General standard of 5.5percent. Exceptions madeto correct gross inequities,and for workerswhose pay had increasedless than 7 percent a yearfor the last 3 years.Workers earning lessthan $2.75 per hour wereexempt. Increases inqualified fringe benefitspermitted raising standardto 6.2 percent.Prenotification required forall firms with annualsales above $100 million,30 days before implementation,approval required.For all increases of wagesfor units of 5,000 ormore; for all increasesabove the standard regardlessof the number ofworkers involved.Quarterly for firms withsales over $50 million.Self-administered standardsof Phase II.After May 2, 1973, prenotificationrequired forall firms with sales above$250 million whose priceincrease has exceeded aweighted average of 1.5percent.None.Quarterly for firms withsales over $250 million.In most manufacturing andservice industries dollarfor dollar pass-through ofallowable cost increasesince last fiscal quarterending prior to Jan. 11,1973.Same years as Phase III,except that a firm that hasnot charged a price for anyitem above its base price,or adjusted freeze price,whichever is higher, is notsubject to the limitation.Not to exceed margins ofthe best 2 fiscal yearscompleted after Aug. 15,1968. No limitation ifaverage price increasedoes not exceed 1.5 percent.General Phase II standard,self-administered. of Phase III. ExecutiveSelf-administered standardsSome special limitations. compensation limited.More flexibility with respectto specific cases.Workers earning less than$3.50 per hour were exemptedafter May 1.Same as Phase II exceptthat prenotified price increasesmay be implementedin 30 days unlessCLC requires otherwise.None.Quarterly for firms withsales over $50 million.Wages..Special areasExemptions to price standards._Pay adjustments belowstandard for units greaterthan 1,000 persons.Health, insurance, rent,construction, public utilities.Raw agricultural commodities,import prices, exportprices, firms with 60or fewer employees.Pay adjustments for unitsgreater than 5,000 persons.Health, food, public utilities,construction, petroleum.Same as Phase 11 plus rents.As Phase III.Health, food, petroleum, construction,insurance, executiveand variable compensation.Same as Phase III plus manufacturedfeeds, cement,public utilities, lumber,copper scrap, long-termcoal contracts, automobiles,fertilizers, nonferrousmetals exceptaluminum and copper,mobile homes, and semiconductors.1 In some of these sectors wages were also exempted.Source: Cost of Living Council (CLC).91
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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
Page 46 and 47: TRANSPORTATION REFORMLast year the
Page 48 and 49: constraints. Restrictions on entry
Page 50 and 51: In early 1974 the Commerce Departme
Page 52 and 53: Consumer SpendingConsumer expenditu
Page 54 and 55: Chart 1Changes in GNP, Real GNP, GN
Page 56 and 57: During the fourth quarter the downt
Page 58 and 59: A number of points may be noted abo
Page 60 and 61: income do not appear to have played
Page 62 and 63: 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 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 114 and 115: and natural gas. A complex set of f
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
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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
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Since families typically pool their
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ability were not perfectly correlat
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Farm wages and farm income received
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TABLE 37.—Average usual weekly ea
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Chart 9Real Incomes for Men in Diff
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ecause they have acquired more expe
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whose owners or white workers have
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Several factors can be mentioned to
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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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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
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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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