BPEA | 1972 No. 1

The Price-Wage Stabilization Program

1972, No. 1

THE CRITIQUES OF THE WAGE and price control program that have been offered by the Brookings panel are, compared with many heard of late, rather mild. From the conceptual standpoint, what might be termed the theoretical criticisms are of two principal types. The first argues that large firms and labor groups, because of their oligopolistic power to determine prices and wages without regard to market conditions, are the basic source of the inflationary problem. The aim of the controlp rogram is, therefore, wrong because it provides broad coverage instead of targeting only on the few dominant economic units. The second viewpoint admits of no inflationary problem that cannot be traced directly and wholly to fiscal and monetary policies, and faults the control system because it treats only the symptoms of inflation, thereby divertin g ttention from its underlying causes. Accordingly, the program can have no impact on the rate of inflation; any slowing of the price rise that does occur would have been brought about anyway by slack conditions in the economy. The Brookings papers are representative, in part at least, of these two views. Although I concur with some of their reasoning, my own position is substantially different.