Controls and Income Shares

George L. Perry

George L. Perry Senior Fellow Emeritus - Economic Studies

I AGREE WITH SO MUCH of what Gardner Ackley has written about the Phase II program that I hesitate to take issue with his paper at all. Since the end of the freeze, prices have risen too rapidly, and the goal of bringing the inflation rate below 3 percent will not be reached unless the Phase II authorities get tougher. Some of the operating procedures of the Price Commission should be revised to accomplish this improvement; and I agree, in particular, that the commission should not rely on term-limit pricing arrangements and on cost estimates supplied by firms themselves. But I do disagree with Ackley’s treatment of cost absorption. And that point is so central to the issue of income shares under Phase II—an issue that, in turn, is so emotionally charged that it threatens to disrupt support for the overall program—that a comment is in order.