A former top Johnson administration economist suggested yesterday that President Carter call on Americans to limit their pay hikes this year to 6.5 per cent as part of a new program of voluntary wage-price guidelines.
Arthur M. Okun, now at the Brookings Institution, said Carter also should establish voluntary price guideposts, possibly by calling in individual executives and working out standards on a company-by-companay basis.
He also urged that the administration propose, as an anti-inflation move, deferring the increases in the minimum wage and in Social Security payroll taxes now scheduled to take effect next January.
Okun made his proposals at a breakfast meeting with reporters as part of a series of suggestions on what the administration should do to combat inflation. He said Carter must take new action soon or risk running a recession.
The former chairman of the President's Council of Economic Advisers has repeatedly advocated voluntary wage-price guidelines as a remedy for the current round of inflation. But the plan has been spurned by Carter as too tough.
Okun warned yesterday that unless the administration intensifies its anti-inflation fight, it could face further interest-rate increases by the Federal Reserve Board - a move he said could severely crimp the economy.
"Even though we've had a holiday on interest rates recently" Okun said, eventually the Fed "will have to tighten more." He added that "if we don't have an anti-inflation program, the recession will be the anti-inflation program."
At another point, Okun openly criticized Carter's performance on economic issues as "ineffective." He said "the questions, is it leadership or following? The president too often retreats on bills and signs them."
Okun said he based his suggestion for a 6.5 per cent wage ceiling on the average cited in the new postal workers' settlement. "If the postal workers can accept that, so can the rest of the country," he said.
He said the 6.5 percent pay guideline should apply both to private wage increases and to fringe benefits "without exceptions." In returns, he suggested, unions could insist on shorter contract periods to allow an escape-valve.
Okun estimated that deferring the January increases in the minimum wage and payroll tax would trim about half a percentage-point from the 1979 inflation rate, which now is estimated to run between 7 and 8 percent.
G. William Miller, chairman of the Federal Reserve Board, has made a similar suggestion. Miller also has proposed the system Okun endorsed for having individual corporations set their own price guideposts.
In assessing Carter's performance on economic issues, Okun cited the president's continuing disputes with Congress as a primary source of his troubles, and blames both sides for the difficulties.
Okun said the Georgian "came to town with the innovative view that you could pass legislation by selling it to the people and eliminate the midleman. Well, he's paid for it - right from the start."
At the same time, however, Okun criticized Congress for failing to co-operate with Carter. "What you've got," he said. "is a bunch of senators who have gotten influence in some areas and are reluctant to give it up."
The White House administered a voluntary wage-price guidelines program during the Johnson years, with limited success.