Unless President Carter rejects the advice of most his advisers, the administration soon will announce a still voluntary anti-inflation program that seeks to set economywide standards for wage and price behavior.
Carter won't be the first president to try to influence wage and price decisions in the private economy. And he probably won't be the last. But unless he is the luckiest peacetime president since World War II - and there is little evidence that he is - his incomes policy (as economists usually call any attempt by government to fiddle with wage and price behavior) will founder as have all those that went before.
All postwar administrations - with the possible exception of the Eisenhower administration - have practiced some form of incomes policy. Conservative, free-market-oriented Richard Nixon was the only one to try mandatory wage and price controls in peacetime. Others, such as President Kennedy, set voluntary guideposts for acceptable wage and price rises, while Presideny Ford adopted a more admonitory posture; bringing the prestige of the presidency to bear on individual wage or price decisions without any threat of sanction beyond adverse public reaction and presidential displeasure.
President Carter last April announced his formal foray into the venture, putting forth a program aimed at "decelerating" the rate of inflation by asking businesses and workers to take smaller increases this year than they did in the last two years. Most presidents have had at least some early successes with their income policies.
Carter's initial dabble - although the jury is still out on the price side - was marked by failures from the start. The coal worker negotiations, in which the administration intervened at the last minute, produced a settlement so big that the administration's own Council on Wage and Price Stability called it inflationary. There was a similar result in railroad pacts, and the postal settlement, which was hailed a victory when union leadership and the Postal Service agreed to it, was rejected by the union membership. An arbitrated settlement announced Friday provided a 21 percent increase over the next three years. If it is acceptable to postal workers, it will be the first major union settlement to come in at a level close to that which the administration has been seeking.
To toughen his program - and, his advisers say, to make it more understandable to workers - the president is expected to announce some sort of a numerical standard for wage increases, something akin to the 3.2 percent guidepost President Kennedy established for wages and prices in 1962, a guidepost that was not violated seriously until the machinists' settlement in 1966.
But even before he gets his Phase II off the ground, Carter has run into trouble with organized labor. AFL-CIO President George Meany is expected to sharply criticize any form of guidelines in a speech to the United Steel Workers tomorrow - one day before the president himself addresses their convention in Atlantic City.
Without tacit support from organized labor, to anti-inflation program, be it voluntary or mandatory, can long endure.
If Carter sets a numerical standard for wages, as it now appears he will do, and sets it much below 8 percent - roughly the underlying rate of inflation - labor will ignore it, noted Albert Rees, a Princeton University labor economist who headed President Ford's Council on Wage and Price Stability for a year.
No union president can settle for much less than the rise in the cost of living, Rees said.
Top administration economists acknowledge this privately. Although some unions - such as those in the steel and coal industries - have outpaced inflation for the last decade, most workers have done little better than stand still. It is extremely difficult to ask labor to sacrifice when it cannot be demonstrated that they are the "cause" of the accelerating cost of living.
But should Carter set a high wage ceiling of, say, 8 percent, it will have little meaning as an anti-inflation device.
Although some economists point to the four years of success the Kennedy-Johnson guidepost had in the 1960s, there is at best conflicting evidence to support that viewpoint. When the guideline was enunciated at 3.2 percent in 1962, the inflation rate was somewhere between 0 and one percent. That meant compliance with the standard resulted in a real wage gain of 2 to 2.5 percent.
Also, labor productivity was increasing at a rate of about 3 percent a year in the early 1960s, so a 3 percent raise also should have put no pressure on prices.
When inflation generated by the Vietnam war caught up with the Kennedy-Johnson standard, unions rebelled at the guidepost and settlements came in above it.
Today, policy makers do not have the luxuries they had in the early to mid-1960s. With productivity almost stagnant, any increase in wages puts pressure on prices, while any wage increase much below 8 percent means workers take a real cut in their incomes.
When President Nixon imposed first a wage-price freeze, then a mandatory set of controls, on the economy in 1971, conditions were somewhat favorable to compliance. The rate of inflation was decelerating in August 1971. And the wage standard, set at 5.5 percent, was well above the rate of inflation.
But by 1973, when the prices of internationally traded commodities - including food, metals and, finally, oil - began to skyrocket, inflation took off here. Nixon attempted to keep mandatory controls on the economy for a while, but finally began to dismantle the apparatus in early 1974 when it became apparent that the patience of both workers (who found inflation by then running at a pace much faster than the 5.5 percent guideline) and businesses (who were forced to absorb large increases in raw materials) had run thin.
By the end of the Nixon controls program, the entire country had become so exasperated that Congress refused to renew the president's authority to impose them. As a result, the exit from controls was less orderly than officials would have liked, and a hugh surge of previously constrained price increases hit the economy in the summer and fall of 1974.
When President Ford succeeded Nixon in August 1974, he made inflation his first priority, holding a series of industry-specific anti-inflation conferences around the country that culminated in a massive conference in Washington in late September. In October, he launched his WIN (or Whip Inflation Now) program, a largely rhetoical (sometimes laughable) approach to the problem that is reminiscent of the early Carter anti-inflation strategy.
But the worst recession in postwar years rapidly attracted the country's (and the government's) concern. And the sudden slump in demand also helped dampen the rate of price increases from the double-digit levels of 1974 to 7 percent in 1975 and 4.8 percent in 1976.
Ford ended his presidency by fighting some specific price increases - including several in the steel industry - winning a few and losing a few. But the recession had wrung enough out of the inflation rate to make it look good by comparison to 1974 or 1973.
Although nearly every foray into incomes policies has broken down - even during crises like World War II and Korea - presidents keep trying. And the reasons are quite obvious. In an economy in which high unemployment seems to be politically difficult to justify and in which inflation is difficult to control by the standard textbook approaches of monetary and fiscal policy, governments find it nearly irrestible to try another approach to restraining costs and prices.
But just as predictably, administrations back out of the organized incomes policy game after a while. Mandatory programs become voluntary. Voluntary programs become wage-specific or price-specific exhortations - usually called jawboning.
And the reasons for the ultimate demise of all formal programs to halt wage and price increases are not hard to find.
Labor unions dislike them because they interfere with collective bargaining and because the unions are convinced - with some justification, looking at the record - that controls or guidelines come down harder on workers than on companies. As a result, almost any effort to involve labor in the formal running of a controls program breaks down. Even if labor leaders are sympathetic to the role wages play in inflation, they find it politically impossible to sell it to their members after a while. In World War II, Korea and in the Nixon program, labor eventually walked off tripartite boards that set pay standards.
Unlike standard monetary, spending and taxing approaches to stabilizing an economy, there is no coherent theory of how government should intervene and what impact certain kinds of intervention will have. Standard economic theory has shown itself to be lacking in its ability to explain much of economic behavior, and there are conflicting viewpoints among academics as to which policy is best in what situation, but at least there is a general intellectual synthesis as to what effect a change in government spending or a change in monetary policy will have.
Because administrations jump in and out of incomes policies, and because some incomes policies are loosely organized and others formally organized, there has been no ongoing agency to watch over them, cull policies that seem to work and examine those that don't.
And here, Jimmy Carter is little different than his predecessors. Last winter and spring, his advisers spent weeks developing option papers, loosing in and rejecting ideas apace until the president finally annouced a "deceleration" program in April. By July, the administration had decided it was not enough - even tough the success of the program on the price side could not be determined much before December and on the labor side not until the big round of collective bargaining that starts in January.
Now the economic policy makers are going through the effort again with a view towards "toughening" the program but still keeping it voluntary. And in the process, they are considering some innovations on the theme, but mostly are ploughing ground that has been furrowed by any number of administrations in the past.
If history is a guide, a Carter administration incomes policy - no matter how well-implemented - will join the same bonfire as the Kennedy-Johnson guidepost; the Nixon Phase I, II, III, and IV; and the Ford WIN program.