Sen. Edward Kennedy's proposal yesterday for a "six-month freeze on inflation" followed by mandatory controls on prices, wages, profits, dividends, interest rates and rents drew scant support from most economists.
Generally, they pointed to the immense difficulties of administering a controls program, such programs' lack of effectiveness in the past, and the distortions controls force upon the economy as reasons for their opposition.
The Carter administration has in the past cited all three reasons for opposing controls.
Controls are an anathema to conservative economists who believe they can, at most, delay price increases at the costs of a higher inflation later. Meanwhile, controls reduce the economy's flexibility, making it more inflation-prone, they argue.
But even among more liberal economists, only a handful, including former Harvard professor Kenneth Galbraith and James Tobin of Yale, think mandatory wage-price controls can work -- at least under present circumstances. m
Walter Heller, chairman of President Kennedy's Council of Economic Advisers and one source of Edward Kennedy's economic advice over the years, said flatly, "I'm still against mandatory controls."
Arthur Okun of the Brookings Institution, another former CEA chairman whose advice has been sought by Kennedy -- as well as by the Carter administration -- echoed Heller."I am not in favor of mandatory controls," he declared.
Kennedy in his speech at Georgetown University said President Carter's voluntary wage and price standards "have run their course and failed. Inflation is out of control."
Only recourse, he continued, is "an immediate six-month freeze on inflation -- followed by mandatory controls, as long as necessary, across the board -- not only on prices and wages, but also on profits, dividends, interest rates and rent.
"The only way to stop inflation is to stop it in its tracks," Kennedy said.
"Only then can we break the psychology of inflation that runs through every aspect of our economy and erodes our power in the world."
In the past, however, even wage-price freezes have not, in fact, meant no prices could rise. In 1971, when President Nixon imposed a 90-day freeze, the prices of "unprocessed" products were free to fluctuate, and to help the U.S. trade balance, Nixon added a 10 percent fee to the cost of imports. That fee and any other change in the cost of imported products was expected to be passed along to consumers.
Even with a freeze, for instance, any increases in world oil prices would have to be passed on to consumers, or else the oil would not be imported, economists said.
The rule on processed versus unprocessed products meant the price of unpopped popcorn was free of control but once it was popped it was controlled, noted one economist yesterday.
Kennedy contemplates a freeze that would not apply to raw agricultural commodities or imports. The question of exactly how wages would be handled is less clear.
In the Nixon freeze, virtually no wage increases were permitted. But once the freeze was over, the Pay Board -- with a boost from Congress -- allowed retroactive payment of almost all the wages that had been frozen.
Moreover, the Pay Board allowed the vast majority of all deferred wage increases called for in contracts signed before the freeze to take effect. This was a point on which organized labor was very insistent.
Kennedy, however, believes controls would work better than they did in the Nixon years because people generally could be convinced of their fairness and because there would be no effort, as there was in 1972, to pump up the economy in an excessive way.
Many of the economists were skeptical that controls could be made to work, no matter who was operating them.