PEOPLE NO LONGER know whether to take President Carter's wage and price guidelines seriously, Sen. Kennedy said the other day. He offered it as an example of confusion in current economic policy and, he added, there was a time when things were different: "I don't think there was any confusion about voluntary guidelines in the early '60s, or the middle part of the '60s."
In fact, John F. Kennedy, as president, never embraced the guidelines principle tightly, nor did he set firm numerical targets. In early 1962 his administration was trying to create a climate of restraint for the steel workers' wage negotiations, and it put forward the idea of a guideline reflecting productivity gains. Perhaps it's the next part of the story that Sen. Kennedy, like most other people today, has most clearly in mind.
After direct intervention by the president, the steel workers settled within this not very specific guideline -- and then U.S. Steel Corporation helped itself to a fat price increase. President Kennedy, who felt personally betrayed, turned on U.S. Steel in a rage and ultimately forced a price rollback. But it was an expensive victory, bringing the president into a kind of conflict with business that he did not welcome. A year later, when steel prices started upward again, the reaction from the White House was minimal and there was little further talk of guidelines. President Johnson revived them, and his economists adopted a precise percentage for permissible wage increases. But the economy was approaching full capacity and, under the strain of the Vietnam War, the guidelines collapsed altogether in 1966.
The early and middle 1960s were a time of tremendous growth in American prosperity, and perhaps a dramatic style of presidential leadership contributed to it. But there were other and deeper reasons. The Eisenhower administration had run the economy with excessive caution, and when John F. Kennedy took office, unemployment was high and production far below capacity. That set the conditions for those years of brilliant performance -- high growth, steeply rising productivity and steadily declining unemployment -- all with an inflation rate that ran just over 1 percent a year. Those were years in which it began to seem that skillful economic policy could bring the country, and the world, rapid and continuous increases of wealth. Those were great times. It's only in retrospect that you can see how special the circumstances were, and how quickly they could fade.
As for guidelines, future presidents will doubtless continue to struggle with them or with similar incomes policies. But regardless of presidential style, they won't be very successful. Too many people will remember what happened last time, and the time before, back to 1962. It seems to be a reliable rule of economic policy that as a tactic becomes more familiar, it becomes less effective. The next president -- whether he's a new one or an old one -- will be capable of many things. But he won't be able to take the country back to 1961.