DEFENSE PRODUCTION ACT AMENDMENTS

TUESDAY, MAY 6, 1952

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met at 10 a. m., Hon. Brent Spence, chairman of the committee, presiding.

Present: Chairman Spence, Messrs. Brown, Patman, Rains, Multer, O'Brien, Dollinger, Bolling, Fugate, Wolcott, Gamble, Talle, Kilburn, Cole, Nicholson, and Betts.

The CHAIRMAN. The committee will be in order.

We will resume the hearings on the Defense Production Act.

Our first witness this morning is Mr. James B. Carey, secretarytreasurer of the CIO. We are always glad to have your views, Mr. Carey. You may proceed.

STATEMENT OF JAMES B. CAREY, SECRETARY-TREASURER, CONGRESS OF INDUSTRIAL ORGANIZATIONS

Mr. CAREY. Mr. Chairman and members of the committee, I am James B. Carey, the national secretary-treasurer of the Congress of Industrial Organizations. My office address is 718 Jackson Place NW., Washington 6, D. C.

Mr. Chairman, I have a statement which I would like to read, setting forth the position of the CIO on this question.

The CHAIRMAN. You may proceed.

Mr. CAREY. Mr. Chairman and gentlemen, it would be a dangerous mistake to eliminate economic controls at this time The country cannot afford economic disarmament in a period when danger to our economic stability lurks in the background. Legislative authority for an over-all stabilization program is essential during the defense build-up period. A strengthened Defense Production Act is requiredrather than a weaker ed one.

The post-Korean inflationary price level has become frozen into the economy. Prices have remained high, despite the lull in the past year. In recent months they have moved sideways. Declines of some prices have been largely offset by rises in other prices.

There are some signs of price weakening in the economy, as well as dangers of economic instability on the road ahead.

We have a long way to go before completion of the planned military build-up. Defense expenditures and military production are scheduled to rise into next year-although at a slower pace than anticipated earlier. Peak levels of defense production are still ahead of us.

According to current defense schedules, economic strains will undoubtedly be less than expected when peak defense production

levels were scheduled for mid-1952. But the strains have not been completely eliminated by the stretch-out of the military build-up. Defense expenditures will be relatively high-military requirements will continue to have first call on many commodities.

The threat of Communist aggression continues. Almost every day the newspapers report rumblings in Indochina and elsewhere.

A new outbreak of Communist aggression can have a seriously unstabilizing effect on our economy at home. A violent eruption in the Far East or Middle East may set off a new wave of inflationary pressures. Sharp rises in the prices of a few goods may start a buying spree, accompanied by price gouging throughout the economy.

We should not forget the effect of the Korean war on the home front. It took more than 2 months before an economic stabilization law was passed and several more months to establish price-control machinery.

In the first month after the Communist invasion of South Korea, raw material prices jumped more than 8 percent. Those raw material price boosts were passed through the price pipeline, building up pressures on wholesale and retail prices.

Nor should we forget the effect on the economy of the Chinese intervention in Korea-when wholesale prices rose 7 percent in the 3 months from November 1950 to February 1951 and when the Consumers' Price Index increased more than 4 percent in that same period. In those 3 months-while we were awaiting the establishment of a control mechanism-prices skyrocketed under the pressure of speculation, profiteering, and a buying spree.

When price controls were finally established-7 months after the Korean war started-there were few roll-backs of any consequence. We are still suffering from the effects of those post-Korean price rises. We do not want to be caught in the future in the same position of rising prices and no control legislation. As long as there is a possibility of future price rises, we should maintain control authority. If controls are permitted to lapse and if prices rise, we will have a repetition of what happened during the 7 months after Korea. While we wait for Congress to pass control legislation for a new control machinery to be established, a new plateau of higher prices will be established. This must not happen. It is with this in mind, that we urge the Congress to continue controls.

We should not permit the price lull of the past year to delude us into believing that economic stability is assured in the period ahead. It makes no sense to eliminate the fire department after the first blaze is put out.

The national economy today is characterized by an uneasy balance that has grown out of post-Korean inflation. The high price structure-inherited from the period when we were awaiting passage of a stabilization law and establishment of price-control machinery-is still with us. The buying power of a large group of families has been reduced by inflation and increased taxes. Many families have been priced out of the markets for consumer goods.

In recent months, consumer spending has not been sufficient to maintain full production and full employment in several major soft goods industries, such as textile and clothing. There are also large inventories of many types of consumer durables-refrigerators and other electrical applicances. The persistence of this condition in

the period ahead, or its aggravation, can cause a general economic downturn.

The appearance of new inflationary pressures may push current high prices even higher. Further inflation can weaken the already inadequate buying power of consumers. It can undermine the basis of our economic strength-which is a pillar of the free world.

Adequate authority for effective anti-inflation controls is needed for the protection of the living standards of the people and for the stability of the national economy. The Government must have sufficient authority and machinery in the months ahead to stem the tide of possible new price pressures.

PRICE DECONTROL

There is a lot of talk now about price decontrol, although the need for an effective stabilization program continues. Decontrol talk at this time is irresponsible. Legislative decontrol now could possibly do irreparable harm to consumers and the national economy in the coming months.

Decontrol at present may be followed by inflationary pressures. A new wave of price rises would cut further into the living standards of most families. Only profiteers would benefit from the reappearance of daily price boosts such as occurred after Korea.

Why the clamor for price decontrol?

The pressure for legislative control comes from two business groups interested in the same thing-higher prices. It certainly could not come from a group wanting lower prices because nothing in existing ceilings prevents price reductions. First is the group whose ability to gouge the public is then restrained by OPS ceilings. They want decontrol so they can raise their prices without violating the law.

Second, there is the group composed of those whose selling prices are somewhat below OPS ceilings. Let us withdraw controls, they say, at least from those goods whose prices are soft. They too seek higher prices and the elimination of OPS ceilings that can act as possible restraints.

Soft market prices, however, are largely fictional. There is an attempt under way to hoodwink the American people into believing that the high prices they pay are really low. This propaganda is an insult to consumers.

The public finds mighty few soft prices when they do their shopping. Most prices both wholesale and retail-are at OPS ceilings or close to them. Only a small number of market prices are significantly below post-Korean peaks. And most of those prices are soft only when compared to extremely high OPS ceilings and inflationary price levels.

A Bureau of Labor Statistics' break-down of the items included in Consumers' Price Index reveals that in March 1952, 75 retail items, or 50 percent of the index, were at their 1951-52 peaks; 180 items, over 90 percent of the index, were at their peaks or less than 10 percent below. Of the 23 items, less than 10 percent of the index, that were 10 percent or more below peak levels, 16 were foods which are subject to seasonal fluctuations (see appendix I).

The Consumers' Price Index for March shows that several major parts of the index-cereals and bakery products; rent, fuel, and

electricity; and the miscellaneous group that includes transportation, medical care, and household operation-have continued upward. Cereals and bakery products in March, for example, were 12.6 percent above June 1950. But let's look at the so-called soft retail prices.

Dairy products declined slightly in March, but they were 21.3 percent above Korea. Meat, fish, and poultry prices reached a peak last October when they were 12.2 percent above June 1950-they declined since then, but in March they were 8.6 percent above Korea. Apparel prices have moved down slightly in recent months-in March they were still 10.2 percent above June 1950 (see appendix II).

Despite much publicized declines, retail prices of almost all the goods we buy are substantially above pre-Korean levels. And the prices of seasonal goods may be expected to resume their rise in the coming months.

There has also been a good deal of talk about soft prices for such consumer goods as clothing and shoes. Wholesale prices of textiles and clothing have moved down from extremely high post-Korean peaks leaving them, however, still considerably above Korea. And retail prices have held up, despite slight declines.

Wholesale cotton textile prices moved up to a February 1951 peak when they were 38.4 percent above June 1950-last December they were still 16.6 percent above Korea. Wholesale clothing prices were 14.7 percent above Korea at their August 1951 peak-they too declined, but in December, they were still 11.5 percent above June 1950. Since December there have been additional slight declines, although their price levels are still significantly higher than in June 1950.

If we follow through to the retail level, we find similar resultsvery high peaks, slight declines and high prices. Retail apparel prices in March were not too far below post-Korean peak levels (see appendixes II and III).

There is an area where wholesale prices are considerably below June 1950, but those declines have not meant much to consumers who buy goods at retail stores. Wholesale prices of hides and skins zoomed up 57.4 percent from June 1950 to their January 1951 peak; declines brought those prices in December to 16.1 percent below Korea. Wholesale leather prices in December were 2.8 percent below June 1950. But the wholesale price of shoes was 12.9 percent above Korea. Despite slight declines, the retail price of footwear in December was 15.7 percent above June 1950. More recent information on retail shoe prices is not yet available, but it is not likely that any significant declines have occurred in the past few months.

Consumers have yet to see the soft prices that big business pressure groups talk about. The facts clearly indicate that talk of widespread price softness is simply a hoax.

Declines from sky-high peak levels that leave prices some 10 to 20 percent above Korea are not soft to my way of thinking. Nor are market prices that are somewhat below unconscionably high OPS ceilings.

OPS ceilings are high because of the loopholes and booby traps in the Defense Production Act. And they are high because OPS itself has failed to bring them down.

Over 51 percent of the Consumers' Price Index is exempt from control or subject merely to inadequate control. Items accounting

for 20 percent of the Consumers' Price Index are exempt from OPS control under the terms of the Defense Production Act. Over 6 percent of that index are exempt from control by OPS administrative action. And almost 17 percent of the index is subject to ineffective control due to provisions of the law. In the area under OPS control, that agency has not always acted with courage and speed in the establishment of realistic dollar-and-cent tailored price regulations. Slight price declines for some consumer goods reflect a subsiding of inflationary pressures. They indicate reduced consumer spending, under the impact of inflation and high taxes which has cut the buying power of many families.

Markets that permit ceiling prices to move down somewhat below high OPS ceilings should be no argument for legislative decontrol at this time. Instead, they should indicate the need for careful scrutiny and the rapid establishment by OPS of more realistic, tailored price regulations.

Complete decontrol-as advocated by the National Association of Manufacturers and the United States Chamber of Commercewould mean leaving the economy defenseless before the possible onslaught of inflationary pressures. This policy represents a complete lack of concern for the needs of consumers. It represents an utter disregard for our national responsibilities as a leader of the free world. Great stress has been placed upon proposals for partial legislative decontrol-the selective decontrol of goods whose prices are below OPS ceilings. This piecemeal approach is perhaps more subtle, but it means the same thing the premature end of the stabilization effort. Selective elimination of controls will not aid the industries now suffering from a low volume of sales. The end of controls will not boost sales in those industries. But decontrol will permit business to raise prices whenever it desires. And it will mean the dismantling of at least large parts of the OPS machinery.

Selective decontrol of the prices of certain commodities would be inequitable without the decontrol of the wages of workers who produce them. The wage-price tie-in of the act made it practically unfeasible to place selective controls on key commodities whose prices were rising sharply after Korea. In considering price decontrol, it would be inequitable policy to permit the partial elimination of price controls without ending wage controls in decontrolled industries. However, the direct wage-price tie-in on the down side is as unfeasible as it is on the up side. We, therefore, feel that partial price decontrol is not practical or feasible. We must either have complete decontrol of both wages and prices or the wage-price stabilization program must

be maintained.

To maintain wage stabilization-with prices freed from any control-would be completely one-sided and discriminatory. Price decontrol would permit business to determine prices on the basis of economic forces, without government intervention. If that is done, then wages, too, should be determined by the free-play of economic forces.

There is a real danger of a contagion of legislative decontrol. Selective decontrol of the prices of several commodities will probably spread throughout the economy. Legislative decontrol of a few selected prices will open the entire control set-up to strong attack. Industry groups-whose prices are still under control-will un