Show THE VOICE VOLE OF Or BUSINESS How We Got to Phase 48 By BV Arch Arth Booth executive vice pre president preil l- l d dent nt of the Chamber of Commerce of the he United States Stale Dear Grandchildren You have asked me to explain how we got to Phase 48 of our temporary economic controls program 1 I will try Phase 48 as you oU may remember resulted re reo stilted from the failure of Phase 47 Phase 47 was of 01 course a response to the widely acknowledged faults of Phase 46 IT ALL started with the first wag wage wage- price freeze in the summer of 1971 This freeze was supposed to halt the inflation inflation tion that resulted from Irom President Johnsons Johnson's Johnsons Johnsons Johnson's John sons son's efforts to pay for lor both the war warm warIn In Vietnam and the Great Society welfare programs without a tax increase Like you and me governments can pay their debts by asking for a tax increase which is like a pay raise Unlike you and me governments can also pay their debts by printing more money When a government prints money money mon mono ey faster than a country's businesses are able to make things to spend it on prices go up because there is more money to buy things with but not more things to buy This is what caused the trouble in 1971 FREEZES CAUSE economic problems in in inthe the long run because businessmen cannot tell what people want most when all alt prices are arc regulated by law rather than by what people are willing to spend Since the important men in the gov goy government are smart enough to know U this s. s they announced that the freeze would only be temporary 1 Phase II And so it was The first freeze was replaced by a more flexible series of controls called Phase II Under Phase II prices and wages could increase if the government approved THE FREEZE and Phase II looked good at first because the economy was slowing down anyway when they were applied Prices and wages usually dont don't rise in a slow economy But many people peo pie do not understand that so they gave Phase II the credit for the moderation of price increases However trouble was building up under under un un- der the calm exterior of Phase I. I Some important commodities began to run short because businessmen could not make make any any money by supplying them under under un un- un der the Phase II price limits Many big labor unions were allowed wage increases increases in creases much larger than Phase II was was supposed to permit because the government government govern ment was afraid of 01 them SO TO make a virtue of 01 necessity the government officially cI a II ended Phase 11 II about the time It would have come apart at the seams anyway Phase II 11 was replaced by Phase tit III which was very loose All of ot the pressure that had been building up under Phase It If came out into the open in Phase III Prices went up fast Some bad luck added to that Bad Dad weather in our Midwest farm belt and anda a worldwide shortage of food lood raised food prices rices much faster laster than usual The governments government's banker the Federal Reserve Reserve Re Re- serve System increased the money supply supply sup sup- ply too fast last In 1972 Devaluation of the dollar made American goods more attractive attractive at at- to foreigners which added to shortages on the American market A whole complex series of events caused a shortage of the fuels from which we get most of ot our electricity and gasoline Phase IV Prices climbed fastest for tor those things th that were in shortest supply This stimulates stimulates increased production which is healthy But Dut high prices are arc unpopular for very understandable reasons Politicians clans began to claim that the government govern ment could prevent high prices just by bypassing bypassing bypassing passing a law against them Many people wanted to believe that because passing a law is much easier than increasing supplies which is the only real cure for high prices WHEN ENOUGH people believed that passing a law was was' the answer to our problems President Nixon was forced to act So the President proclaimed the second freeze and then Phase IV which was wasa a lot like Phase II IL Ph Phase se IV didn't work of course Phase V was initiated to make up for its de feets PHASE V didn't work either And that brought along Phase VI Anyway that's now how we eventually got gotto gotto gotto to Phase 48 People just refused to believe be lieve s some some me problems have no easy solutions So they began to hope that the answer the next law the next new new economic plan the next phase And there were plenty of politicians r ready ady to tell them they were right There still are That's why its it's so important im for you to stud study hard to learn how our economy really works With greatest affection your loving grandfather |