STEMMING NFLATION The Office of Emergency Preparedness and the 90-Day Freeze Harry B. Yoshpe John F. Allums Joseph E. Russell Barbara A. Atkin EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF EMERGENCY PREPAREDNESS WASHINGTON, D.C. 1972 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price $2.25 (paper cover) Stock Number 4102-00008 iv Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis THE WHITE HOUSE WAS HINGTON On August 15, 1971, I announced a series of measures designed to stabilize the economy at home and to help our country maintain its rightful economic position in the world. Among these measures was the first peacetime wage- price freeze in our history. In prescribing the 90-day freeze, I set down several guiding principles: we would move toward a greater sta- bility of wages and prices, but we would do this without fastening on the Nation a permanent straitjacket of con- trols and without creating a huge bureaucracy. These principles prompted the establishment of the interagency Cost of Living Council under the chairmanship of the Secretary of the Treasury, the designation of the Office of Emergency Preparedness as the central instrument to administer the freeze, and the reliance upon the coordi- nated teamwork of the other Federal departments and agencies. Under the leadership of Director George A. Lincoln, the Office of Emergency Preparedness succeeded in holding the line while we worked out the longer term measures needed to maintain wage-price moderation and improve our position in the changing world economy. All Americans can take pride in this accomplishment, for it was their splendid cooperation and support that, in the final analysis, made it possible for the program to succeed. As we take the road back toward wage-price stability and the operation of free market forces, it is important that we provide, for the benefit of future generations, a full record of this experience. I am pleased that a comprehensive history of the management of the wage-price freeze has been prepared. And I hope that this book will promote a more general appreciation and a deeper under- standing of the problems encountered and the lessons learned in this undertaking. August 1972 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Foreword On Sunday night, August 15, 1971, President Nixon announced a "New Economic Policy"—a comprehensive program of interlock- ing measures designed to bring inflation under control, stimulate the economy, and correct the acute disequilibrium that had de- veloped in the Nation's international economic position. Included in this program was a provision for a 90-day wage-price freeze as a necessary first step to curb the persistent inflation and to buy time during which a longer-term and more flexible policy for reasonable wage and price behavior would be worked out. Here was a new initiative, unprecedented in America's peace- time experience. To be sure, authorizing legislation had been en- acted a year earlier, and even before then there was strong public sentiment for curbing inflation. Yet, few people in the Summer of 1971 expected the President to take the course of direct govern- ment intervention in private wage-price decisions. By his action President Nixon took the question of direct stabilization controls in a nonwar setting out of the realm of political .and academic debate and made it a new chapter in American economic history. It is a chapter replete with unique experience in organization, management, policy, and operations; we should not ignore it in setting public economic policy in the future. In my capacity as Director of the President's Office of Emergency Preparedness, I was privileged to have been charged with the administration of the wage-price freeze. Early in the freeze I directed the compilation of a comprehensive historical record of the experience, so that we may determine what has been good and bad, useful and harmful, and so that we may have, for our future guidance, a better appreci- ation of the causes and conditions for both our successes and short- comings. Such a record should be of considerable interest—to public officials charged with planning and administering government pro- grams; to scholars interested in the Government's efforts to fashion and implement public policy; and to the general public concerned with the performance of its Government, particularly in fields like economic stabilization which so intimately affect their daily lives. vii Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Publication of this historical record, it is hoped, will help to meet these needs by providing a deeper appreciation and understanding of OEP's role in the wage-price freeze. G. A. LINCOLN Director Office of Emergency Preparedness Executive Office of the President Washington, D.C. August 15, 1972. VIII Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Preface A few days after the President's announcement of the wage-price freeze, Mr. George A. Lincoln, Director of the Office of Emergency Preparedness, asked me to take the lead in planning and develop- ing a comprehensive historical account of the Agency's experience in managing this program. Such an account, he felt, would serve the public interest, and the most favorable time to prepare it was while the experience was fresh in the minds of the participants and the records were most readily available. The project was carried out by a small team of professional historians. Besides directing and coordinating the undertaking, I wrote Chapters I, VIII, and IX. John F. Allums collaborated with me in the overall planning of the task and contributed Chapters II and III. Joseph E. Russell wrote Chapters IV, V, and VI and lent strong editorial support to the entire work. Barbara A. Atkin wrote Chapter VII, prepared the Chronology, and assisted Mr. Russell with the heavy burdens of editing the final manuscript and preparing it for the printer. All worked together as a team, sharing sources of information and commenting on one another's draft manuscripts. While each assumes responsibility for his or her chapters, the total history represents contributions of ideas and labor from the entire group. Of special significance was the cooperation and encouragement we received from the Director and the entire staff at every stage in the preparation of this history. Being on the scene almost from the outset of the freeze and set up strategically with a Special Staff relationship to the Director, the historians had ready access to all official files. They were in an extraordinarily good position to collect, screen, and organize important materials relating to the freeze while it was still in progress. They supplemented the written record with interviews with key personnel to clarify facts and round out their interpretation. The historians visited four Re- gional Offices and obtained comprehensive after-action reports from all 10 Regional Directors. The historians' indebtedness to the Director and the staff both at the headquarters and in the field is immeasurable; without this top-level interest and support, this volume could not have been produced in its present scope and depth or completed in the time ix Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis allotted for the purpose. The "Bibliographical Note" at the end of this volume names some of the people who reviewed our manu- scripts and offered many helpful suggestions for their improve- ment. It would not be feasible to list the many additional people who provided assistance. We do wish to single out, however, Jerome Brussell, who designed the cover and produced all the organization charts; Alice Bandy, who made available the basic documentation in the Director's files; Carol Wanner and Nan Dever, who provided us with library and congressional materials; and Theresa Moorleghen, Jeanne Criss, and Anne Lockhart, who steadfastly and patiently typed manuscripts and provided secre- tarial assistance. The authors sought to observe the standards of scholarship associated with the historical profession. They made every effort not merely to chronicle the events, but to analyze objectively the problems encountered, show how they were met, and explain the reasons underlying policy and administrative decisions. Whatever merit this book may have is due in no small measure to the co- operation and assistance we received from all who participated in administering the freeze. Needless to say, the authors assume full responsibility for the organization and presentation of the subject, for any opinions expressed or implied, and for any errors of detail or judgment. HARRY B. YOSHPE Historian Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Contents PRESIDENTIAL STATEMENT FOREWORD by George A. Lincoln, Director, Office of Emergency Preparedness vii PREFACE ix I. THE PRESIDENT'S ECONOMIC PROGRAM ... 1 Historical Context 1 Problems Besetting the Nixon Administration .... 4 The Decision at Camp David 8 The New Economic Policy 11 The Wage-Price Freeze 12 Legislative Base 14 The Freeze Order 17 Apparatus for Administering the Freeze 19 The Cost of Living Council 19 OEP: The "Operating Agency" for CLC 21 II. ORGANIZATION: STRUCTURE, STAFFING, SUPPORT 26 Underlying Concepts 26 Nature of the Task 26 Environment of the Freeze 26 Resources Available for the Task 28 Lincoln's Concept of Crisis Management 28 National Office Organization 29 Field Organization 36 Building an Operational Staff 42 General Policy on Staffing 42 The Staff Expands 44 Integrating the Newcomers 45 Staffing Problems 47 Evaluation of Staffing Policy 49 Administrative, Logistical, and Technical Support 50 Administrative and Logistical Support 50 Technical Support 52 III.