The New Game Plan in Perspective

Abstract

The wage-price freeze announced abruptly by the President on August 15, and the network of direct federal controls collectively entitled Phase II that went into effect after the freeze expired in midNovember represented a major philosophical shift for the Nixon Administration. The Administration had previously reaffirmed adherence to a game plan based on conventional economic policy tools, and had indicated distaste for the interference with free market processes and the massive bureaucratic effort inherent in a system of direct controls. This rapid reversal of policy was occasioned by continued high unemployment and persistent rapid price inflation, against the background of the approaching 1972 Presidential election. Unemployment was hovering near the, six per cent level. Evidence of slowdown in price inflation was at best inconclusive. It seemed that inflation had started to feed on itself, particularly in the wage sector, where the catch-up concept had taken hold in the pattern of wage settlements. Both retail sales statistics and surveys of consumer behavior indicated that buyers were remaining cautious in the face of this disquieting inflation spiral. The timing of the freeze announcement was influenced strongly by a mounting international currency crisis. The measure dealing most directly with the crises was the 10 per cent surcharge on imports, but the domestic freeze package was reportedly considered necessary to make it clear that the U. S. was moving decisively to curb inflation and improve its international competitive position.