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As a first step toward reversing that trend, Congress should legislate extra tax credits for companies that have superior productivity records. The tax credit now granted on the purchase of new equipment, says Michael Evans, president of Chase Econometric Associates, a subsidiary of Chase Manhattan Corp., "is too broad-based. It gives the same 7% for everything from office furniture to industrial machines. It could be more stratified; it could give more emphasis to productivity." The President, by jawboning through the Department of Labor and Federal Mediation and Conciliation Service, should also press for more labor-management agreements that phase out featherbedding and other make-work practices.
Finally, the Administration should ask Congress to wipe off the books a complex of outdated laws and practices that keep prices high for the benefit of special constituencies. Every economist has a long list of these that has turned yellow with age. Among them: the Davis-Bacon Act, which guarantees that construction workers on federal projects receive the often inflationary prevailing wage in the area where they work. The Jones Act prevents shippers from using low-cost foreign vessels to haul their goods from one U.S. port to another, and the "Buy American" Act forbids the Government to buy from foreign suppliers unless their bids are at least 6% below those of U.S. companies. Quotas still hold down imports of foreign textiles, steel and butter. Misnamed Fair Trade laws in 15 states, authorized by a federal enabling act, prevent retailers from cutting prices on many brand-named goods. The key to getting rid of these outrageous anomalies is to attack them all at once by putting together something like an "Omnibus Inflation Control Bill of 1974" that could win broad public support. Trying to repeal them one by one is no use; the only people who would be excited would be the lobbyists for the special interests involved.
Even if the Government does everything it can to contain inflation within the U.S., though, there will still be that danger of imported inflation from abroad. American prices for many key raw materials —oil, wheat, lead, sugar—are heavily influenced, if not dictated, by the world supply-demand balance. All have zoomed in the past year or so because of global shortages, real or engineered. Restraining demand in the U.S. may not be enough to keep prices down—especially if other industrialized countries stimulate their economies to make up for a loss of export sales to the U.S. and commodity-producing nations form more price-raising cartels modeled after the Organization of Petroleum Exporting Countries.
To counter that threat, the U.S. must take the lead in organizing international cooperation against inflation. As a start, it should try to win at least an informal agreement among the leading financial powers to synchronize their monetary and fiscal policies.
The goal should be world restraint to combat world inflation. Further, the U.S. should attempt to reduce the frenzy of international bidding for scarce commodities by forming a world organization that would improve forecasting of global supply and demand. And the State Department should push harder to form an organization of petroleum-importing countries that could bargain with Arab leaders for lower prices.