The Economy: From Freeze to Controlled Thaw

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AFTER a last-minute flood of economic directives ironically reminiscent of the New Deal, the nation finally enters Phase II of President Nixon's economic program this week. The new rules, which could govern American wages and prices at least until next Election Day, poured out of the President's Pay Board and Price Commission almost until the hour of Phase II's arrival at 12:01 a.m. on Sunday. Even so, having endured a sudden and all but total three-month freeze, the economy has moved into a new climate of controlled thaw.

Phase II's outlines did not lack for critics or doubters. Labor leaders were angered by a Pay Board ruling that will prevent 1,600,000 of their members from collecting retroactively most raises that would have come due during the freeze. On prices, businessmen expressed some displeasure over the big surprise in the rules: a guideline* on profits (see story on page 30), which were not subject to anything resembling control even during the freeze. But no one has yet proposed outright defiance. By insulating himself through commissions, boards and councils from the rough and tumble of the actual decisions, Richard Nixon clearly succeeded in making Phase II much more of a team project than the freeze had been.

Unions, to be sure, are reluctant members of the team. Their five representatives on the Pay Board were outvoted on the wage package by the ten business and public members. Still, the board's final decision was a much more equitable compromise than A.F.L.-C.I.O. President George Meany would admit. It set the overall wage guideline at 5.5% annually (see following story), halfway between the original proposals of labor and management. Further, the board decided to permit nearly all wage increases already written into contracts, including some that exceed the 5.5% guideline. The only dispute that the labor members lost outright was their demand that all freeze-delayed increases be paid retroactively.

In effect, the public and business members of the Pay Board decided to call labor's bluff that it would work against the program unless all union demands were met and see what would happen. At least for the moment, all that happened was angry noise from Meany & Co. The labor members did not walk off the Pay Board, as they had made many implied threats to do. Union leaders correctly feel that they are in a political trap: a walkout, or strikes against Pay Board decisions, might set them up as the villains if Phase II fails to bring inflation under control.