First Outlines Of Phase II

The American people don't want to have a freeze followed by a thaw where you get stuck in the mud, and we are not going to have that kind of thing. [Phase II] will have teeth in it. You cannot have jawboning that is effective without teeth.

--Richard Nixon

LESS than a month before his self-imposed deadline for announcing the nation's post-freeze economic rules, President Nixon last week publicly discussed his "tentative conclusions" about Phase II for the first time. They left unanswered many questions about the JEAN GUYAUX sharpness of those teeth, or indeed just who will have the power to use them. But the President provided the clearest picture yet of what one aide called the "Nixon Doctrine in Economics."

In his first press conference since he announced the freeze, Nixon promised that the rules of Phase II "will restrain wages and prices in major industries." His remarks left little doubt that the Administration will retain legal authority to force such industries to roll back wage and price increases that it considers inflationary, rather than relying on strictly voluntary compliance. It will probably do so by asking Congress for a one-year extension of the Economic Stabilization Act, which empowered Nixon to declare the freeze; that act expires next April 30. A similar program of firm control was also suggested earlier in the week by Secretary of Commerce Maurice Stans, who went on to predict that wage increases will have to be based on a "productivity formula," presumably one that would tie the amount of pay hikes to specific increases in output per man-hour.

At his press conference, the President said that Stans' productivity formula reflected "a strongly felt view primarily in the business community," and not necessarily his own. Even so, a number of influential officials, including Federal Reserve Board Chairman Arthur Burns, have urged the creation of productivity councils that presumably could influence the level of wage increases.

Confrontation with Labor. Stans, who spoke before a group of clothing manufacturers, also said that neither wage nor price increases scheduled under contracts during the freeze period could be made retroactive after it ends on Nov. 13. He ruled out any controls on profits or dividends. Earlier in the week, 23 Democratic Governors had called for restraints on both, "commensurate" with Phase II wage guidelines; the same demand has been voiced by A.F.L.-C.I.O. President George Meany. Said Stans: "Sooner or later we will have to have a confrontation with labor on this."

That is only one of the disputes involving labor that continues to brew. Another major issue involves the composition of any board appointed to regulate Phase II. Meany and other labor chiefs strongly support a tripartite group of business, labor and "public" representatives who have no strong ties to the White House. Many businessmen who have spoken to the President, probably assuming that their interests could most safely be trusted to an Administration they consider friendly, urged him to stay directly involved in the management of Phase II.

Latest Indicators. After a meeting with a group of Governors and local officeholders, Nixon was quoted by West Virginia Governor Arch Moore as agreeing that Phase II controls should last for an indeterminate time. At the prompting of Press Secretary Ronald Ziegler, Moore added that the President had no plans for permanent measures either. Whatever their announced duration, the controls cannot help becoming a tempting political target almost immediately.

Nixon predicted that the economy's performance during the fourth quarter this year, provided Congress acts favorably on his tax program, will show marked improvement. "Rather than being good, it will be considerably better than good," he said. His speculation was hardly based on the latest economic indicators. Last week the Federal Reserve Board reported that the nation's industrial output in August fell .8% to its lowest point this year --105.1% of the 1967 base. Much of the decline reflected a lag in steel orders caused by stockpiling during the industry's contract negotiations earlier this year. The production figure probably was not influenced by the President's Aug. 15 speech at all, but another key indicator--which should have been--may also be lagging. The Conference Board, a research group supported by major corporations, reported that consumer confidence has shown no dramatic improvement as a result of the Nixon program.

No Compromise. The President said that he would not battle congressional changes in his tax and spending proposals, unless they "completely blew the top off our budget." Just such a threat emerged last week from the House Post Office and Civil Service Committee, which voted to reject Nixon's proposed delay in pay raises for federal white collar employees scheduled for Jan. 1. Under federal law, a vote against the measure by either house would frustrate Nixon's hope of reducing the current fiscal budget by $1.3 billion. Because the delay in salary raises is politically unpopular, the job of ramming it through Congress, says House G.O.P. Leader Jerry Ford, "is going to be tough."

On the main economic front, there has been no compromise whatever. Last week the Cost of Living Council announced that it had received 1,439 requests for exemptions from the wage-price freeze. It added that it had not granted a single one.

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