The Hardy Steel Myth

Contrary to many expectations, the 6% price increases that all major steelmakers posted on about 40% of their shipments in early December seem to be sticking, despite heavy political flak. Mill executives say that the real test of whether the boosts will last in the market will not come until January. But the increases have survived criticism by President Ford's Council on Wage and Price Stability and publicly voiced "concern" by President-elect Jimmy Carter.

The flap illustrates a hardy truism: steel-price increases arouse more political excitement than increases in the price of almost anything else. True, the decibel level of the uproar this time hardly matched the furor of 1952, when settlement of a bitter steel strike turned largely on how big a price increase mills would be granted under Korean War price controls, or 1962, when President Kennedy marshaled all the power of the White House to force a steel-price rollback. Still, steel men note caustically, aluminum makers in November announced price increases of as much as 11 % on some products without drawing any special political comment. Even more striking, Du Pont raised the price of Dacron staple fiber up to 10%; yet Du Pont Chairman Irving Shapiro was welcomed to a long conference between Carter, his economic aides and some businessmen at which the participants discussed, among other things, what to do about steel prices.

Is this special focus on steel justified? Since the Truman and Kennedy presidencies, steel's importance to the economy and its impact on the overall price structure have been shrinking. The metal has lost a large share of its markets to other materials--aluminum in beer cans and some auto bumpers, and plastics for many refrigerator parts, for example. Between 1950 and 1975, total industrial production rose 260%, steel output only 120% (see chart). Services have grown vastly in importance in the modern economy; an increase in auto-insurance rates can push up the cost of owning a car much more than the price of the steel going into that car.

Today, the Bureau of Labor Statistics estimates, a 6% increase in steel-mill products drives up the Wholesale Price Index in the following month by only one-tenth of a percentage point. Otto Eckstein, a member of TIME's Board of Economists, believes increases in the wages of public employees, energy prices, "maybe even the Russian wheat sale" are more inflationary than steel boosts.

Symbolically, however, the importance of steel prices has, if anything, been swollen by decades of publicity. Steel still goes into an extraordinarily broad variety of products; makers of goods ranging from autos to toasters may seize on steel boosts, justifiably or not, as an excuse to raise their own prices. And makers of many other basic materials tend to watch how politicians react to steel increases as a clue to what price hikes they themselves may get away with.

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