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purchase and sales price for each item. Even though he has no records for the goods he sold last week, let alone a year or 2 years ago, he can easily compile these figures for the inventory he has on hand. And that is what he had to do under CPR 7 whenever it first became effective for any particular kind of merchandise.
The retail trade is highly satisfied with this kind of regulation. It works well. It is fair to the seller and to the consumer alike. But if the Congress now decided to change the law and to eliminate that one word "hereafter," then it might be found that CPR 7 was no longer legal because its margins are not based on the period from May 24 to June 24, 1950. It might be held that OPS now has to go to work and find out what the margins of that base period were. This would be an even more complex and much larger job than the one that we have under way for the grocery trade. It would cost many hundreds of thousands of dollars. It would take months of work for many Government employees. And it would impose a considerable burden on a great many retailers." We would have to do the same thing for drug stores, hardware stores, lumber yards, distributors of petroleum products, and many other retailers. It would be precisely the kind of needless and expensive red tape that gives the Government a bad name with business.
Now, it may be said that we need not go through any such operation if we only trusted the individual businessman. It has been suggested that all we need do is to have each distributor file an affidavit stating his pre-Korea margin and then catch the few who might try to cheat. That would require each distributor to determine his pre-Korea margin on each of thousands of items he sells, if he could do so. We tried that method in our retail distilled spirits and wine regulation, CPR 78, SR 2, and received so many complaints from retailers that requiring them to determine their individual margins was very burdensome that we are now changing that regulation. In addition, that view simply ignores the salient fact that most distributors don't have any record of their pre-Korea margins. To be sure, the large mail-order houses, the big chain and department stores have such records. But the multitude of smaller distributors just don't have them. The representative of the National Association of Retail Grocers who appeared before this committee told you that retail grocers don't have this information. And every retail expert will tell you that the same is true of the small stores in every line of retail trade.
It certainly would be the rankest sort of discrimination to give pre-Korea margins to the large retailers who can show what their pre-Korea margins were and to confine all other retailers to the same margins or to give them some other margins on an arbitrary base. But that is what we might be forced to do if the law were to be changed so as to make the percentage margins of the Herlong base period the only legal method of price control in the distributive trades.
In summary, therefore, I might say that whatever small number of inequities might now be found to exist can and will be corrected by OPS under the present law, whether you follow my earlier recommendation to eliminate the Herlong amendment, or leave it in the act with the word "hereafter.” But an elimination of that word might well lead to much more serious and widespread inequity, and it would certainly lead to a great deal of unnecessary and undesirable administrativé difficulty, waste of Government money, and needless bother for businessmen.
PROGRESS REPORT ON "SOFT MARKET" Policy The primary responsibility of the Office of Price Stabilization is to prevent the economic dislocations which would result from an upward spiraling of prices during a period of national emergency. This is the responsibility which Congress conferred on the OPS when it originally passed and later extended title IV of the Defense Production Act.
It is also the clear intention both of Congress and the agency to avoid restrictions and procedures which are not necessary to the accomplishment of this primary responsibility. The great productive achievements of the American economy, the success of both direct and indirect stabilization measures, and a normal reaction to a speculative boom, all have combined to reduce, at least for a time, the need for close price control in some areas of the economy. Consequently, the agency has found it possible to proceed with the orderly relaxation of its control program where that will not now interfere with the accomplishment of its primary task, nor weaken its ability to deal with renewed inflationary pressures.
STUDY OF THE PROBLEM
Ever since, in the latter half of 1951, normal market conditions first reappeared in certain parts of the economy, serious consideration has been given to the development of appropriate modifications of price control policies. Early in 1952 the responsibility for development of these modifications was formerly vested in an agency committee. This progress report summarizes the work of this committee on the study of relaxation of controls, and the conclusions of the agency up to this time.
Many outside the agency have urged that OPS embark upon a program of selective "decontrol.” Some have even proposed formulas for the automatic decontrol of commodities, or the suspension of controls when certain mechanical conditions are met. Although deceptively simple and superficially appealing, these formulas completely overlook the complex problems of price control administration.
We have studied in great detail a number of such proposals. As a result these studies we have adopted the following basic policies:
1. For the forseeable future, we are not prepared to take decontrol action in any consequential area. "Decontrol” connotes an outright and permanent casting off of control, which in the present situation would be dangerous. We will, of course, continue to decontrol commodities which are not significant from the point of view of the stabilization program under appropriate standards which were developed early in 1951.
2. Instead of decontrolling important commodities where markets are "soft," we will suspend regulations or lighten reporting or record-keeping requirements, using standards under which we can objectively determine that such action is appropriate.
Because of the variety and complexity of situations, we are firmly convinced that workable standards for suspension cannot be based on a mathematical or push-button formula. In fact, we feel that no single standard can properly cover all areas which will have to be considered for relaxation or suspension of controls. Therefore, we believe it preferable to commence with the development of preliminary and perhaps limited standards, and with “pilot" action under those standards, rather than to attempt at this time to formulate a comprehensive and permanent program for relaxation or suspension of controls. This also has the advantage of permitting an evaluation of our actions and our standards as we proceed.
3. We will not suspend controls where such action would result in levels of prices or margins higher than permitted under existing regulations. The agency's pricing standards are adequate to grant adjustment where needed and they should continue to be used for that purpose.
4. We will see to it that suspension is always terminated before previous ceiling levels are reached.
PRELIMINARY SUSPENSION STANDARDS
There must be objective standards for determining when price control in a given area should be suspended. The agency must be able to justify its action or inaction in each case in terms of such standards. The responsibility involved is heavy and decisions cannot be made simply on "hunch" or "feel.”
The preliminary suspension standards outlined below were designed to permit immediate examination of proposed suspension at the primary producer level where dollars-and-cents ceilings are in effect. These are the areas where soft markets can be most readily defined and techniques for suspension most readily developed. These preliminary standards will also provide the basis for such modification and refinement as may be necessary to deal with other levels and areas. Under these standards it may be more appropriate to ease reporting or record-keeping requirements for some trades and industries rather than to suspend regulations.
These are the preliminary standards:
1. Suspension action or other relaxation will not be approved unless the following standards are met. (a) Prices in an area are materially below ceilings.
(1) "Prices” include prices in contracts for future delivery.
(2) "Area” has reference to a range of related items. This range will be determined by the structure of the market and of OPS regulations. It will take account of the practicability (both from the standpoint of sellers and of OPS) of separation between suspended and nonsuspended items.
(3) Each level of production, processing or distribution will be considered separately.
(4) Not only must the average level of prices be "materially below" ceilings, but also the prices for the bulk of individual transactions must be below ceilings.
(5) "Materially below ceilings" will take into account such factors as the degree of volatility of prices, seasonal movements, and the extent to which ceilings are realistic in terms of stabilization policy (as would normally be the case with a “tailored” regulations, but not necessarily with general regulations
such as GCPR or CPR 22). (6) There is no prospect that reimposition of controls will be necessary in the foreseeable future.
(1) This finding, will depend upon full information concerning current supply and demand, productive capacity, inventories, crop conditions, where
applicable, volatility of prices and other relevant factors. 2. Before suspending ceilings or otherwise relaxing controls in any area, the following safeguards must be provided:
(a) An adequate price-watching system must be established to follow the movement of current and future prices and their relationship to ceilings.
(1) For highly volatile prices, this must be on a daily basis; for others, on a less frequent but periodic basis. The kind of price-watching system will depend largely upon the nature of the area and of the applicable OPS regulation.
(2) Under certain circumstances, a report may be required of any offers, contracts or deliveries above presuspension ceilings or within a specified range below. (6) There must be a determination of the conditions under which controls will be reimposed and of the appropriate recontrol mechanism.
(1) These conditions may involve average prices or particular prices, and due allowance for seasonal variations.
(2) In any event, these conditions must require the reimposition of controls before a significant volume of transactions has reached the suspended ceilings.
(3) These conditions must be published at the time of suspension. (c) There must be a provision that all records required previously will be preserved.
3. If suspension is terminated, the level of ceiling prices will not be higher than that prior to suspension, except as required by law, and contracts at prices higher than presuspension ceilings will be entered into at the risk of the contracting parties.
4. The Director may at any time reimpose controls if he determines that such action is necessary or appropriate to carry out the purposes of the Defense Production Act of 1950, as amended.
As noted above, these preliminary standards were primarily developed to permit evaluation of proposed suspensions at the primary producer level, where dollars-and-cents ceilings are in effect. These standards were then tested by their application to certain commodities. Early in March the committee selected the following areas for “pilot studies": hides, wool and related fibers, cotton, burlap, and tallow. In the course of this work the study of tallow was broadened to include other fats and oils.
For each of the commodity areas selected for pilot studies, the working staff of the Committee, in cooperation with the personnel of the commodity divisions, developed full and detailed reports covering past, current, and prospective production and productive capacity, inventories, demand, and the factors influencing demand, together with detailed statistics on market and ceiling prices, and much other related information. Many hundreds of man-hours went into these reports. These reports were then carefully considered by the whole committee, which often requested further facts.
On the basis of all of the information available to it, the committee determined that the following commodities met the standards, and recommended suspension action: Cattlehides
Crude soybean oil Kips
Crude corn oil Calfskins
Wool waste Animal waste materials
Wool tops Vegetable soapstock
Wool noils Crude cottonseed oil
Alpaca The full consideration of mohair led to the conclusion that suspension could not be recommended at this time.
The committee is continuing its study of raw cotton with a view to making a report and recommendation in the near future. It was held desirable to delay this report until the committee also had an opportunity to explore the suspension of textiles and apparel which are the next items on its agenda.
In each case, the committee's recommendations included specific conditions under which suspension would be terminated. These conditions involve both the movement of average price levels for the whole commodity area and movements of particular major grades or types. Recontrol of some commodities is made dependent upon recontrol of a related commodity. The difference between ceiling prices and recontrol points is not the same for each commodity group. The reasons for these variations include the volatility of prices, the availability of current price information, the extent to which prices of various grades move together, and other relevant factors.
In some cases, recontrol points were fixed rather close to current ceilings. In the case of fats and oils, for example, the difference between the recontrol prices and the suspended ceilings is less than two days trading limit on the commodity exchange. But for these commodities, prices are available on a daily, or even an hourly basis. Where information is less readily available, or where there is greater variety of price movements among the various types or grades of the commodity, recontrol points were set rather lower relative to ceilings. We must avoid a situation in which the ceiling level would be breached before recontrol could be instituted, requiring rollbacks, and the cutting across of contracts for future delivery.
It should be noted that all of the primary commodities covered by the first set of actions have a record of sharp price volatility. Recontrol points must therefore be set somewhat further below ceilings than, under otherwise similar circumstances, may be the case for commodities which are less volatile.
As has been indicated, the preliminary standards set forth above were developed primarily for the consideration of commodities at the primary-producer level, where dollars-and-cents ceilings were in effect. The committee is now in the process of studying certain "pilot” areas at other levels of production and distribution. As these studies progress, the committee will determine what modifications and refinements of the preliminary standards or what alternative standards are appropriate. Account will have to be taken of the substantially harder problems of precise definition of an area," the wider diversity of price movements within the area, the greater difficulty in obtaining good current price information, the absence of uniform ceilings, and numerous other complexities.
The committee is making substantial progress, and will make further recommendationis.
In this further study, the committee is including the development of standards and procedures for the relaxation or elimination of record-keeping and reporting requirements where suspension is not appropriate. One member of the staff of the committee is now spending full time in a review of our existing reporting and record-keeping requirements.
It is hoped that the committee will soon be able to develop detailed operating instructions which will permit the processing of suspension actions to be turned over to the individual commodity branches and divisions.
COLE-IVES RATIO I should like to call your attention to a difficulty involving ceiling prices to producers of fluid milk. For Federal milk marketing areas, section 402 (d) (3) prevents OPS from interfering in any way with minimum prices to producers of fuid milk, as determined by the Department of Agriculture, in accordance with standards laid down in the Agricultural Marketing Agreement Act of 1937. Ceiling prices to producers of fluid milk in other areas, which might be called non-Federal areas, cannot under section 402 (d, (3) be fixed below a ratio, commonly referred to as the Cole-Ives ratio, with a proviso that whenever the Secretary of Agriculture finds that the prices so fixed are not reasonable in view of certain enumerated standards he shall fis such prices as he finds will reflect the enumerated standards. These standards are the same as those governing the establishment of minimum prices payable to producers in Federal areas in accordance with the Agricultural Marketing Act of 1937.
The question is whether the Secretary may lower a price computed pursuant to the Cole-Ives ratio. The legislative history of the Defense Production Act of 1950 clearly shows that it was the intent of Congress to assure equal treatment of producers of milk in Federal and non-Federal areas. It would seem, therefore, that just as the Secretary may raise or lower prices in Federal areas in accordance with the standards therein prescribed, he should also be authorized to raise or lower prices in non- n-Federal areas, since the standards for his determination in such non-Federal areas are expressed in the very words in which they are expressed in the Marketing Agreement Act of 1937. We think the act says this. However, in order to make it perfectly clear we would appreciate it, if the intent of Congress were more clearly stated by the insertion of a paragraph in the report on the bill your committee is considering.