The Economy: The Specter & the Substance

Treasury Secretary Henry Fowler was as blunt as he was gloomy. Failure to enact a 10% income tax surcharge, he told Congress last week, would leave the U.S. with “an economy in shambles.” Without higher taxes, insisted Fowler, the nation faces “the biggest deficit since World War II, an overheated economy and spiraling inflation, sky-high interest rates and tight money for all borrowers.”

Economists, business, labor and financial leaders have all been sounding the same theme—but mostly in a quieter key. Abruptly and decisively, coping with inflation has become the prime concern of U.S. businessmen. What was only a nagging specter short months ago is fast gathering ominous substance. Automakers have joined the parade of summer price increases that now reach across the economy from food to steel, from appliances to plastics. General Motors raised the average price of its 1968 autos by $110, or 3.6% above the 1967 level. Strikebound Ford lifted its car prices by $114 (3.9%), Chrysler by $133 (4.6%). Inventory liquidation by businessmen, one of the principal drags on the economy this year, is dwindling, and housing and industrial production are up. “A business acceleration is no longer a forecast,” said Chairman Gardner Ackley of the White House Council of Economic Advisers last week. “It is a fact.”

On the Brink. Propelled by rising wages, employment and overtime, personal income climbed in August for the third month in a row. Retail sales kept pace. They rose in August for the third straight month, and are likely to rise even more as U.S. families, which have been saving 70 of each dollar, begin to spend some of what they have squirreled away. “As far as we’re concerned,” says Walgreen Drug Chairman Charles R. Walgreen Jr., “the public is on a buying spree.” Adds Chairman Edward Hanley of Allegheny Ludlum Steel: “We’re in an inflationary period now, and it’s very serious.”

Part of the fuel for the surge comes from the Federal Reserve Board, which has been pumping credit into the economy so fast that it has expanded the money supply at an annual rate of 7.7% so far this year, against only 2.2% during the 1966 tight-money squeeze. Looming inflation should impel the Fed to tighten up soon, but if it does many financial men fear the Treasury will be hard put to borrow $10.6 billion before year’s end to pay the nation’s soaring bills. “I think the Fed has been had,” said former Chief White House Economist Raymond Saulnier last week. “We’re on the brink of a financial crisis.”