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Business: Inflation’s Stubborn Resistance

30 minute read

Question: Faced with runaway inflation, the Government adopts policies that cause a year and a half of falling production, dropping profits, financial squeeze and—most important—sharply rising unemployment. What is the result?

Answer: More inflation.

THAT answer would draw an F in just about any class in economic theory, and it could yet earn Richard Nixon an F from the voters. It flies in the face of just about everything that economists have believed, but it describes a grim fact of life in the U.S. today. Unexplainable by the philosophy of Adam Smith, John Maynard Keynes or even Milton Friedman, a new strain of inflation has become a hard reality for millions of Americans. So far, it has proved stubbornly resistant to the classic remedy of business slowdown that has cured inflation in the past. To rescue the nation from it, the Nixon Administration may have to make some imaginative and unorthodox new moves.

In April 1969, when the Administration was just setting out to fight inflation, the consumer price index was rising at an alarming rate of 7.2% a year. As a result of purposeful policies of slowdown since then, the nation’s factories have been forced to pare production 5½%, and stock and bond markets have shuddered through their worst crisis in three decades. The jobless rate, which was 3.5% then, jumped last week to 5.8% as the November figures were issued—the highest monthly level since 1963. All together, 4,600,000 Americans are out of work, and 21% of the people queried in a recent Harris Poll reported that they have felt the pangs of layoffs, loss of overtime or reductions in regular work weeks. Yet at last count during the month of October, consumer prices were still rising at the same annual rate of 7.2%. Measured against the Government’s commonly used 1957-59 average, the buying power of the dollar dropped to 73¢. A new couplet is making the rounds:

Unless we all begin to holler

We soon may have a five-cent dollar.

Feeling Poorer

The combination of price rise and job fall-off has stirred more confusion and concern among Americans than any other economic issue since the Great Depression. The two situations are certainly not comparable. The U.S. economy is basically strong; its sluggishness this year has been induced by governmental tax, spending and monetary policies aimed at curbing inflation. But, as in the Depression, the current situation has become a source of deep social and political unease. Almost everybody feels poorer today than he felt a couple of years ago. Indeed, the average worker’s real income has declined since 1967. People have had to put off buying houses or cars, postpone going to college, cut down on their discretionary spending. Many people have the feeling that they do not know what is really going on in the economy.

Falling Patience

Economists share that unease. All the textbooks that they have studied and written indicated that the rate of price increases should have moderated by now.

Yet members of TIME’S Board of Economists, meeting last week, could see only an unsatisfactory improvement on the price front next year. The board’s majority forecast is that unemployment throughout 1971 will average about as high as now, reaching a peak of 6% or more during some months, partly because some 400,000 men will be mustered out of the armed services. The total annual increase in consumer prices will slow from this year’s pace of about 5.5% to about 4%, though it will be appreciably higher in certain months. To predict even that much abatement of inflation, confesses Arthur Okun, former chairman of the Council of Economic Advisers, requires “an act of faith.”

Every economist, he says, “has had to revise his price forecast upward for two years.” In sum, Nixon’s “game plan” of holding back business has succeeded in slowing the economy without producing a deep recession. But it has failed to achieve its primary objective of curbing inflation.

Advocates of the game plan stubbornly maintain that it will work yet —it is only taking longer than expected. They could be right. Members of TIME’S Board of Economists, for example, believe that worker productivity will show fairly large gains next year —a factor that would moderate inflation —partly because employers are taking a tough new attitude in determining how many employees they really need to keep the business going. Banker Beryl Sprinkel argues that the quality that the U.S. most needs now is patience.

“You cannot wave a magic wand and get rid of price and wage pressures.”

Patience, however, is wearing thin.

Leaders of the Business Council, a group of chiefs of the top U.S. corporations, visited the President at the White House in October. They told him that he could not control inflation by continuing to rely exclusively on curbing federal spending and encouraging the independent Federal Reserve Board to expand the nation’s money supply only gradually. They are urging the President to use his powers more directly and actively to battle wage and price rises.

Congressmen feel the popular discontent, and are increasingly crying for “leadership.” Kansas Republican Senator James Pearson, for example, is acutely aware of high unemployment among his constituents, but he is unable to tell them what his party proposes to do about it. Says Pearson: “I think they have a policy line down there at the White House, but it is more a policy of what they are not going to do rather than a plan of what they are going to do.” Adds Massachusetts Republican Senator Edward Brooke: “The economy is the political question now, and it will be the political question in 1972.”

Fights on High

Rightly or wrongly, several of the G.O.P.’s defeated senatorial candidates —California’s George Murphy, Illinois’ Ralph Smith, Indiana’s Richard Roudebush—complained that they were done in by inflation and economic sluggishness. In his otherwise ebullient post-election meetings with his Cabinet and staff, the President conceded that the economy had without doubt hurt the G.O.P. in the mid-term elections. But he added: “The economy will be good in 1971, and we will have a strong upturn in 1972.” In a memo sent around the country to Republican leaders after that meeting, White House Counsellor Robert Finch quoted the President as saying: “1972 will be a boom year. The Republican Party will run on the Peace and Prosperity issues.”

The Administration is torn by two unresolved conflicts. The first is whether to prod the economy quickly to achieve Nixon’s goal of lowering unemployment to about 4% by mid-1972 or to pursue the game plan’s goal of a slow advance in the hope that moderation will eventually curb inflation. The Council of Economic Advisers has been pressing for faster expansion. So have Republican politicians, who believe that the electorate is far more worried about unemployment than about inflation.

Nixon is sorely tempted to go all-out for full employment and accept whatever inflation may ensue. Some men close to him think he will yield to that temptation. Says a White House aide: “I will bet you that he will decide to put people to work and put money in their pockets, even if the money is not worth much.” Wall Streeters are also betting on it. Largely in the belief that the President will opt for more daring expansion, they sent the Dow-Jones industrial average up 35 points last week to 816, the highest since November 1969. Yet Nixon is still getting strong arguments, primarily from the Federal Reserve, that a full-employment drive will stir still more inflation, if not in 1971, then in 1972 and 1973—and inflation is also a gut issue.

That leads to the second conflict. It centers on incomes policy—some type of presidential attempt to set limits for unions and companies to observe in raising wages and prices. Nixon is under increasing pressure from businessmen, foreign central bankers and some of his own Government colleagues, notably Federal Reserve Chairman Arthur Burns, to adopt an incomes policy. But he is also being counseled—particularly by George Shultz, the Office of Management and Budget director, who has become the most influential economic adviser in the Administration—that an incomes policy would interfere with the Republicans’ almost theological belief in free markets.

Last week Administration officials launched a carefully orchestrated publicity campaign designed to assure the public that the President has the economic situation well in hand. In rapid succession:

> Nixon called in A.F.L.-C.I.O. Chief George Meany for a private chat with himself and Shultz. Conscious of Meany’s effective attacks on the Administration’s economic policies during the election campaign, Nixon assured him that the White House has the concern of the workingman at heart. The President said that he had decided to opt for economic expansion and full employment, in the knowledge that this would produce budget deficits both this fiscal year and next. The following day, however, Nixon called in Senator Brooke and told him that he would persevere in the policies that the White House has been following for two years —that is, fighting inflation largely by restricting federal spending.

>The Council of Economic Advisers issued an “inflation alert” that was widely advertised as a “pinpointed” assault on specific wage and price hikes. In fact, it was mostly a dull compilation of statistics, combined with general preachments. Sample: “The community as a whole cannot make itself richer by raising prices and wages more rapidly.” The report drew attention to recent oil and auto price increases, but pulled its punch by declining to judge “their justification (or lack thereof).” In a press conference, CEA Chairman Paul McCracken indicated that the Administration is still basically relying on the conviction, hope or prayer that the business slide some day, somehow will cause retail prices to rise less rapidly. In addition, it is hoping that any price pause would last even if the economy were pushed again into vigorous expansion.

> Obviously inspired newspaper stories appeared, reflecting the view of the Council of Economic Advisers. The stories said that the Administration was aiming for a phenomenal 8% real growth in gross national product next year v. a small decline this year. More remarkably, this was to be achieved along with a continued decline in the rate of inflation. Meanwhile, the budget would be in balance. The Administration, however, was referring not to the official budget that most people pay attention to, but to the so-called full-employment budget. This does not measure the real world but an ideal one; the full-employment budget calculates the amount of revenues that the Government would collect if the economy were at full employment. If these theoretical revenues equal the Government’s expenditures, then the full-employment budget is considered balanced. But the official budget could be—and almost certainly will be—in deficit.

To an economic sophisticate, the Administration’s prediction of fast growth, slow inflation and a balance in the full-employment budget is about as likely a combination as a pickle-flavored ice cream that smells like Chanel No. 5. Even worse, such thinking could touch off a bitter battle between the Administration and the Federal Reserve. Making the growth forecast come true would require the board to expand the nation’s money supply by around 10% annually, or double its target rate for this year. Arthur Burns and his fellow Federal Reserve governors have no intention of pumping out that much money; they fear that it would be highly inflationary.

> The President himself climaxed the campaign with a confident speech at week’s end to the National Association of Manufacturers in Manhattan. He pledged a “new prosperity”—a phrase that will be an inviting target for Democratic critics if he does not deliver. He promised a budget that “will be responsible in holding down inflation and responsive in encouraging expansion” —a line that could be stretched to cover almost anything he decides. He pointed, correctly, to such indications of an improving economy as declining interest rates and rising housing starts.

The President also announced two specific moves toward restraining inflation. First, he directed the Interior Department to take over from state regulatory bodies the responsibility for setting production quotas in federally owned offshore oilfields, with the hope of increasing oil supplies and thus moderating recent price boosts. That move will be effective only if the states do not counter it by cutting production quotas in state-owned offshore fields. The President also increased the import quotas for Canadian oil.

Second, Nixon ordered the little-known Construction Industry Collective Bargaining Commission to try to induce labor and management in the building trades to do their bargaining on a regional instead of a local basis. If that works, it will be a beneficial step; construction unions have been able to force inflationary settlements on small local contractors by picking them off one by one. Whether it will work, however, is open to doubt.

The Key Figures

Taken together, the various pronouncements during the week suggested that the President hopes somehow to reconcile the contradictory objectives of fast expansion in the economy and marked slowdown in inflation. The big test will come in the proposed fiscal 1972 budget, which will be announced in January. By traditional standards, the new budget will be deeply in deficit. The current fiscal year’s deficit is estimated to be about $15 billion, mostly because tax revenues have fallen far short of original estimates.

It would take an astonishing rebound in business to produce enough revenue to bring the official 1972 budget into balance. The key figures are full-employment revenues for fiscal 1972, which are estimated at about $230 billion. If the Administration proposes to spend less than that, it will signal an intention to give only moderate stimulus to the economy. If it announces plans to spend $230 billion or more, it will be going all out for expansion.

Budget-drafting sessions are in progress now, but the President has given them little personal attention. They are being presided over by Budget Director Caspar (“Cap the Knife”) Weinberger, who so far has relayed only the usual presidential orders for departments to slash their initial spending requests. “The only known decision,” confides one budget aide, “is the color of the cover. It will be blue. It should be red.”

Doing Without

Nixon and his advisers are grappling with the most torturing problem of modern economics: How can a nation keep prices down while keeping employment up? No advanced industrial society has yet found a satisfactory answer to the question. A report prepared for the Organization for Economic Cooperation and Development, a 22-nation group of Western European countries plus the U.S., Canada and Japan, estimates that the price level in most member countries will rise at least 5% this year. Europeans commonly fear that the American price spiral will aggravate their own inflations. Says Economist Jean Marcel Jeanneney, a former Cabinet minister in the De Gaulle government: “If the U.S., which until now has been the world pole of relative price stability, is afflicted with chronic annual inflation of more than 6%, it is to be feared that the whole Western world will be pulled along.” He adds, echoing many European economists: “I can see little sign that the U.S. Government is pursuing a well-defined or coherent policy against inflation.”

In the U.S., the rising cost of almost everything has hurt almost everyone. For some people, a pullback in the family budget has meant only forgoing little luxuries; for others, it has meant cutting down on milk for the children, or making an agonizing choice between sending a son to college or maintaining a parent in a decent home for the aged. The rising cost of living bears down most heavily on the needy aged. Making do on little more than Social Security incomes that average about $117.22 per person a month, many must keep to their rooms simply because they cannot afford 30¢ to 60¢ fares to travel around town. Sister Agnes Ann Gardt, parish visitor for Denver’s Cathedral of the Immaculate Conception, often finds elderly persons sitting in the dark to save electricity and existing on a diet of coffee, cookies and hamburgers.

Young people are also especially vulnerable to inflation. Often they cannot get jobs with their new degrees, and must postpone plans to marry. The traditional genteel poverty of many a university instructor has slipped to the subsistence level. One Harvard teaching fellow is trying to support his wife and infant on a $1,500 grant, plus a loan and some parental help. The couple has bought neither new clothes nor furniture in more than a year and, says the young man, “my wife has already exhausted the available ways of cooking chicken.” John Kilcoyne, a research assistant at the University of Washington, has decided not to buy any Christmas presents this year. He and his wife Joan are combing Puget Sound for driftwood to turn into candle holders and mobiles for gifts.

Americans are learning again how to make do—and do without. Denver wives are passing around the questionable tip that a 35¢ can of vegetable shortening works just as well as expensive cold cream for removing makeup. Newspapers are filled with advice columns on how to beat inflation (do your own sewing, shop for advertised food specials). Martha Patton of the Chicago Daily News recently advised her readers, “Never market when hungry.” Hunt-Wesson Foods offered a cost-paring booklet of recipes called “We’ll Help You Make It” —and got 850,000 mail requests. Only half jokingly, some Manhattanites stage “Beat-Inflation” parties, at which the menus consist of specialities devised in the days of World War II rationing: canned tomato soup and cheese on Ritz crackers or sweet and sour Spam.

Expensive restaurants are sparsely populated; at night one of the two dining rooms in Manhattan’s Four Seasons is completely empty. Street-corner hot dog stands are enjoying a revival, and some of their best customers are executives whose expense accounts have been chopped. Many families have simply given up trying to cope. Between July and October, there were 63,600 personal bankruptcies, up 14% from the equivalent period last year.

Many Americans are doubly victimized, both by inflation and the battle against it, which has led to layoffs. The new unemployment has struck particularly hard at those least accustomed to it: clerks, technicians, management trainees, and even executives of the mostly white middle class. Unemployment lines bulge with not only out-of-work laborers but also veteran $20,000-and-up scientists and engineers, particularly in centers of advanced technology like Southern California, the Pacific Northwest and Boston.

Beyond economics, the deeper problem is that rapid inflation corrodes society. It punishes thrift, rewards fast-buck speculators, and produces a classic might-makes-right situation in which those who have economic muscle can protect themselves. Meanwhile, the unorganized—pensioners, welfare recipients and consumers generally—suffer. Eventually, inflation stirs contempt for the government that issues worthless money.

Inflation today is particularly dangerous. Herbert Giersch, professor at West Germany’s Kiel University, gives this reason: “If the currency of a country is not worth what the bank says it is worth, the entire social structure begins to suffer from a lack of credibility. Given the skeptical attitude of the younger generation toward society, inflation unchecked could lead to a very dangerous ethical radicalism.” At the extreme, some thinkers fear that persistent inflation could open the way to fascism in some countries. Says British Historian

Arnold Toynbee: “The Nazi type is the man in the middle, squeezed and squeezed—one of those who cannot join in the [inflationary] rat race and is pushed down, pushed down.”

The Devilish Truth

Far from being a new malaise, inflation is almost as old as man’s written records. The Babylonian Code of Hammurabi (circa 2000 B.C.), which was the world’s first known detailed system of law, contained regulations on payments and measures for grain and other products that added up to a form of price control. But when wealthy classes accumulated great quantities of gold at times when consumer goods were scarce, inflation struck. Unemployment also existed in the ancient world. In the Egypt of the Pharaohs, and later in the Roman Empire, the slavery rate filled the place of the jobless rate today, as workers who could not pay their debts sold themselves into servitude. There was some evidence that inflation and unemployment were correlated. Fragmentary records indicated that slavery would rise toward the end of an inflationary period. Inflation that drove men into slavery contributed to the downfall of Greek democracy and the Roman Empire.

The modern citizen-worker-consumer-voter demands two things: steady employment and reasonably stable prices. Industrial societies have achieved each of them separately, but never both together for any length of time. In 1958 a professor at the London School of Economics, Alban W. Phillips, published a study pointing out precisely that wages and prices rise rapidly whenever unemployment goes down. He drew curves, which have since become known as “Phillips Curves,” to chart the rates of wage and price increases that accompanied a particular rate of joblessness. Phillips recalls that leftist academics regarded him “as a kind of devil” for suggesting that inflation subsided only when unemployment rose. Today, Phillips’ devilish idea is widely, though far from universally accepted. Economists differ as to whether full employment inevitably must be inflationary, as Phillips believes, but most agree that so far, in practice, it has been inflationary.* The reasons are unclear even to the economists, but they offer a rough explanation.

Every industrial nation, they say, has a kind of “trigger-point” rate of unemployment. Whenever unemployment falls below that rate for any length of time, inflation roars up. In the U.S. the trigger-point rate is about 4½% unemployment. Half of the 4½% consists of mobile workers: people who have quit jobs to look for better ones, workers temporarily laid off from seasonal jobs, and so on. The other half consists of marginal workers: the untrained and unskilled, including ghetto residents as well as housewives and teen-agers looking for temporary or part-time jobs. Marginal workers are hired only if the Government pours enough money into the economy to generate demand so hectic that businessmen put almost any warm body on the payroll. That level of demand fulfills the prescription for inflation: too much money chasing too few goods. It also causes employers to bid high to hire workers away from one another, and to stockpile people who have skills. The new workers in the beginning do not produce enough to justify their wage; veteran workers tend to slough off and slow down, figuring that they will not be fired. All this raises employers’ costs. They kick up prices, and encounter little resistance. Since jobs are plentiful and incomes high, consumers are willing to pay almost any price.

Hyperbolic Illusion

Once the spiral starts, it develops a self-accelerating momentum. Union members, dismayed by the extent to which inflation eats away their pay gains, clamor for ever fatter wage increases. Businessmen borrow with abandon to build bigger inventories and more factories than they need, figuring that everything will cost more tomorrow. When this “inflationary psychology” takes hold, only drastic action can break it.

The idea that unemployment is necessary to curb inflation is often regarded by politicians as too shocking to be uttered out loud. During the 1968 campaign, Richard Nixon promised to stop inflation while throwing exactly three Americans out of work—the three members of Lyndon Johnson’s Council of Economic Advisers. That partisan hyperbole encouraged the illusion that inflation can be stopped painlessly. It cannot. Whatever else the Government does, it must tighten spending and credit policies in order to wring excess demand out of the economy. Removing the excess inevitably bounces the marginal workers back onto the streets again.

Even that does not solve the inflation problem. A solution requires still an extra degree of unemployment and economic slack—enough to make the most skilled workers fear loss of their jobs if they demand higher wages and to make employers pale at the thought of the markets they will lose if they raise prices. In the U.S. the degree of economic slack required is proving considerably larger than anyone had expected. Prices continue to rise even though almost a fourth of the nation’s factory capacity is idle.

Why? Paradoxically, inflation has been aggravated by the long-range planning of business and labor, which has traditionally been viewed as a great aid to economic stability. Alan Greenspan, a Manhattan economist who has advised President Nixon, notes that the average length of union contracts has increased from two years in the late 1950s to two years and nine months now. Inflationary contracts signed in 1969 and earlier this year will continue pushing up costs in 1971 and 1972.

Nobel Laureate Paul Samuelson identifies another source of trouble: the power of unions and companies that makes them largely independent of market pressures. To take an egregious example, unemployment among aerospace engineers—or even hardhats—does not affect the behavior of the monopolistic construction unions, which rigidly control access to jobs and concentrate on seeing to it that any of their members who remain at work are well paid. Similarly, Samuelson notes, the law of supply and demand does not exert the same effect on giant companies that it once did on small producers in a simpler economy.

Inflation has also been fired up by the growing economic importance of the service trades. Wages in the services tend to keep pace with manufacturing wages, but service productivity does not. It is much harder to increase the output of a fireman or hospital attendant than of a steelworker. In addition, it takes a severe slowdown in the economy to reduce demand for services. A family can put off buying a new car but not the renewal of insurance policies on its old auto.

The Magic Seven

Is there any way that an advanced industrial society can keep from constantly ricocheting between the perils of inflation and unemployment? Some scholars think not, at least not without the most draconian action. John Kenneth Galbraith has become the voice of despair. He insists that, given the power of unions and companies to keep a wage-price spiral going even in a dragging economy, inflation can be curbed only by clamping on permanent wage-price controls.

In fact, there are other choices. The tension between inflation and unemployment cannot be solved in the absolute sense of attaining either a zero rate of joblessness or a zero rate of price hikes, let alone both together. Still, the U.S. could take a number of steps that hold some hope of reducing both. The goal might be set at 4% unemployment and 3% inflation. That would add up to 7%, which, as economists note, would be exceedingly good—far better than October’s jarring 12.8% total for the two.

The first step would be to establish an incomes policy that would stop far short of Galbraith’s controls. Administration officials argue that incomes policy has never worked anywhere. They point out that Britain’s Tory government is abolishing the Labor-created National Board for Prices and Incomes. In addition, Canada’s Price and Incomes Commission announced last week that it would abandon the wage-price guidelines that it had been trying to induce business and labor to follow. Even some liberal economists tend to be skeptical of such experiments. “A young man might win himself a Nobel Prize for developing a workable incomes policy,” says Paul Samuelson.

Actually, both the Canadian and British boards had some success. The main lesson of foreign experience is that governments often undermine their own incomes policies by pouring too much money into the economy—but that incomes policy combined with moderate-to-strict fiscal and monetary policies can have an influence. The O.E.C.D. recently concluded that incomes policies usually help restrain inflation for a year or two. That might be just what the U.S. needs to get through the difficult transition period when excess demand no longer exists but the wage-price spiral is whirling on its own.

At last week’s TIME Board of Economists meeting, Arthur Okun proposed an incomes policy. The President, he said, should appoint a commission of distinguished citizens to spend six months consulting with labor leaders, corporate chiefs and consumer groups in order to work out equitable and noninflationary guidelines for wage and price behavior. During those six months, the President would ask all businesses to refrain from increasing prices and all labor leaders who are negotiating contracts to take perhaps a 5% interim wage boost and keep the contracts open for final negotiation when the guidelines come out. If even partially accepted, the policy would brake the inflationary momentum. When the guidelines were finally promulgated, the atmosphere would be different. The incomes board or the President himself would have to follow up, rousing public opinion by pointing an accusing finger at companies and unions that violated the guidelines. In some cases, other pressure might be required—such as sale of materials from the Government’s strategic stockpiles.

“The President has to talk tough to big business and big labor,” says Walter Heller, another former CEA chairman. “He has to tell them that those who are using their market power to gouge the public through unwarranted wage and price boosts have got to stop. He has to let the nation have some idea of what ‘unwarranted’ means. Unless he defines sin and identifies the sinners, how can he mobilize public opinion against the decisions that keep the price-wage spiral turning?” Nixon seems ideologically opposed to such direct intervention. Says Arthur Okun: “A Democratic Senator told me that while economists keep advocating incomes policy, they are just asking a crow to make music. This President can’t sing.”

Pleas for Guidance

Still, the atmosphere for presidential activism is much more favorable now than it would have been a year ago. Many businessmen have been so shocked by the persistence of inflation that they are all but pleading for guidelines. Labor’s official position is that it will accept wage guidelines only if there are also guidelines not only on prices but on profits, dividends and rents. Some union leaders talk differently in private. Economist Robert Nathan, a consultant to many union chiefs, says that they often concede that the wage increases they demand are inflationary. But without some Government definition of acceptable wage hikes, they have no argument that impresses their militant members.

Another vitally needed step is a move toward freer trade. International competition is one of the most effective anti-inflationary forces. It not only offers consumers access to inexpensive imports, but promotes price moderation in the domestic industries that feel the foreign competition. The U.S. right now is moving in exactly the opposite direction. The House has passed a bill that will impose quotas on textiles and shoes and set up a mechanism that would permit quotas or higher tariffs on at least 125 other products. The Senate Finance Committee last week approved some changes that would make the bill even more protectionist. Nixon should urge his Senate followers to reject the bill and veto it if it passes. Beyond that, the U.S. ought to scrap its existing statutory quota on oil imports and the so-called “voluntary” quota on steel. These are a particular absurdity now that the U.S. fears a winter fuel shortage and steelmakers will soon enter wage negotiations whose outcome could be highly inflationary.

For the Long Haul

Longer range, the Administration should launch a determined campaign to increase productivity. A vast expansion of manpower-training programs could reduce the inflationary effect of full employment by making the unemployed more productive when they are hired. The Government could try much harder to smash the many inflationary bottlenecks in the economy. The construction field is filled with them, from union restrictions on the entry of workers to local building codes that prohibit use of the best techniques and thus hold back productivity. Some of these restrictions could be broken by new federal legislation, some by vigorous pressure on unions and local authorities. Nixon hinted last week that he might exert such pressure. The billions that the Federal Government spends in assisting local construction provide a powerful lever.

The Government could profitably re-examine its own operations. An obvious place to begin is with repeal of the federal enabling legislation that empowers states to enforce the Fair Trade acts, which allow manufacturers to set minimum retail prices for their products. Beyond that, the Committee for Economic Development has recommended that Nixon set up a special agency to act as a sort of anti-inflationary ombudsman within the federal establishment. It would examine and report on the likely price impact of every proposed new federal subsidy, regulatory act or spending program. This agency would not necessarily oppose new spending. Stepped-up federal assistance for the building of medical schools, for example, could ease the highly inflationary shortage of doctors.

Many of the steps would take a long time to pay off, and they would meet furious opposition from special interests. The intensity of the opposition is a measure of how deeply an inflationary bias has been built into the economy. Yet today’s unsettled, impatient America is weary of inflation, unwilling to accept excessive unemployment and eager to try new ways out of the dilemma. Not even the experts feel confident that they can resolve the conflict between stable prices and steady jobs, but they argue persuasively that the time has come for the world’s richest nation to experiment and see what it can do.

TIME’S Board of Economists

THIS story was prepared with the aid of TIME’S Board of Economists, which met last week with the editorial staff for an analysis of inflation, unemployment and related topics. Members of the board speak as individuals, not as representatives of the institutions with which they are associated. The members:

OTTO ECKSTEIN, a Harvard professor and former member (1964-66) of the Council of Economic Advisers.

DAVID GROVE, vice president and chief economist at IBM.

WALTER HELLER, professor of economics at the University of Minnesota, former chairman (1961-64) of the Council of Economic Advisers.

ROBERT NATHAN, head of Robert R. Nathan Associates, Washington, B.C., economic consulting firm.

ARTHUR OKUN, a senior fellow of the Brookings Institution, former chairman (1968) of the Council of Economic Advisers.

JOSEPH PECHMAN, tax authority and director of economic studies at the Brookings Institution.

BERYL SPRINKEL, senior vice president and economist, Harris Trust & Savings Bank, Chicago.

ROBERT TRIFFIN, international monetary expert, economics professor and master of Berkeley College at Yale.

* Phillips, now 56 and a professor in Canberra, Australia, may become a victim of the process that he described. Incapacitated by a stroke, he will retire to his native New Zealand —on a pension that, he sadly observes, will not increase as the economy inflates.

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