THE ECONOMY: FAILURE OF NERVE

...I emphasize price rather than wage controls because, aside from some outside construction contracts, inflationary pressure at least since 1972 has come almost entirely from the price side...

...Some of the experts appear to have revived secular stagnation hypotheses in vogue during the late 1930s and forgotten during the long post-World War II boom...

...The strangest aspect of the current minidepression, by far the deepest since the 1937-38 episode, is the almost passive reaction of the unemployed, the principal victims, and the bewilderment of economic experts who a few years ago were certain that they could fine-tune the economy in both boom and recession...

...Coordinated planning is needed to design a rational energy policy, restore full employment, and define a proper balance between public and private activity...

...The auto industry, which added an average $1,000 to 1975-model price, tags, is planning another increase on 1976 models during one of the worst sales years in the industry's history...

...The first is that it is socially preferable for workers as well as capitalists to operate a high-employment economy even if its benefits continue to be unequally distributed...

...Among establishment economists, loss of confidence is pervasive...

...In April 1975, Soma Golden, well-informed economics specialist of the New York Times, reported: Most analysts today, regardless of their political affiliations, believe that 5.5 to 6 percent unemployment is probably the lowest that the Government can achieve without stirring up virulent inflation again...

...What a difference a few years and a few failures make...

...Two presidents have recognized and drawn on modern economics as a source of national strength and presidential power...

...As radical economists have been saying, orthodox theory may be passing through the phase when old paradigms break down under the cumulative weight of real world anomalies and acceptable new explanations are not yet available, to borrow Thomas Kuhn's useful model from his Structure of Scientific Revolutions...

...As matters now stand, the pollsters still report that inflation is regarded by the public as a problem more serious than unemployment...

...Rare and brief as they have been, there have been occasions when New Deals and Great Societies have been politically possible...

...As HR 50 implies, consistent pursuit of full employment without inflation requires national economic planning that, despite its manifest success in France and Japan, continues to be stubbornly resisted by American economists entranced by free enterprise...

...It specifically imposes upon the government the creation of jobs for men and women who want them...

...HR 50 requires that the President submit to Congress each year a fullemployment budget accompanied by the measures needed to achieve that target...

...Others, just as though Keynes had never lived, have returned to the ancient British Treasury doctrine against which he inveighed...

...Particularly for economists it ought to be self-evident that contemporary inflation has little to do with either low unemployment or huge wage increases...

...And even that job target is a long way from attainment-1979 at the earliest, according to most forecasters...

...IT GOES without saying that, for radicals, planning in a conservative society is likely to be a mixed blessing...

...But the horde of business and academic economists who assembled last September at Ford's Washington summit meeting did little better...

...By European or Japanese criteria, 1973's average unemployment of just a shade under 5 percent defined a recession not a boom...

...Secretary Simon, perhaps the Administration's most vigorous exponent of intellectual fallacy, has in the spirit of his English predecessors argued that a bigger federal deficit will simply crowd out private investors and substitute inefficient public for efficient private spending...

...Less than a decade ago, in his 1966 Godkin lectures Walter Heller proudly told a Harvard audience that "Economics has come of age in the 1960s...

...But there is at least one additional explanation: workers seem to be as worried as the middle class about inflation and as convinced of the merits of dubious Phillips-curve trade-offs between inflation and unemployment as Alan Greenspan, Arthur Burns, and William Simon...

...Business interests are as likely to be dominant in planning agencies as they now are in regulatory bodies and Congress...

...The annual reports of the Council of Economic Advisers since 1969 have been embarrassingly inaccurate alike in forecast, analysis of current trends, and suggested policy responses...

...In an era of declining long-run growth, a society will either plan the distribution of its GNP or allow the issue to be settled by a series of dog fights...

...COMMENTS AND OPINIONS 217...

...Yale's James Tobin and Brookings' George Perry are other esteemed experts who are prepared to take unemployment seriously enough to do something about it...

...Not a single Friedmanite, Keynesian, or eclectic (of course no radicals were invited) foresaw anything more ominous than mild recession late in 1974 or early in 1975...

...The Office of National Economic Planning, which is the central mechanism of the proposal, will be charged with preparing biennial plans and the President and Congress between them with adopting them and coordinating other legislation with the plans...

...Controls will facilitate an outright national commitment to full employment of the kind envisaged by the original 1945 Wagner-Murray Full Employment Bill and now embodied in the HumphreyHawkins-Reuss Equal Opportunity and Full Employment Bill (HR 50...

...In the absence of coherent national policy, it is quite likely that for a change the fashionable forecasts will be validated by future events...

...However, the reason why the gloom may be justified is located in the pricing and profit policies of giant corporations and other price-fixers, not either in low unemployment or aggressive union policy...

...and such socially concerned businessmen as J. Irwin Miller of Cummins Engine and Robert Roosa of Brown Brothers Harriman—cooperatively wrote an economic planning bill that Senators Humphrey and Javits have sponsored in Congress...

...Government economists, like Henry Kissinger, often feel compelled to lie a little for their country's sake...

...This mildness of affect among workers in such hard-hit industries as autos, construction, appliances, and apparel is presumably related to the suddenness and unexpectedness of the blue-collar crisis and to the availability of such income maintenance cushions as supplementary unemployment benefits (which in autos ran out in the spring of 1975), food stamps, and unemployment insurance (whose duration has been extended by Congress...

...Leonard Woodcock of the UAW...

...This is to say that the alternatives to planned and controlled full employment are likely to be persistently high unemployment, racial and sexual retrogression, increased potential for urban violence, still more inequitable distribution of income and wealth, enormous wastage of human and material resources, and even more inflation than more rational policies would generate...

...Equity suggests a combination of mandatory price controls and voluntary wage guidelines applied at the least to Fortune's 500 largest industrial firms and probably to its second team as well, the next 500...

...The causes of inflation, little related to Phillipscurve trade-offs between inflation and unemployment, include OPEC quintupling of oil prices, two devaluations of the American dollar, Federal Reserve enlargement of the money supply during the 1972 presidential season, rising world demand for American food, and the tendency of dominant corporations to raise their prices in both recession and boom...

...Some economists, businessmen, and labor leaders have drawn the appropriate moral...

...So long as this opinion holds, it will serve as a convenient excuse for presidential vetoes of spending legislation and Federal Reserve refusal to expand money and credit at rates high enough to reinforce the stimulative impact of tax reduction...

...Loving free markets, COMMENTS AND OPINIONS 215 economists embrace price controls and economic planning only in such emergencies as major wars...

...Murray H. Finley, the Amalgamated Clothing Workers' alert young president, has sought to counteract this sentiment among his members by commissioning a leaflet (by this writer) explaining the origins of our inflation and arguing that full employment and price stability can be reconciled, though not by current policies...

...None of this proves that determined attempts by Congress to move rapidly toward full employment will not be inflationary...

...Major economic calamities in conservative societies are unlikely to produce political consequences pleasing to democratic socialists, a sufficient reason to avoid deep depression...

...The Initiatives Committee for National Economic Planning— which has enlisted such economic stars as Wassily Leontieff, J. K. Galbraith, and Robert Heilbroner...

...On the next occasion when a liberal Democrat wins the presidency, he or she will make better use of the available opportunities if planning mechanisms are in place and orderly congressional debate of public priorities has been institutionalized...

...Their morale shaken, economists have neglected to apply the common sense with which most of them were born...

...Many economists remain enamored of competitive markets, however notional competition actually is in an economy of monopolies, oligopolies, regulated industries, and miscellaneous legal and medical price-fixers...

...NO WONDER, I suppose, that the confidence of economists in their old magic has been shaken...

...There is a second, less negative, advantage of planning...

...Most economists still resist the plain implication that permanent price and profit controls are essential if price stability and full employment are ever to be reconciled...

...The current fashion is to warn of worse inflation in 1976 and 1977 unless Congress restrains itself...

...Radicals, nevertheless, ought to support planning for two excellent reasons...

...Real wages have in consequence dropped more than 8 percent in the last two years...

...It would seem to anyone not befuddled by too much learning that when factories are running at 65 percent of capacity and the economy is capable of producing $200 billion additional Gross National Product there is room for both business and federal rises in expenditure...

...Paul Samuelson has openly described this minidepression as a Bums operation and advocated vigorous spending programs...

...Among the majority, the failure of nerve relates to the inadequacy of conventional fiscal and monetary tools and reluctance to experiment with alternative policies...

...In that year most wage settlements were moderate and in 1974 and 1975 (at least until the middle of the latter year) they ran far below the escalation in the cost of living...

...A repeat 216 COMMENTS AND OPINIONS with variations of the 1930s is much more likely to install George Wallace than Michael Harrington in the White House...

...To their credit, not all the mainstream economists have reconciled themselves to high unemployment into the 1980s...

...Liberal presidents, realizing as Lyndon Johnson did, that Congress will not for long endorse presidential initiatives, tend to endorse ill-judged, inconsistent, and poorly administered programs...