A Sour View of '72

...Our present economic program is a bipartisan failure...

...Even the auto boom, the brightest spot on the economic map, may represent some borrowing from 1972 sales...

...Total employment, nearly 80 million in November, is almost 1.4 million jobs higher than the average for the first six months of 1971...

...Confidence is further impaired by the public's perception that thus far Phase II has favored large corporations and powerful unions and, as is the way of the world, dealt harshly with those tactless enough to be weak and defenseless...

...In places like Gary, Indiana, a steel town desperately dependent upon obsolete open-hearth facilities, unemployment runs over 40 per cent...

...Furthermore, most blue- and white-collar workers have secured wage and benefit improvements far more modest than those of their more publicized brethren in construction, mining, and automobiles...

...There is simply nothing to cheer about in the present condition or future prospects of the economy...

...If Nixonomics proves anything, it is the inadequacy of standard Keynesian remedies to the combination of inflation and unemployment that has plagued this country during the last three years and England for much longer...

...A good many people share her implicit skepticism about the validity of price indices recording a slowdown in inflation...

...Neither have the pay board or the price commission given much evidence of enthusiasm for their work, possibly because several of Nixon's public nominees to the panels have extensive records of opposition to the very enterprise in which they now find themselves engaged...

...Under the circumstances, businessmen are understandably hesitant about buying new machines and extending their facilities, investment tax credit or no investment tax credit...

...and the last time corporate economists got together and averaged their guesses, they also produced buoyant results...

...Controls, moreover, are ineffective unless the people who administer them believe in what they are doing...

...Firms are directed to use the best two of the last three calendar years in the computation of their profit margins...

...For many if not most sellers, business, their business, is not all that wonderful...

...Assuming the controls were more vigorously and more equitably applied, the Administration's economic policy would still suffer from a crucial deficiency—an inaccurate diagnosis of the unemployment problem...

...If the regulatory body had applied its standard to product groups, its policy would have had some anti-inflationary meaning...

...The profession has been as reluctant as Nixon himself to admit to the necessity of implementing price and wage controls...

...Washington could scarcely have made the matter plainer: Profits are a veritable public service, a point the President has been reiterating since his original August 15 address...

...Inflation, they say, will slow from the current 5.6 per cent to a mere 3.5 per cent, as measured by the GNP deflator, the most general of the price indices...

...The international outlook is equally inspiring...

...Actual or feared inflation, like actual or feared unemployment, makes some couples postpone marriage or children, others think again about major outlays on cars, houses and appliances, and still others economize in their daily purchases...

...The earlier fracas over retroactive pay is gradually being resolved, as usual, in favor of groups with sufficient clout to get surcease either from Congress or the wage administrators...

...He sees the customers doing their duty and buying 11 million domestic and foreign vehicles, a new record...

...Favorable evidence does indeed abound...

...Although, characteristically, President Nixon hailed the currency detente as an event only less significant than the Second Coming, in truth, the benefits are mostly conjectural and may easily be dissipated if large corporations simply raise their export prices...

...Factory employment, in steady decline since 1969, has edged upward since August...

...At home, it is exceedingly hard to see why any businessman has reason to worry about the activities of either the pay board or the price commission...

...I'm on a fixed income, and so I'm at a standstill...

...Recent events in the Bureau of Labor Statistics, including the demotion of independent-minded professionals, can have added to no one's confidence in the impartiality of the government numbers...

...Because consumers save more when they feel uncertain, it is probably unfortunate that few Americans read the cheerful econometric forecasts...

...Again it is hard to see why...

...Nixon accepted as the U.S...

...The simple hydraulics of vulgar Keynesianism, essentially the pumping up of aggregate consumer demand, are no substitute either for serious manpower training policies or decently funded public employment programs...

...These are the decisions summarized in corporate accounting ledgers...

...With the honorable exception of John Kenneth Galbraith and his small band of supporters, economists have avoided the issue of economic power like the Egyptian plague...

...A drop of 2 per cent would mean $16 billion in added consumer sales, a shift some forecasters are wistfully projecting...

...Despite price commission chairman C. Jackson Grayson's tough words about not necessarily passing on labor cost increases to the customers in the shape of higher price decisions, the majority of his panel is apparently marching to a different drummer...

...The major, oppressive fact is that the customers stubbornly continue to save unusually large percentages of their disposable incomes, 8 per cent rather than the historically more typical 6 per cent...

...At the same time, price inflation, tax increases, escalating health insurance premiums, and sharp hikes in Social Security levies have progressively eroded the real income of middle America...

...Best of all for reasonably efficient enterprises, there is no ceiling on the profit increases that might result from productivity gains, which are usually largest during periods of expansion...

...For reasons already noted, this is unlikely to materialize...

...Unless something comes unstuck, the Japanese, gradually recovering from the Nixon shocks, will "voluntarily" loosen their restrictions against American goods...

...Most of us form our opinions from the concrete evidence of our own economic situation and that of our family, friends and neighbors...

...Many of the powerful unions that won generous wage increases only last summer are faced with layoffs and short workweeks this winter...

...Steel a 3.6 per cent raise, it applied the limit only to average prices on all steel products...

...Abundantly as I think he deserves to lose, it is not at all clear whether on their present form the Democrats deserve to win...

...The Common Market will treat our agricultural exports more gently...

...Steel has simply raised prices in strong markets and stood pat in weak ones, just as it would have done without a price commission...

...I have no notion whether the sour economy I foresee will suffice to defeat Richard Nixon...

...The learned keepers of the Wharton School's prestigious econometric model flatly project a GNP of $1,150 billion or, if the notion better pleases, $1.15 trillion...

...Here the problems are structural, such as a mismatch of available jobs and skills, or transportation and housing barriers to the joining of inner-city blacks and Puerto Ricans to suburban jobs...

...Why aren't the executives and the speculators happy, particularly at the prospect that the Administration's policy triumphs and domestic reversals will reelect their good friend in the White House...

...Hungry for higher profits, some business spokesmen, notably Henry Ford II, have expressed fear that Phase II controls will thwart their aspirations...

...Yet overall business sentiment is extraordinarily tentative, not to say apprehensive...

...In allowing U.S...

...James Roche, the departing General Motors chief, thinks the sharp rise in auto sales touched off by Administration tax and tariff policies will continue all during 1972...

...Real growth in goods and services is expected to reach a wholesome 5.5 per cent, up from 1971's anemic 3.1 per cent...

...As a Baltimore schoolteacher told a New York Times interviewer in mid-December, "Inflation is going up, up...

...contribution to monetary harmony the first American increase in the price of gold since 1933, from $35 to $38 an ounce, on condition of course that no one asked us actually to buy or sell any bullion...

...and Fred Harris (D.-Okla...

...Although the Wharton model is the most euphoric of the mathematical monsters, its Michigan rival is only marginally less cheerful...

...Economists, still devoted to free-market models, are ill-equipped to grapple with the powerful corporations, trade unions, regulatory agencies, influential congressmen, and masterful Presidents who among them arrange prices and wages...

...AM things considered, the skeptical businessmen are more likely to be right about 1972 than the optimistic economists...

...Tax reliefs to businessmen, a modern version of the old Hoover trickle-down nostrums for depression, depend for their efficiency upon the stimulation of an investment boom that in due course puts the unemployed to work...

...Elsewhere it is hard to see an upsurge...

...On the first body, business and labor members have been voting together (against the public representatives) to grant coal miners, railroad signalmen, construction workers, and other well-organized types increases twice or thrice the 5.5 per cent wage guideline...

...Similarly, some businessmen who had been shrinking their inventories finally began to expand them in the last quarter of 1971, presumably in response to more favorable sales and in compensation for earlier prudent purchasing policies...

...They are currently using only 75 per cent of their existing productive capacity as it is...

...On the currency front, the new pattern of exchange rates, agreed upon by the Group of 10 at its pre-Christmas meeting in Washington and approved by the International Monetary Fund, calls for the Germans and the Japanese to revalue their currencies upward by 12 and 17 per cent, respectively, against the dollar...

...The company promptly jacked up some prices as much as 7.8 per cent, leaving others untouched or only moderately altered...

...Moreover, this is only the beginning, for alterations in depreciation accounting rules will also raise cash flow...

...Democrats in Congress have been as willing as Republicans to grant tax favors that contract the revenue base out of which desperately needed employment and urban programs must be supported...

...It is no great mystery...

...And on that basis, the ordinary wage earner has amazingly little to rejoice about...

...As matters stand, U.S...

...Government controls haven't helped to keep prices down...

...We have graciously lifted the 10 per cent surcharge, suffused with the confidence that foreigners will no longer take unfair competitive advantage of generous, warm-hearted American traders...

...The tipoff came with the commission's crucial steel award...

...If I were paid to read crystal balls, I would halve the anticipated GNP improvement for the year, enlarge substantially the official estimates of 1972 inflation, and sourly project virtually unaltered unemployment during the next 12 months...

...As the Wall Street Journal patiently explained to its apprehensive readers, the profit rules, even if obeyed, are highly indulgent...

...The architect of Phase II, Herbert Stein, an old disciple of Milton Friedman and the new chairman of the Council of Economic Advisers, has never believed in public intervention in "free" markets...

...With a few exceptions like Senators George Mc-Govern (D.-S...

...Even if, against the odds, it did, no investment boom could do much to reduce disastrous concentrations of unemployment among adult blacks and youths of all colors...

...Nationwide, factory hiring may be up, but the unemployment rate stubbornly sticks at 6 per cent and nobody in the Administration predicts much decrease in the new year...