Yes, We Can Afford Full Employment

...Finally, in the absence of price and wage controls, fervently opposed by Greenspan (a disciple of Ayn Rand who is said to be particularly close to the President these days) major corporations and, say, medical suppliers can mark up their price tags sharply-as they surely will as soon as business begins to show signs of really picking up...

...But no one ought to believe their utter nonsense that full employment is the villain of inflationary melodramas...

...Among economists, the intellectual rationale that supports Ford's vetoes of Congressional efforts to create public jobs and stimulate construction is the so-called Phillips trade-off between inflation and unemployment...

...The automobile companies are only the most famous offenders...

...Indeed, it is hard to identify an occasion after World War II when the American economy has conformed to Phillips expectations, and harder still to blame the present inflation on trade union pressure...

...The fact is that blue- and white-collar operatives have lagged so far behind the price procession that the average factory worker's real income, if he happens to have a job these days, is back to the 1965 level...

...Advocates of this relation argue that in a tight labor market businesses bid more vigorously for new employes of steadily lower quality...

...concentration generally increases during bad economic weather...

...Yet Simon, the finest reactionary in the Treasury since Andrew Mellon, worries about big Federal deficits "crowding out" worthier corporate borrowers-as if John Maynard Keynes had never put pen to paper...

...At a time when the true rate of unemployment-counting the discouraged folk who have given up looking for nonexistent positions and those part-time workers who cannot find full-time places-is 13 or 14 per cent, this glum quartet sings daily warnings to the nation that the real menace to the American economy is inflation...

...Lawyers, doctors, hospitals, and our jolly oligopolists raise their prices in good times and bad...

...Since unions have contributed almost nothing to inflation, I would supplement price and profit controls with voluntary wage guidelines...

...Oil and food accounted for about half of the 1974 inflation...

...Recessions, moreover, are good times for giants to pick up smaller rivals cheap...

...These matters preceded the Yom Kippur War, when the quadrupling of petroleum prices converted gasoline and domestic heating oil into luxury items for many families...

...According to the Phillips theory, rising unemployment in 1974 and 1975 should have been paralleled initially by receding inflation and subsequently by actual price reductions...

...Nevertheless, Administration policy is by no means as senseless as I have made it appear...

...The history of our current minidepression is convincing evidence by itself that the causes of spiraling prices are located elsewhere...

...Slow recovery and persistent unemployment mean that unions become too scared to make trouble or to complain about speed-ups, or to ask too much during contract-renewal negotiations...

...Although adult black unemployment is substantially higher than white, and the Bureau of Labor Statistics estimates that at least 40 per cent of black teenagers are idle, the audience nobly refrained from hooting its honored guest off the podium...

...Its benefits simply cannot be openly admitted by the large enterprises who are its proponents...

...The cost of everything into which petroleum enters-electric energy, synthetic fibers, pharmaceuticals, fertilizers, and so on-soared in sympathy, and the final effect of the oil exporters' policy was the conversion of a relatively mild recession, on the order of 1969-70, into the deepest contraction in more than a third of a century...

...Thus, once joblessness drops below some magic number, corporations are compelled to raise their prices possibly 2 per cent for each 1 per cent contraction in unemployment...

...If the Phillips trade-off does not apply to current events, neither does it seem to have much basis in history...

...stores and showrooms, German cars, Japanese cameras, Italian shoes, and French wines all started to cost more because marks, yen, lira, and francs had become increasingly expensive...

...In self-protection, unions will ask for more, their gains will justify new hikes and the familiar price-wage-price spiral will reassert itself...

...Phase I and Phase II controls in 1971-72 succeeded in limiting wage increases, more gently restraining prices and profits, and allowing fairly rapid expansion of the economy...

...Such, for example, was the message the President delivered on the morning of July 1 at the annual convention of the National Association for the Advancement of Colored People of all places...

...And since late 1973 Americans have been buffeted by various combinations of much graver unemployment and more serious inflation...

...Pitching in these stormy waters, General Motors and its friendly rivals boosted prices in 1975 by an average of $1,000 per chariot, and GM has already announced an additional $300 hike on its 1976 models...

...At present, factories are operating below 70 per cent of capacity, and the country is producing $150 billion less GNP than it could at reasonable levels of activity...

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

...In 1974, one of the industry's worst years, families still able to afford new cars were buying huge numbers of Toyotas, Datsuns, Volkswagens and Renaults, increasing the foreign car producers' share of the market to over 21 per cent...

...The other half of inflation persists, however, because, contrary to the claims and hopes of Administration officials and many economists, there is precious little competition in the American economy...

...Even if one charitably concedes that these are not the objectives of the President and his economic advisers, the fact remains that they are the only practical results possible under present policies...

...Fortune's celebrated 500 tyrants of the marketplace are a logical beginning for a controller's little list...

...Another extortion by the oil-producing countries, another grain deal, or some harvest failures, could renew inflationary pressures...

...The comments afterward in the lobbies of the Washington Hilton are another matter...

...In the New York Times, Soma Golden recently reported: "Most economists today, regardless of their political affiliations, believe that 5.5-6 per cent unemployment is probably the lowest that the government can achieve without stirring up virulent inflation again...

...Unions, this argument continues, demand and get wage improvements far in excess of productivity gains...

...A series of good harvests has meanwhile allowed some rebuilding of American food reserves and calmed world commodity markets...

...Nor do present or past statistics support the conclusion that inflation and unemployment are inversely correlated...

...Oil prices have been stable for the better part of a year...

...Work discipline loosens, absenteeism spreads and output declines...

...For those undeluded by belief in vanished competitive markets, this sketch of American reality allows only two plausible policy choices...

...American economists seem prepared, talking in their particular brand of News-peak, to call the same figure "prosperity...

...Between 1961 and the middle of 1965 (when LBJ escalated in Vietnam without seeking new taxes to pay for his decision) unemployment steadily declined and inflation ascended at mere 1-2 per cent annual rates...

...And should the Secretary falter in his resistance to more spirited government action, Burns of the Fed can always step in to sabotage revival by limiting the volume of money and credit...

...That episode is not unique...

...Candidates for regulation are health and legal services as well as most of American manufacturing, banking and life insurance...

...Anybody whose brain has not been softened from hearing too many of these Administration apologias must realize that ample unused human and nonhuman resources are at hand to finance more spending of all varieties by government, consumers and investors...

...The first surge of renewed inflation, emanating entirely from the business and farm sectors, began in January 1973 when President Richard Nixon junked controls as a token of gratitude to the large corporate contributors who had financed his re-election...

...BREAKING THE PHILLIPS CURVE Yes, We Can Afford Full Employment BY ROBERT LEKACHMAN Gerald Ford and his three calamitous counsellors, Alan Greenspan, chief economic adviser at the White House, Arthur Burns, head of the Federal Reserve Board, and William Simon, Secretary of the Treasury, have been doing the most successful brainwashing job since someone, perhaps its recipient, persuaded the Nobel Prize Committee to award the 1974 peace trophy to Henry Kissinger...

...In U.S...

...Feeding into this price and profit inflation were the two devaluations of the dollar...

...The White House has concluded that the sole way of preventing new price explosions is to run the economy at recessionary levels...

...In Europe 6 per cent unemployment signals a Cabinet crisis...

...Similarly, the cheapened dollar meant greater demand on world markets for American grain and soybeans, and this, along with the massive wheat sales to the Soviet Union in 1972, the high point of detente, sent domestic food stocks down and domestic food prices up...

...Well, inflation has indeed recently declined, but not for the reasons Phillips devotees emphasize...

...In other words, inflation has been cut in half because of external circumstances...

...This makes excellent sense if the point is to increase existing inequities of income and wealth, bankrupt small businessmen, widen the giant corporations' span of control, and destroy the fragile affirmative-action gains achieved by blacks, Hispanics and women over the past few years...

...The second policy is the one we now, for better or worse, are following...

...One features permanent price and profit controls over concentrated economic power...

...During the Eisenhower era, the country endured a sticky combination of unemployment and inflation...

...currently they are generating little or no inflation...

...Leon Keyserling reminds us that between 1947-53 real economic growth averaged 4.9 per cent (substantially above the 3-4 per cent long-term trend), annual unemployment averaged 4.0 per cent, and the cost of living rose a tolerable 3.0 per cent each year...