The Economy and the Election

...For there is no doubt that in the absence of an incomes policy a steady march toward 3 per cent unemployment would be inflationary—not because of the wicked unions but because large corporations would grab the chance to raise prices and multiply profits...

...As history, that is about what one might expect from a syndicated pundit...

...Have jobs ceased to be a motherhood issue among Democrats...

...No doubt special attention should be devoted to teenagers (few of whom are eligible for unemployment compensation), but we should refrain from heating up the economy simply to put these notoriously troublesome people to work...

...Since at the moment we harbor an inconveniently large number of these folk, we can anticipate higher unemployment rates than if some of them had tactfully refrained from being born...

...What goes on here...

...The decline in the unemployment percentage, painfully slow while it lasted, reversed itself and started climbing again, from 7.3 per cent in May to 7.5 per cent in June and 7.8 per cent in July...

...When the electorate is allowed to worry more about inflation, the Republicans almost always do well...

...adults for legislative purposes are men and women 20 years of age or older...

...August's figure of 7.9 per cent was just 1 per cent better than the low point of the 1973-1975 episode and slightly higher than the worst month of the deepest of the three Eisenhower recessions during the 1950s...

...Still, the unhappy situation is not one Carter and the Democrats can simply resign themselves to if they hope to avoid blowing the economic issue...

...His Kansas City acceptance speech emphasized the strength and durability of the current recovery (nearly 18 months old) from the 1973-75 mini-depression...

...The omission was the price of organized labor's endorsement of the legislation...

...Thus, without mentioning the bill by name, the Democratic platform endorsed the central elements of the Humphrey-Hawkins Full Employment and Balanced Economy Growth Act (HR 50...

...On the very September day that the bleak August unemployment numbers were released, Carter at a press conference gave at least equal emphasis to inflation, reiterated in strong terms his pledge to balance the Federal budget by the end of his first term, and drifted very close to saying that full employment was dangerously inflationary...

...Full employment is defined as 3 per cent adult unemployment...

...Unemployment among the young, black and female is historically higher than the average...

...With good reason, AFL-CIO President George Meany is convinced that the Nixon controls in 1971-72 were conceived as a clever device to "zap" the unions—to borrow that immortal word from Arnold Weber, one of the administrators of the program...

...Not to worry...

...In view of the predominant power of large corporations and the moderation of union leadership, a sensible set of controls might reasonably begin with key prices, say those charged by Fortune's list of 500 goliaths, and proceed only if and as necessary to wages...

...Democrats are credible as the party of economic expansion and high employment...

...Accordingly, it is likely that the country will continue to suffer high unemployment for years to come, and that women, teenagers, blacks, and Hispanics will remain its major victims...

...Worst of all, the economy in early fall is in the middle of a "pause," to borrow the word in vogue among the deep thinkers in the ranks of business analysts...

...The target is to be achieved within four years and HR 50, for all of its deferential gestures to private business, promises to create enough public jobs as a last resort to insure this...

...There is the simple explanation of the "puzzle" this summer of increased job-hunting activity by women...

...A month ago it did not seem possible for Carter to lose...

...Jimmy Carter has also endorsed Humphrey-Hawkins...

...If we genuinely want to lick inflation, then we must bite the bullet or, more accurately, arrange for others to bite it in the public interest...

...This was precisely the pattern of bargaining that characterized union negotiations during the first half of the 1960s, before the Vietnam escalation disrupted the steady growth of the economy in the context of nearly stable prices...

...But the economics of the situation are as plain as its politics...

...As Sanford Rose approvingly summarized this amiable doctrine in the September Fortune, unemployment is not nearly as painful as it used to be...

...But Republicans need not despair so long as economists are still around...

...Licking their chops, Democrats openly predicted that Ford's eagerly awaited veto would provide their national ticket with a vital economic and social issue sure to woo the voters...

...In fairness, it should be immediately noted that Carter is in a delicate political situation...

...Experts who in the early and middle 1960s explained confidently how 4 per cent unemployment could be compatible with stable prices and a bit later were confident that a small recession would cure the inflation of the late 1960s, have now discovered something termed natural rate of unemployment...

...And, after all, even an allegedly liberal columnist like Joseph Kraft—who these days frequently comes on like a Ford flack—has noted approvingly: "Despite ups and downs, his policies have not prevented economic recovery, return to peace, and a revival of trust...

...This requires any President to submit a full-employment budget to Congress each January, and requires Congress to enact that budget or one of its own in time to maintain or promote full employment...

...Unless inflation is halted, it will surely lead to a new and worse recession, sending unemployment to new highs...

...There is no encouragement to be drawn either from the fact that the Democrats' principal response to unemployment is currently stalled in Congress...

...The threat is, as it has been, price and profit push, not wage push...

...The best one can say for the man from Grand Rapids is that he refrained from vetoing a few of the antirecession bills Congress sent him...

...For in Congressional testimony and an influential briefing of freshman Democratic Congressmen, Schultze sharply attacked HR 50 as inflationary and raised the specter of men and women deserting productive private sector jobs to latch on to better paid Federal sinecures...

...The recovery, such as it is, has occurred in spite of Ford's earnest efforts...

...It is hard to exaggerate the timidity of the party's troops on the Hill...

...It was Congress, against White House opposition, that expanded funds to create new public jobs, and Congress that refused to accept budget ceilings guaranteed to halt economic expansion...

...All sorts of benefits plaster the wounds of the jobless...

...Thus any strong statement by Carter in behalf of controls is likely to antagonize labor, and his all-out endorsement of HR 50 in its present form is equally likely to expose him to charges that he is the same as all those Northern Democrats, a big spender and an ally of inflation...

...Moreover, if some enlightened President (not, I suspect, Jimmy Carter) were to float such an incomes policy, he would immediately encounter the fierce opposition of business and most of the media...

...An accurate response must focus on the growing realization that in American terms the only way to approximate full employment is to curb concentrated economic power, primarily that of large corporations...

...As this phenomenon is explained by MIT's Robert Hall and the University of Pennsylvania's Michael Wachter, there is some level of unemployment below which wage rates begin dangerously to ascend and prices meekly to follow in their wake...

...Only a few months ago, the scuttlebutt had it that Speaker of the House Carl Albert, House Majority Leader Tip O'Neill and other potentates had promoted HR 50 to the very top of the Democratic caucus list of priorities...

...As for inflation, a 6-7 per cent level is historically quite high and, in the guaranteed absence of White House pressure, major industries are now poised to speed prices and profits upward...

...Seldom can they accurately be identified as the initiators of inflation...

...There is no reason to expect that unions, reassured by price stability, would bargain for more than their employers could grant without inflationary consequences...

...Unlike the Democratic platform, HR 50 conspicuously omits controls in its weak and rhetorical section on antiinflation policy...

...Retail sales are flat and businessmen, despite their professed admiration of Republican policy, have cautiously refrained from setting off the boom in capital investment needed to continue the recovery...

...On the food front, where good harvests in India, Russia and the Midwest bode comparatively well for prices, the processors and merchandisers are unfortunately far too busy widening their profit margins to think of passing savings on to the customers...

...If such economic wisdom strikes you as nothing more than rationalization of what has recently been happening, be reassured: That's the way my colleagues impress me also...

...At casual inspection the Democratic position is a welcome contrast...

...Furthermore, the war against inflation is in the interest even of its apparent victims...

...The leadership was said to have sworn a collective oath to put the measure on the President's desk by the end of May...

...Although the Democratic platform does endorse stand-by controls over both prices and wages, Carter's standard response to queries about this is an expression of his own dislike of such interferences in the "free market," his confidence that he would not have to resort to them, and his preference, nevertheless, for authority in rare instances to impose controls...

...Although the steel companies have temporarily retreated from an October 1 increase (on top of a huge rise in the spring), General Motors has almost simultaneously announced record-breaking profits and an average 5.9 per cent markup on new models, bringing GM's typical glittering chariot to a cool $6,000...

...Mainstream economists have brainwashed themselves and the public into believing that wage controls must accompany price controls as unavoidably as one Siamese twin is attached to its sibling...

...Let's set the record straight...

...Any administration confronted by rising inflation, the argument runs, will tighten credit, raise taxes and reduce Federal spending—and give birth to yet another economic downturn...

...American unions, both weaker and less radical than their European counterparts, have in the last five years reacted defensively to inflation...

...The moral is plain...

...Some recovery...

...the halving of inflation rates...

...Of course, once prices rise unions do their best to protect members by insisting on cost-of-living escalator clauses, and their success is the occasion for a second round of wage increases, and so on...

...For average Americans, meanwhile, the economy's various movements or lack of them have been something to read about in the newspapers...

...Should the major corporations behave themselves at least until November, opec is very likely to tack an extra 10 per cent onto crude petroleum charges, the better to buy the military merchandise the Pentagon is much too eager to sell them...

...No one ought be surprised that the "others" in questions are teenagers, women and urban blacks and Hispanics...

...But the endorsement was both late and tepid, and yearners after full employment have no reason to be encouraged that Charles Schultze, now of the Brookings Institution, once Lyndon Johnson's budget director, has turned up as one of Carter's economic advisers...

...I am not so naive as to think that price controls without wage controls are politically feasible...

...But he may yet snatch defeat out of the jaws of victory, as was said in 1948 of Tom Dewey, if he continues to drift away from a commitment toward full employment and replaces that commitment with a set of Republican pieties about big spending, balanced budgets and the menace of inflation...

...At most a set of nonmandatory wage guidelines might accompany mandatory price controls...

...Our luck, the natural rate of unemployment for 1976 was quite high?.5-6 per cent...

...and the steady increase in the number of jobs generated in the private economy...

...Well, autumn is here and those brave Democratic Congresspersons who a while back were threatening to send the fresh winds of change rushing through the musty halls of the Capitol are now so scared of the issue that they have successfully pressured House leaders into killing it for this session...

...In the winter of 1974, it was Congress that insisted on a major tax cut at a time when the President was promoting win buttons...

...In real terms the typical blue-collar family was no better off in 1976 than it was in 1966—if only the head of the family was fully employed...

...But the economy had only improved enough to encourage them to look for jobs, not to create the jobs...