The Pointless Recession

...For how long...

...Alas, these are unanswerable in any accurate sense, despite the models of econometric astrologers We cannot really be sure about tomorrow until the day after Some measurable traces have recently shown up, however Auto sales are plummeting, housing starts are sagging, large retail merchants are reporting lower volume, summer resort business has been somnolent, hit by the opec price raid So the Administration has now announced that we are beginning to enter a recession But this dismal news is a result of both drift and contrivance The drift is attributable to the monumental ineptitude of economic advisers skilled in the art of double-speak, men who possess a consummate genius for conveying failure as success (the breed formerly served Richard Nixon, and Washington is its natural habitat) And while we know that alter nine months a child will be born, current signals are \ague on the seriousness of the slow-down confronting us Amplitude and duration will depend on how soon and strongly the Carter entourage shifts course, unlike a birth, much early economic damage can be corrected, but time is running out The contrivance is attributable to the Administration and to G William Miller, chairman of the Federal Reserve Board Once upon a time, in the faded days of the gold standard when recessions were accepted as acts of God, the outward drain of the metal meant a drop in the money supply, lost jobs, reduced production, wage cuts, and lower prices Fluctuating prices, in fact, actually served to measure the business cycle Hard times led to leaner, cost-conscious firms hungry for an upward flurry The depression price bust compensated, albeit imprecisely, for the boom price surge I have no nostalgic yearning, though, for that old gold religion Instabilities of the standard could be cruel, subjugation to "the rules of the game" constituted bondage to an onerous hitman SidneY Weintrmib professor of economics at the University of Pennsylvania, is the author ot Capitalism's Unemployment and Inflation Crisis and Keynes, Keynesians, and Monetarists institution The demise of the system that began the Great Depression cannot be mourned Unfortunately, the Federal Reserve seems to feel otherwise Remnants of gold standard thinking still pervade its practice as it tries to thwart inflation by monetary tinkering It behaves on the principle that credit denial will induce a downturn in the economy and discipline labor by slowing wages, while conscripts gather in Marx's "army of unemployed " Yet the record attests to the Fed's incredible defeats on the price front, despite the enormous effect of its follies on jobs and production Turning the monetary screws stymies the expansion plans of business firms and of the housing industry, making it no accident that every recession since 1949 has had a tight-money format Business declines originate not in Heaven but at the Fed—a comfortable haven, to be sure, for the grave in mien Instances where the giant multinationals become leaner in the process are hard to detect, they continue to swell inordinately under the rigid diet either by recourse to internal funds or to the Eurodollar market Essentially, most of the premature recession forecasts were contingent on the money maneuvers For although the more sanguine monetarist disciples thought the hocus pocus would deter inflation—a myth that is slow to die?few economists doubted a production rein Now interest rates are nesting at historic high plateaus, pushed there by the Fed under a Carter chairman The sequel will soon appear The Carter Crew, therefore, must bear culpability for the pointless recession that will cause avoidable job and income hardships Dissimulation has compounded the crime Speaking with forked tongues, Carter men until this month denied the recession prospect Talk of slow growth, a tidy euphemism for a growth recession, was the standard party line Vacuous images of a "soft landing" also filled journalists' notebooks when the money noose was drawn last autumn What airline traveler does not like a "soft" touchdown...

...The query was superficial—an oscillating economy must ultimately move downward Administration wheels nevertheless answered the solemn interrogators with a ponderous optimism, this being judged more politic Even Ole Bert Lance was a TV "expert"—by Presidential annointment Position makes blather respectable Deeper questions would have been When...

...But why have historic high interest rates if not to alter the economic course7 Unless they dampen the economic climate they only line bank profits The Carter Crew's talent for outrageous rationalization insulted intelligence by calling blue orange In these pages and elsewhere, I have argued that inflation will endure as long as money incomes outrun production growth It is an assault on arithmetic for output to edge up by 1 or 2 per cent annually and for money incomes to lurch ahead by 8, 10 or more per cent without the difference ending in inflation Also, since wages and salaries comprise about 75 per cent of total national income, their pace must inevitably be slowed Some protest that this position is antilabor It is not It is anti-inflation and pro-full employment We cannot all secure outsized pay gains when output declines per employee, as happened in 1974 and as seems to be happening in 1979 One union, one group, can always jump ahead of the average productivity norm in wages without doing much harm But as others inevitably follow suit, the result is higher unit costs, higher consumer demand through the money incomes, and higher prices Labor has, moreover, paid too little heed to the universality of pay hikes Workers could achieve more in real terms if they eyed incomes just beyond the negotiating table Suppose steel or auto workers receive a 10 per cent annual boost from $15,000 to $16,500 Then, on withdrawing from the table the negotiators become passive bystanders as $30,000 and $50,000 managerial personnel—to say nothing of exalted echelons—draw 10 per cent raises as well Labor's wage "gains" will accordingly vanish up the inflation chimney Note, too, the absolute discrepancies that translate into added pay of $3,000 and $5,000 for the higher salaried Labor can also do more to protect itself and deflect profits by attending to profit margins and the flex in prices in industries it contends with Indeed, by protesting the more obscene managerial pay grabs and reviewing price margins, unions could secure wage hikes that transcend the productivity norm without generating an inflationary storm In his very somber TV address last October—when prices were steaming ahead at just under 10 per cent—President Carter outlined his anti-inflation crusade Robert Strauss was named point man in the leisurely campaign Alfred Kahn was given the price-control task, accepting a bit too eagerly and innocently an assignment to "study" the problem and acquire on-job training Since then, the tempo of inflation has accelerated to over 13 per cent For his ineffable bungling Strauss has been promoted to pilot the delicate Israeli-Egyptian peace mission Kahn is still on the job But the plan was an exercise in futility from inception At best, the mandate was to stabilize the inflation rate at 7 per cent, or to reach for nothing better than the average rate that prevailed over the horrendous inflation decade Only Presidential cosmetics, expert fabrication and a noncritical press corps could portray this as an anti-inflation strategy The plan was concocted not to stop inflation but to maintain it at the on-going pace, so as not to provoke anybody by its cessation Small wonder that Kahn's ventures into speechcraft evoked memories of George Jessel, in being long on sentiment and short on interest A policy without bite—with the only margin for error on the high side?was bound to lead to the current quandary where a recession appears welcome as a saviour from double digit inflation Once again we are mixing a potent dose of inflation and unemployment trouble, featuring a massive display of economic mismanagement more suitable to a banana republic than to the world's greatest democracy The American Stagflation Sickness bids fair to replace the British Disease of faltering productivity as a butt of international derision Administration apologists will sputter that this assessment omits opec ex-toition But considering the Three Mile River disaster, opec, and our still too slow puisuit ot alternative energy sources, we seem destined to a future ot higher relative energy prices This will merely make a stricter incomes policy move imperative For in using less energy per employee, and costlier imported energy for running our mechanized plant, productivity per employee will suffer With each dollar of GNP output containing, say, 15 cents of imported ingredients rather than 10 cents, we will be more heavily buffeted by foreign price winds Only stout control over domestic unit costs can neutralize the wayward price consequences The alternative is inflating domestic costs and providing more purchasing power to subsidize the oil monopolies at the local gasoline station FDR's selection of Marnner Eccles was a masterstroke Harry Truman, to his discredit, foisted us with Chairman William McChesney Martm, a man with a vision of recession and slow growth as the American dream John Kennedy warily renewed his tenure as an olive branch to Wall Street Jimmy Carter, on the advice of Vice President Walter Mondale and Treasury Secretary W Michael Blumenthal, appointed the incumbent Miller He, too, is addicted to the patent medicine of recession and slow growth, after all, his job is not in jeopardy The single thing to be said in defense of his mythology that masquerades as wisdom is that the Herblock, in a trenchant cartoon, has drawn Uncle Sam lapping a few drops of oil that an Arab sheik be-grudgingly dribbles onto a dish Perhaps the harshest historical indictment of the Carter Crew, and the windy parochial Congress, has been its tardiness in implementing a crash program entailing conservation and substitute fuels The myopia has been exacerbated by allowing oil companies to gobble up substantial coal reserves, a move calculated to prevent any undercutting of the appreciating value of their vast oil reserves Liberals would do well to beware of Federal Reserve missionaries, who have the power to do egregious harm Administration has defaulted, by design and artlessness, on inflation The pity is that some of the economic architects surrounding the President know better But they have come to revere their judgment for hearing which way the political wind is blowing In heeding the noise, they have adopted bad economics to assure hopeless politics The President carries a heavy cross tor honoring the economics ot Bert Lance in the shakedown period ot his incumbency And he still seems persuaded that a balanced budget is our salvation Can he nd himself of this hokum...

...How severe...

...A "born again ' opportunity beckons...