Carter's Hoover Syndrome

...The President's main thesis was that deficit spending is at the core of the price blowup He awed-wowed?-his bigwig audience with a single breathtaking statistic, to wit We have had only one year of budget surplus since 1960 Scary stuff that, to the big-shot simple minds listening Of course, there was no mention that despite the rake's progress (with a goodly number of deficits being quite moderate), consumer prices rarely exceeded 1 5 per cent per annum until late 1968, and began to accelerate thereafter...

...That brings us to a complex issue A1 per cent boost in average wages and salaries translates into a $15 billion total income increase A 10 per cent boost amounts to $150 billion, making the annual increase m the pay bill about 25 per cent of the entire Federal budget And the rule of the price level seems to be this The annual percentage price level increase is equal to the difference between the percentage pay boost minus the percentage gain in productivity If average pay goes up by 10 per cent and productivity grows by 3 per cent, prices will rise by 7 per cent If with a pay gain of 10 per cent productivity declines by 2 per cent, the price ascent will be 12 per cent...

...Sidney Weiniraub a pas...

...The pay guideline has been modified, lifted from 7 per cent to a range of 7 5-9 5 per cent With fringes and escalation clauses, the average boost should again work out to roughly 10 per cent-or just about the 1979 increment, relaxed slightly...

...All of this is of a piece with reliance on the Federal Reserve and monetary policy to fight inflation, the only new element being an exercise in "selective" -rather than general quantitative or "aggregative"-control If successful, it should obstruct consumer demand, block some purchases, defer others, but mostly have a nuisance effect on the individual-at least those of us who pay our bills on schedule and use credit cards as a convenience The impact of these measures on the inflation is likely to be similarly trifling, and via some recession-resolution channel...

...The budget cut for 1980 will be around 1 per cent of Federal outlays and one-fifth of 1 per cent of GNP, for 1981, maybe around one-half per cent of GNP This, to fight inflation'' The result will be a bit more unemployment, pushing closer to a recession, with no discernible aid against inflation...

...It should be clear, too, that when union leaders leave the bargaining table pleased with a good contract for their members, their pay gains are thereafter eroded in price inflation as (1) other unions secure then increases, and (2) as the equal gains spread to nonunion employees, to managers, to executives Further, a 10 per cent pay increase on $15,000 amounts to $1,500, while for a $30,000 manager the absolute increase amounts to $3,000, and for a $150,000 executive (often voting his own salary) it comes to $15,000...

...Following the austerity boasts in mid-January (see "Budget Charade," NL, February 11), a sharper pruning knife promises to trim off about $2 billion in spending from the rest of fiscal 1980 and about $13 billion from fiscal 1981 Despite the grim visage of the President, which we have seen before, my earlier assessment still goes Military spending is bound to rise, and the budget figures seriously underestimate the impact of inflation The figures are promised on a 10 4 per cent consumer price rise m 1980 and 8 6 per cent in 1981 Anyone who accepts that will believe that Ayatollah Ruhollah Khomeini has been preaching love and devotion to the Shah...

...Interest charges on carrying the national debt are understated as well, now that the prime interest rate has zoomed into the stratosphere to reach 19 per cent at this writing Loan-sharking made legal by public policy, you might call it...

...The President's solemnity is thus not to be confused with seriousness about inflation Especially not his subsequent babble that it is a worldwide problem (thrust on us from outer space7) Or his other recent remarks that we can get to a 3 per cent annual price hike by 1988, presumably if we balance enough budgets along the way On the basis of the policies adopted, 2050 seems to be a likelier year...

...The President spoke of augmenting the staff policing his "voluntary" price control program, and of requiring prenotification of price jumps in the larger firms One can guess that this is putting a finger in the dike...

...Details are still sparse, but the President proposes a tax of $4 60 per barrel on imported oil, which is expected to raise the price of gas at the pump by approximately 10 cents per gallon The increase obviously would kick up the price index Some claim it would drain purchasing power from other goods, too This would adversely affect production and jobs, and so tip toward a "recession-resolution" without staunching the price trend...

...The President's economic bumbling makes even Nixon and Ford look good That in itself is an incredible feat, but he is also likely to succeed where all Democrats-and Republicans-have failed-namely, in making his own name a synonym for economic mismanagement and expunging memories of Herbert Hoover dawdling at the onset of the Great Depression A long line of Republicans will henceforth run against Jimmy Carter, this is a major historic reversal...

...2. Oil Import Fee...

...It is easy to be misunderstood here Observe that the reference in the price-level rule is to average wages and salaries Textile workers, teachers, policemen, bus drivers, and others could get more than the average productivity gain, without driving up the price level, so long as balancing groups got less But are there any volunteers for taking less than the average...

...4. Policing Prices and Raising the Pay Guideline...

...NL conibutor, is the author of Capitalism's Unemployment and Inflation Crisis...

...There are five planks in the President's newest inflation message One of them contains some underdeveloped pieties and platitudes on raising productivity by reducing government regulation and somehow increasing savings Something may come of this through Presidential prayer or proclamation, or in some other way, by 1990 or later At the moment, in any case, the plank can be disregarded The remaining four bear a closer look I Spending Cuts and Budget ance...

...NOTHING NEW ON INFLATION Carter's Hoover Syndrome BY SIDNEY WEINTRAUB WATCHING Jimmy Carter orate his much touted "new" war on inflation March 14, and then suffering largely the same speech later that evening in what was billed as a press conference, one could not help shuddering Can he really believe such drivel'' Or was he merely using substantial free TV time to deliver a campaign document designed to take some of the sting out of Ronald Reagan's William McKinley positions...

...3. Consumer Credit and Government Loan Guarantees The Federal Reserve is being empowered to make the issuance of credit cards more costly, and apparently to regulate the full volume of household credit In addition, various Federal loan and loan-guarantee programs are to be brought under stricter control...

...After Carter's equally solemn pronouncements of October 24, 1978, my evaluation was that his plan was not intended to stop inflation but really to sustain it at the ongoing rate Those, you will recall, were the carefree days when an annual 8 per cent price move was deemed inflationary The present "active inaction" will probably work to lift the price trend slightly The starting gate now is so much higher, however, after the 10 per cent plus rate for all goods and 13 3 per cent for consumer prices in 1979-and the trauma of an 18-20 per cent price explosion is portended by the data for the early months this year...

...I would add here that our higher interest rates are attracting nervous international floating capital seeking havens of high yields Consequently, the dollar has shown some strength of late in the foreign exchange markets This should help contain price moves for imports, and do a little to damp our own price indices...

...Labor has been remiss, I think, in not attending to these problems of pay "universality" and the implications for inflation, and recession with unemployment induced by monetary policy Of course, President Carter said nothing and will do even less about pay gains in upper echelon brackets Nonetheless, inflation will not be brought under control until the income distribution issue is tackled...

...Labor unions also have not pursued for some years matters of price margins in industry generally, and their implications for labor's economic status The Carter inflation dirge holds little or no promise in this respect Indeed, the President's most recent-hardly his last-TV inflation spectacular notwithstanding, he is still fencing against the problem He has moved mainly side-wise or backward, giving us footwork in place of action...

...This refers to the general price index, covering all goods, for consumer prices the formula is a bit more complicated, but close enough to the same relation It should also be noted that in all this we are speaking of money wages and salaries-not of real wages or a wage earners' buying power, and certainly not of wage earners or union workers alone...