INFLATION JAWBONING, NIXON-STYLE

FROM the start of its fight against inflation, the Nixon Administration pledged not to copy Lyndon Johnson's controversial "jawbone" tactics. There has been considerable jawboning, but it is different from Johnson's. Johnson's jawboning involved White House pressure on specific industries against specific price increases. Nixon is substituting mild admonitions to business and labor en masse. Last month he wrote to 2,200 business and labor leaders, urging them to hold the line on wage and price increases. Last week he followed up by inviting 3,000 corporate leaders to the cavernous ballroom of Washington's Sheraton-Park Hotel; 1,800 came for an anti-inflation "briefing" reminiscent of a college pep rally on the eve of the big Thanksgiving football game.

Paul McCracken, the President's chief economic adviser, warned the businessmen of sacrifices ahead. "You will have to steel yourselves to the fact that all the things happening are all the wrong things--lower profits, a cost squeeze." Even after the "painful transition" is over, he said, the Government will not allow the economy to resume its rapid rate of growth. Instead of annual increases in spending of 8%-10%, the growth will be held down, McCracken said, and "this difference should be kept firmly in mind." Labor Secretary Shultz said that the businessmen would have to face union demands without Government help, even in the case of utility or transport strikes. "We place our reliance on the free economy," he said, "so that our resolve will be tested." Nixon himself closed the meeting with a speech that asked business to "meet its responsibilities to make America the hope of the whole world." As for inflation, he merely repeated his earlier warning that businessmen who bet on its continuation are bound to lose.

A Call for Controls. The meeting took place amid increasing signs that businessmen are growing pessimistic about the chances that the Administration's strategies of tight money and budget surplus will actually stop inflation. The latest economic statistics indicate that the policies are indeed slowing the economy. Corporate profits dropped sharply in the third quarter, and industrial production fell in October for the third straight month (see chart). Housing starts fell 12% last month to the lowest level in two years, and new orders for durable goods, which had risen sharply in September, settled back again. The price picture is less clear. The consumer price index rose at an annual rate of 4.8% in October, compared with a 6% rate in September, but a one-month variation of that size is not enough to signal any turn. Economists find it at best a mildly encouraging sign that the rate of price increases is leveling off. Four prominent Manhattan clothing manufacturers joined last week in a startling call for federal wage-price controls. Said Lawrence S. Phillips, president of shirt-making Phillips-Van Heusen: "Unfortunately, all other efforts to halt inflation have failed. Unless some action is taken immediately, a monetary and social situation rivaling that of Depression days is inevitable." President Michael Daroff of Botany Industries, Richard Schwartz of Jonathan Logan, Inc., and Alfred Slaner of Kayser-Roth gloomily agreed with Phillips that consumers are showing growing resistance to clothing price increases; Daroff added that "the only way to hold our prices is to hold labor costs."

Less extreme pessimism is being expressed even by some minority voices within the Government. Treasury Economist Herman Liebling has warned in a confidential memo that prices could rise as much as 6% next year. His reasoning: labor productivity is likely to drop while wages keep rising, intensifying cost pressure on prices. J. Dewey Daane, a member of the Federal Reserve Board, expressed doubt that price increases will slow to a "tolerable" rate even by the end of 1970, despite the Board's tight squeeze on credit.

Fictional Rate. That pressure last week brought a further rise in interest rates from their already towering levels. High-grade utility bonds were offered in Wall Street at a record 8.9% yield. William F. Butler, vice-president of the Chase Manhattan Bank, says that banks are refraining from raising their 81% prime rate on business loans only because they fear "the wrath of Congress." The prime rate is an increasingly unreliable guide to borrowing costs anyway. Growing numbers of borrowers pay as much as 10.6% interest on loans officially made at the prime rate, because banks are strictly enforcing a rule that the borrower must leave 20% of the face amount of his loan on deposit as a "compensating balance."

All this turmoil indicates that the Administration is beginning to face an economic credibility problem, though not of the sort that it has been talking about. Nixon men have said that they are having trouble convincing business, labor and consumers that the Government will stick to its prescribed anti-inflation policy long enough to cut the rate of price increases substantially.

About the latest date any member of the Administration has mentioned for the first signs of a price slowdown to appear is the end of 1969. If the price climb of the index does not slow further in the next few months, the Government is bound to encounter growing doubt not about its determination but about the adequacy of its policies to do the job.

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