Picking Up the Wishbone

THE nation's long war of attrition against inflation has proved as intractable as the war in Viet Nam. Last week the rise in the consumer price index for May came out at an annual rate of 6%, the same as April and roughly the plateau on which it has been stuck since the start of the year. But steel prices, which had risen steadily, began to level off, and the price of consumer services began to soften a little. Most principal indicators continued to show bad news. Interest rates remained high. The national unemployment rare reached 5% last month, and some local jobless rates passed the 7% mark.

Against this confused backdrop, Richard Nixon last week delivered his long-promised message on the economy. Committed to cooling the economy through tight money and cutbacks in federal spending, the President had steadfastly refused to abandon his game plan despite the mounting pressure to take a more active role against inflation. Last week he bowed to the pressure and moved to meet his critics at least part way. The President still refused to pick up the jawbone that his predecessors had wielded on excessive wage and price rises. But he did at least pick up a wishbone and proposed three specific measures to step up the attack on inflation:

-- Creation of a National Commission on Productivity, composed of representatives from business, labor, Government and the public, to seek ways of boosting U.S. industry's productivity. -- Establishment within the Government of a Regulations and Purchasing Review Board to study federal regulations and import policies in order to pinpoint where the Government inadvertently acts to drive up costs. -- Assignment of the Council of Economic Advisers to prepare a periodic "inflation alert," warning the public which wage or price boosts are inflationary and identifying the industries, though not the corporations or unions involved.

Nixon's proposals failed to go as far as those urged by his economic and congressional critics. They nevertheless represent a significant shift in his anti-inflation strategy. Nixon is philosophically opposed not only to mandatory controls, but to any forms of governmental management of a free economy, and has gone out of his way to avoid the arm-twisting tactics of the Kennedy and Johnson Administrations. His espousal of the "inflation alert," though still far short of the jawboning he abhors, thus represents a cautious step away from a passive posture to an activist presidential role in economic policy. "Now is the time for business at every level to take price actions more consistent with a stable cost of living," said the President. "Now is the time for labor to structure its wage demands to better achieve a new stability of costs." His plea brought an immediate response from one firm. An Indiana electrical company announced that it would buy no copper wire from any firm that increased its prices.

Bipartisan Chorus. The President's step was not easy. His address was conceived in uncertainty, born out of compromise. The White House had announced last April that Nixon would soon talk to the nation about the economy. It delayed the speech after the President ordered U.S. troops into Cambodia, put it off again in the tumultuous weeks following his decision. Then the stock market plummeted, and a chorus of U.S. businessmen, economists and Congressmen from both sides of the aisle joined in urging the President to talk to the people about inflation.

Nixon agreed to the talk, but neither he nor his aides agreed as to what he should say. Federal Reserve Board Chairman Arthur Burns opposed controls but favored an ''incomes policy" under which the Government would establish, but not enforce, wage-price guidelines. Labor Secretary George Shultz and Herbert Stein, a member of the Council of Economic Advisers, wanted to do nothing at all. CEA Chairman Paul McCracken opposed any plan that would require his staff to police wage-and-price agreements.

Second-echelon aides had more specific suggestions. Treasury Under Secretary Paul Volcker suggested a voluntary wage-price freeze. Treasury Under Secretary Charls Walker*backed Senator Jacob Javits' original plan to have some group identify and spotlight major inflationary wage-and-price hikes before they take place, but did not feel it was a job for the CEA. Trying to reconcile all this, Speechwriter William Safire wrote ten drafts before a reluctant consensus was reached.

The result was a product that attempted to reassure the Administration's friends, mollify its critics and buy time for the game plan to work. The President announced that he was sticking to his basic strategy to combat inflation. But he also placed great emphasis on winding down the Viet Nam War. Blaming current unemployment on a recent cutback of more than 700,000 military and civilian defense-related jobs, Nixon said that the nation was undergoing the difficult transition from a wartime to a peacetime economy, and predicted that the economic situation would remain tense until the change was accomplished. He expressed confidence, however, that the U.S. could make this transition without resorting to governmental controls, in the process reaffirming his commitment to get out of Viet Nam as soon as Vietnamization permits.

Reaction to the President's address was partisan. Economist Milton Friedman hailed Nixon's decision to avoid wage-and-price controls. University of Minnesota Professor Walter Heller found the President's espousal of wish-boning "better than nothing, but not much." Banker David Rockefeller, who had urged the President to appeal for restraint, termed Nixon's proposals "excellent." But A.F.L.-C.l.O. President George Meany, who has supported Nixon on Viet Nam, disagreed with his plans to end inflation. "I fail to see how they will curb inflation, reduce unemployment and cut interest rates," he said. Emil Mazey, secretary-treasurer of the United Auto Workers, was even less impressed. Said he: "I understand the speech did wonders for the flowers and bushes around the White House."

Almost everyone has felt the economic pinch. The Boeing Co. has laid off 22,000 workers in the Puget Sound area since January, plans to trim its pay roll from a 1968 high of 101,000 to 45.000 by the end of this year. One of those affected by the cutback, Engineer George Wheeler, recently sold his $28,-000 house in Seattle, and plans to move into a $40-a-month apartment in his native state of Wyoming where he hopes to teach. Electronics firms have laid off 5% of their personnel in Massachusetts. William Kukers, 52, lost his $20,000-a-year job as a project manager with Avco Corp., now supports his wife and 16-year-old son on $68 a week in unemployment compensation and a dwindling savings account. Automobile manufacturers have slashed their payrolls by 18,500, and Detroit's advertising agencies have laid off more than 200 employees, many of whom are dipping into their savings as they search for jobs.

The housing market has been seriously slowed. Housing starts are down 80% in Indianapolis. 65% in Cleveland. Stock-brokerage houses are letting some of their people go. The manager of the Bull N' Bear Restaurant in Chicago's financial district says that business has dropped off 15% and brokers who used to eat in his dining room now take their meals in the less expensive cafeteria and coffee shop. "And they're not boozing or partying as much." he adds. Summer jobs for students are in short supply.

Nixon's house economists are gambling on an upturn by midsummer, and experts like Leif Olsen, senior vice president and economist of First National City Bank, see a lessening of inflation. No one has more riding on an inflationary slowdown than Nixon himself. As a political mathematician, he need only look at economics statistics to realize that few groups have been hit harder by the recession than the usually secure middle class of the West and Midwestern industrial centers that helped him to victory in 1968.

*The unusual first name was a whim of Walker's mother.

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