A Lesson for the U.S.?

Much like the U.S., Britain is struggling with what the English call "stagflation": a stagnant economy accompanied by unacceptable rates of unemployment and inflation. Prime Minister Heath's Conservative government had hoped that the economy would recover without major government intervention. Last week, with the slump continuing, the Tories abruptly and courageously switched policies.

To stir demand, the government cut taxes on many consumer goods by an average of 18%, or an estimated $564 million a year, and removed all consumer credit controls. It also raised tax credits for capital spending to boost productivity and cut the 3.4% jobless rate.

Most significant, the government offered its expansionary program in exchange for a promise from industrial leaders to hold price increases voluntarily to 5% for the next year, v. the present rate of 10%. Members of the Confederation of British Industry are making their pledges in writing, while chiefs of major nationally owned businesses have also agreed to go along. The Conservatives hope that the package will soften labor's wage demands. The Trades Union Congress hailed the stimulating aspects of the move, but union chiefs guardedly agreed to "respond" on wage restraints only if the upward sweep of prices is indeed checked.

The British response could contain a lesson for the U.S. The Nixon Administration's main argument against a more expansionary program is that it might spur inflation. Yet if the Administration could offer a policy of economic stimulation, businessmen and parts of organized labor might well accept voluntary price and wage restraints. Then the fear of climbing prices would diminish. The benefits of such a move are clear. Last week, the Bureau of Labor Statistics reported that living costs in June climbed .5% on a seasonably adjusted basis--the second sharpest rise this year.

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