A Drive to Beat Inflation

THE presidential campaign of 1972 opened on the evening of Aug. 15, when Richard Nixon startled the nation by proclaiming an unprecedented wage-price freeze. That bold stroke was only the beginning of his new attempt to solve his toughest political problem: how to purge the economy of the twin evils of high inflation and high unemployment. Last week the President was back on TV, several days earlier than expected, to announce his program for Phase II, the period to follow the end of the freeze on Nov. 13. Nixon's speech also sounded like the opening of Phase II of the election campaign.

Politically as well as economically, the impact of what the President announced will be enormous. This much seems clear:

> Nixon has staked his political future on a unique, complex and rather fuzzy mechanism for bringing inflation down and bringing employment up. If it succeeds, the President stands a much better chance of re-election than he did just a few weeks ago. If it fails, he will be in much deeper trouble than before.

> The power of Treasury Secretary John Connally, who takes charge of the new program, has risen tremendously. Rarely has one man held so much influence over the U.S. economy. He is in a position to use that strength to rise considerably higher in public office.

> The President's actions have changed the American economy for years to come, perhaps forever. Since a precedent has been set, businessmen and wage earners can never again be sure that some other President, at some time in the future, will not again roll out restrictions on wages and prices in a period of much less than total war.

For all that, the President's speech was in many respects a disappointment. Viewers waited to be told how much their paychecks would be permitted to rise over the next year or so. They never heard. Nixon unveiled a Rube Goldberg administrative mechanism, including a new Pay Board and a Price Commission--and he gave only the sketchiest outline of all that (see following story). The President read letters from self-sacrificing citizens who applauded the wage-price freeze even though it had deprived them of raises, appealed for similar patriotism in the marketplace in the months ahead, and promised that 1972 could be not just a "very good" year but a "great" year for the economy.

Despite the generalities, there is much to endorse in the President's program. It makes a kind of sense and gives Nixon a fighting chance of meeting his goals in the supermarkets and at the polls. Economically, Nixon aims to start a colossal national bargaining process. The Phase II machinery has been set up to force representatives of labor, business and "the public" to agree by Nov. 13 on rules governing wage and price increases. In effect, they will have about a month to negotiate a sort of social compact, which they will then have to enforce in item-by-item decisions on particular pay and price boosts.

That approach is utterly Nixonian: set general goals and a deadline and let others work out the details. Nixon will not even be the man watching over the bargaining sessions and the eventual enforcement of pay-price rules. He has given that job to Connally, who will now have a vastly expanded stage on which to play his roles of charmer and back-room arm twister. Connally has plunged into the task with gusto. At a televised press conference last Friday, he was incisive, seemingly candid, pleasant and shrewdly disarming enough to give Spiro Agnew still more reason to fear for his spot on the Republican ticket next year.

Compact or Conflict? The immediate danger to Nixon's program is the threat of a rebellion by organized labor. Union leaders have been invited to help draw up rules for wage increases, but they simply do not trust a Republican Administration to give them sufficient increases and are balking. If they pull out of the program, forcing the Government eventually to proclaim wage standards by fiat--and still more if they authorize strikes or work slowdowns to win fatter pay increases than the Government proposes to allow--the nation will not get social compact but social conflict.

In the longer run, the chief danger is that the program will give an appearance of inequity. If it works, pay increases will be limited, but corporate profits will not be. Indeed, profits are expected to rise smartly next year as sales increase and companies' labor costs are held down. That could stir enough resentment among men and women on the production lines to touch off labor turmoil later on. Moreover, the new Pay Board will ultimately have to set maximum limits by which wages and salaries will go up. The maximums will tend to become minimums. Most executives or workers will expect to get as big a raise as the

Government will allow.

Relevant Schmaltz. Controls of any sort grate on the American spirit, and the controls in Phase II will have to be endured for a long time. Nixon promised an eventual return to free markets. "We are not going to make controls a permanent feature of American life," he said. But he carefully did not specify any termination date. Connally insists that the restraints will hang on until "we have erased from the minds of people the idea that they are living in a society where there is going to be nothing but continuing inflation."

If inflation is to be quickly defeated, the alternative to the rather hazy Nixon program is not a return to completely free markets but even broader, tighter and more rigidly enforced controls. By comparison, controls forged by labor-management-public agreement and enforced largely by voluntary compliance are more palatable to the nation. They could well work--if Nixon can create the necessary national spirit. For that reason, the President's flag waving on TV was not at all irrelevant. "He may have struck a chord," said a Democratic political leader in Washington. "Any time that a President appeals to the national conscience, no matter how schmaltzy his words, he is going to get some response."

Nixon stands an excellent chance of deflecting Democratic criticism at least until the wage-price mechanism is operating and has developed some momentum. His speech put Democrats in a quandary: they can hardly denounce his stated goal of cutting the rate of price increases in half by the end of 1972, and there are few details of the program available to quibble about. Connally, an undisputed expert at counting votes--and still a Democrat--offers this assessment: "At this stage there are no political shortcomings in the program that would justify a frontal attack. The critics are going to have to await any flaws." Adds Senate Majority Leader Mike Mansfield: "I think we should give the President every support we possibly can. We should not shoot from the hip, and we should forget politics."

Such statements emphatically do not mean that Democrats have given up on the "economic issue" as their brightest hope for defeating Nixon next year. They have merely shifted their fire from inflation to unemployment. Among the presidential hopefuls, Hubert Humphrey declaims: "More than five million Americans are today out of work.* How will they and their families benefit with no paychecks with which to buy food, clothing and shelter even at stabilized prices?" Washington Senator Henry ("Scoop") Jackson adds: "Having reluctantly become an economic activist, the President should go all the way and support tax-cutting and job-creating programs that will put the economy into high gear and drastically cut unemployment."

Aid from the Enemy. Nixon of course contends that he is doing exactly that by way of his tax-paring package. The President lobbied hard for the program last week at meetings with congressional leaders. It has sailed through the House but faces some revision in the Senate (see box, page 23). For all the bitterness of their rhetoric, the Democrats may wind up in effect helping Nixon. The changes that they seek in the package, chiefly deeper tax cuts for individuals, could stimulate the economy more than the President's own program.

Even without such aid from the enemy, Nixon's political-economic prospects are substantially improving. Many economists, including Democrats, predict that national production will jump by a historically high $100 billion or so next year and that the jobless rate will drop about a point, to 5%. Whether these forecasts come true will depend largely on Nixon's success in inspiring confidence within the nation--confidence that his wage-price restraints are fair and that they will work, so that consumers' dollars will no longer be ruthlessly chewed up by inflation.

Best of Worlds. In the best of all possible worlds for Nixon next year, consumers will spend their way back to prosperity, and the inflation rate will simultaneously come down to about 3% just before Election Day. Even if that happens, Democrats will be able to claim accurately that the picture looks rosy only by comparison with the first three years of Nixon's term in office. They will make much of the facts that the national output will still be some $50 billion below what it could have been if full employment had been maintained, that one out of every 20 Americans seeking work will still be unable to find a job, and that the White House will have reached its goals on inflation years late and only after a damaging recession. Nixon will reply that he inherited a long, roaring inflation from Lyndon Johnson and was able to turn it around.

How long is the public's memory? Will voters be mad at Nixon because of the economic failures in the early years of his presidency? Or will they be so enthused by an upturn in prosperity and a downturn in inflation next year that they will grant him a second term? For men who count votes, these promise to be the big questions of 1972.

* Humphrey is inaccurate. September unemployment totaled 4.8 million.

This file is automatically generated by a robot program, so reader's discretion is required.