Seeking Antidotes to a Global Plague
Compared with the grand larceny in some other countries, inflation has rarely been more than a pesky pickpocket in the U.S. Rising prices filched a few pennies at a time from wages and profits and prompted endless grousing, but for a majority of Americans, caused no real hardship; incomes usually went up faster. So, nothing in recent history has prepared the nation for the shock of what is happening today: a double-digit inflation that raises unsettling visions among many Americans of the price spirals in South America or Indonesia.
Explosive Issue. Though U.S. inflation is by no means that bad, it is worrisome enough. In the twelve months ended in February, prices in the U.S. climbed 10%, and in that month they were sprinting up at a compounded annual rate of more than 16%. Inflation in the U.S. now outpaces the rates in 18 other countries, a development that Economist Otto Eckstein calls "a major historical event." The sweep and intensity of the price rises are reducing living standards in the U.S. just as surely as a recession does. In February, though wage hikes had pushed dollar income to a record high, the average American worker's spendable income bought 4.5% fewer goods and services than it did a year earlier. For the middle class, inflation has struck out the article of faith that each year people would live at least a little better than the year before, but the hardest blow has fallen on the poor. Food prices in the U.S. last year jumped 20%, and some of the biggest increases came on staples of the low-income diet. Not surprisingly, inflation has become an explosive political issue: a recent Gallup poll found voters far more concerned about soaring prices than about Watergate.
Although Americans are particularly chastened by their spiraling inflation, having so long considered themselves immune from it, what is happening in the U.S. is only one manifestation of a larger, more virulent strain of worldwide inflation. Like some medieval plague, inflation today is sweeping across national borders to infect almost every country at the same time. And the consequences of the international spiral go far beyond economics: they include a sharpening of social divisions and a shaking of values, as inflation rewards speculators while penalizing thrift. The ultimate threat is that inflation will eventually weaken confidence in democratic governments and institutions and prepare the way for sharp, violent shifts to the radical right or left. At present that danger seems vague, but political leaders do not dismiss it. Says German Finance Minister Helmut Schmidt: "I only have to go to the years 1931 to 1933 to say that the meaning of stability is not limited to prices."
Compounding the alarm--and further weakening faith in governments --is the uncomfortable feeling that no one quite knows what to do about inflation. The experts themselves are not immune from this despair. In the U.S., John Dunlop, head of the Cost of Living Council, asserts: "I don't believe it is clear that mankind today knows how to control inflation."
That fear is not without justification: the present world inflation is unlike any before it. Ever since the ancient Lydians invented metal money, inflation has been a painful but largely localized malady. Runaway price boosts might wipe out savings, pauperize individuals, bring down governments --but usually in only one or a few countries at any specific time, and for what seemed fairly clear reasons. In the industrialized world, the worst inflations generally accompanied wars or revolutions, or struck countries that had tried to live beyond their means. Inflation might be endemic in some nations of Latin America and Asia, but the rich countries could smugly dismiss that as the consequence of chronically weak or corrupt governments.
Zooming Prices. Now inflation is running amok everywhere--and at a time of general peace. In the most recent twelve months for which there are figures, prices in Western Europe jumped 10%. Japan, the land of a seemingly nonstop economic miracle, suffered a 23% consumer-price inflation, its worst since the nation emerged from feudal isolation a century ago. In the Third World, price increases are as oppressive as ever, crippling the development plans of India, Pakistan and Viet Nam (where prices are rising at an annual rate of 65%).
Political orientation seems to make no difference. Greece, ruled by a right-wing military dictatorship, is reeling from a 33% inflation--the worst in Europe. Conservative Switzerland, long regarded as a bastion of financial prudence, registers an almost 12% annual inflation. In the Communist world, government control of the economy makes most price figures meaningless, but one nation--Yugoslavia--maintains a market system, and there, prices are zooming at the rate of 22% a year.
So far, the global inflation virus has defied all attempts at treatment. The U.S., most European countries and Japan have all experimented--halfheartedly, to be sure--with some form of wage-price controls, tax and monetary tinkering or high interest rates; nothing has worked for long.
Some causes of the present inflation are readily identifiable and seem less than permanent. Much of the global surge in food prices over the past two years has been the result of plain bad luck. A series of disastrous crop failures in 1972, caused by phenomenally foul weather round the world, aggravated shortages of wheat, corn, soybeans and other animal feeds. Bumper crops now in prospect in the U.S., the Soviet Union and Australia should at least slow the blistering rise in food prices after midyear.
Oil-producing countries took advantage of the panic caused by Arab embargoes and production cutbacks to quadruple the price of crude in the past six months. That move alone will push up prices an average of 3% this year in consuming nations, which will have to pay at least $40 billion more than last year for their oil. But oil prices could well slip back down a bit now that the Arabs are again pumping out crude faster.
On the other hand, some strong forces are working to keep the inflationary fever burning. Round the world, a growing number of jittery investors have lost confidence in the value of paper money and are rushing to get rid of their cheapening dollars, pounds, francs and yen by buying things that they feel have solid and tangible value: land, art, antiques, farm commodities, metals. The most dramatic consequence has been an incredible rise in the price of gold from $89.25 an ounce as recently as a year ago to a February high of $178. That increase and rising prices of paintings and jewelry are of somewhat less than vital concern to the average consumer. The run on commodities, however, has hurt everybody. Investors seeking tangible value have speculated wildly in wheat, sugar, potatoes, copper and lumber, helping to set off a mad spiral in the prices of these and other basic raw materials. A Reuters index of 17 commodity prices has zoomed from 509 in the fall of 1971 to 1,422 in March (see chart page 79).
Misdirected Policies. Against this background, the best that the world's governments can promise their citizens is that inflation later this year will abate somewhat--maybe. In the U.S., for example, the Nixon Administration is predicting that inflation will slow to 5% to 6% by year's end, with the best of breaks: a letup in consumer demand caused by a business slowdown, a record crop this fall and an easing in petroleum prices. Even that less than comforting scenario, and similar ones projected in other nations, could go awry if labor unions force fat settlements. In the U.S., AFL-CIO President George Meany and other leaders are talking up a drive for wage and benefit boosts of 10% or more this year. Japanese unions are demanding an economy-wide wage increase of 30%, which would be sure to fuel that nation's raging inflation.
Certainly the record of major governments in dealing with inflation gives the world's consumer little reason to trust anything they say about prices. For the most part, it is a story of weak, erratic and often misdirected policies. Because of its enormous impact on the world economy, the failure of the U.S. to keep prices caged is especially unnerving.
Lyndon Johnson started the current round of inflation in the U.S. by fighting an expensive war in Viet Nam without raising anywhere near enough taxes to pay for it. The Nixon Administration's wobbly management of the economy has vastly compounded the trouble. First, the President sought to stop inflation by the orthodox medicine: a gradual slowing of the economy; the result was a recession during which prices still spiraled. In August 1971, when prices were rising at a 5% annual rate, Nixon suddenly imposed a wage-price freeze followed by the fairly effective controls of Phase II. By January 1973 the inflation rate had come down to about 3%, and Nixon lifted the controls during Phase III--just when restrictions on farm output and Government stimulation of the economy during election year 1972 were dangerously elevating inflationary pressures.
Prices promptly took off, and have been accelerating ever since, despite the hasty and poorly planned second freeze last year and the porous regulations of Phase IV. Now the Administration, pursuing a free-market ideology, is about to let what few controls are left die at the end of this month when the legislation permitting them expires, and a complacent Congress has made no move to extend them. That will leave the Administration with few weapons to fight inflation, and only the hope that a slowdown in the economy will reduce the rate of price increases by year's end.
The record is almost as bad, or even worse, in several other major countries. Among them:
BRITAIN changed governments in March largely because Conservative Prime Minister Edward Heath failed miserably to redeem his 1970 campaign promise that he would "cut prices at a stroke." Heath had some success with wage-price controls, but in 1972 his government embarked upon a course of economic expansion. Most of the new investment went into safe, nonproductive outlets like land; industrial growth increased somewhat, but living costs zoomed. The sharp rise in prices of world commodities added more inflationary pressure, and in the past year prices climbed 12%. Forecasters are not ruling out the possibility that inflation in Britain this year could reach a staggering 20%. Last week, unveiling a new budget that raises taxes for most Britons, Denis Healey, Chancellor of the Exchequer in the new Labor government, somberly warned: "Unless we can somehow halt the accelerating inflationary trends in our economy, the political and social strains may be too violent for the fabric of our democratic institutions to withstand."
ITALY is in the worst fix of any major industrial nation, its government barely holding on, its prices skyrocketing, its populace voraciously increasing consumption as the economy slides deeper into recession. In the decade before 1969, Italy had one of the lowest inflation rates in Europe. Then a major round of wage increases was granted just as the economy began to turn down. Prices soared, public spending increased, and tax receipts lagged; instead of imposing new levies, the government increased the money supply, stoking the inflationary fever. Last summer Italy made a feeble stab at cooling things off by imposing price controls on the biggest industries --but put no limits on wages, which continued to leap. In February, living costs rose at an annual rate of 20%, transforming la dolce vita into il caro vita (the expensive life). The rate has probably gone even higher since, but precise figures are unavailable because the civil servants who collect them are on strike.
WEST GERMANY, having gone through two periods of cataclysmic price rises in this century, is horrified by inflation and is one of the few major nations to take firm action against it. Last year, as the country's prices sprinted ahead at close to 7%, Bonn sharply curtailed government spending and the money supply. But just as the economy and inflation began to cool, the abrupt surge in oil prices dealt Germans a double blow: it drove up living costs and, because of a sharp drop in consumer spending, caused the country's already decelerating economy to take a further dip. Unemployment rose to 2.8%, which Germans consider intolerable; in 1967, the last time the jobless rate got that high, the government fell and a neo-Nazi extremist party flared briefly to life. Chancellor Willy Brandt reluctantly decided to risk more inflation and ease restrictions on credit with an eye toward keeping as many people as possible employed. Now, the most reassuring thing that Finance Minister Schmidt can find to say is that there is "a good chance" of keeping inflation under 10% this year.
FRANCE has unabashedly pursued a policy of rapid economic growth and full employment for several years while making only left-handed attempts to contain ballooning prices. Last year, in an effort to forestall the inevitable crunch, the government removed the value-added tax on meats, but that failed to stop living costs from sweeping up at an annual rate of 13%, beginning last April. Now, at a time when the French economy is also slowing and unemployment rising, some officials fear that the inflation rate this year could hit 15%.
JAPAN is more vulnerable than most industrial states to world inflationary trends because it has almost no raw materials of its own and must import those needed by its mighty industries. Prices began to rise sharply in 1972, in part because of the sudden spurt in the global cost of commodities and smartly rising wages. To restrain inflation last year the government reined in the money supply and cut spending to the bone. Then the oil crisis burst on Japan, raising nightmares of economic stagnation. Panicky consumers rushed to buy up everything in sight, wholesalers hoarded goods in jammed warehouses in anticipation of even higher prices, and living costs ticked up with the regularity of a taxi meter. The government has now clamped a price freeze on many products. Still, most experts expect prices in Japan this year to rise a hefty 9%.
How did the world's strongest economies simultaneously get into such a mess, and what can they do to dig themselves out? The antidotes to inflation have proved peculiarly elusive because the causes are deep and pervasive--and often unrecognized. Crop failures, bloated Arab oil prices and bumbling government strategies are only contributing causes; most likely there would have been serious, if not double-digit inflation without them. Indeed, Chiaki Nishiyama, one of Japan's leading economists, asserts that "inflation is an integral part of economic growth." Though his statement implies a hopelessness that cannot be accepted, he has a point. Inflation has occurred largely as a devastating by-product of two trends that no one wants to reverse: the rise of world affluence and a global commitment by major governments to full employment.
World Bank Economist Irving Friedman traces the problem to the widespread unemployment, bleak breadlines and political upheavals of the Depression, which was ended only by a cataclysmic world war. That experience has haunted the economic memory of the world ever since, he believes, and caused governments in effect to enter into a new social contract with their citizens under which they pledged never willingly to risk such suffering again. In the U.S. and Canada the contract has been enshrined in laws that require Washington and Ottawa to work always for the highest possible employment. In other nations the commitment is tacit but nonetheless binding; the French government, for instance, lives in fear that even a slight rise in unemployment could touch off another round of les evenements de mai --the near-revolution of May 1968.
In practice, the commitment has meant that governments, using the tools of Keynesian economics, react to anything but the briefest and shallowest downturn by increasing spending and pumping up the money supply in order to get the economy moving again. The strategy has in its way worked brilliantly: though governments have by no means always achieved full employment, the industrial world has consistently kept jobless rates to levels that would have been considered impossibly low before World War II. But the commitment also means that the industrial world has deliberately thrown away what used to be its chief weapon against inflation. For all the evils that they caused, depressions reversed price spirals: mass unemployment and falling wages depressed demand, and businessmen had to cut prices in order to sell anything.
Indeed, in order to keep employment up, most major countries have pushed for ever greater economic expansion. That policy has resulted in a sunburst of global affluence: prolonged high employment and rising incomes have given the citizens of most industrial countries a better life than they have ever known before. But the affluence has had serious inflationary consequences.
As prosperity increased, so did people's expectations--for more varied diets, bigger houses, more travel, better education, more skilled medical attention. To get those good things, workers went deeply into debt and counted on rapid wage increases to keep them solvent. Employers often resisted the wage demands with something less than dedicated zeal; in many industries the growing strength of unions all but guaranteed that all corporate rivals would wind up paying the same labor costs, even if productivity did not rise. Moreover, management could also rest assured that within the bounds of competition it could pass on the increased costs in the form of higher prices. In order to pay the higher prices, workers felt that they had to get still more pay. That is a potent recipe for inflation, because the process means that one important element of business costs, wage rates, goes ever upward.
Mushrooming Demand. The inflationary effect has been magnified by another consequence of affluence, the mushrooming demand for services--everything from stylish haircuts to police protection. For example, 20 years ago services accounted for 23% of the U.S. gross national product; today they represent more than 40%. In factories, the impact of higher wages can be offset by increases in the amount of goods a worker turns out every day, but such rises in productivity are more difficult to attain in services; the quality of education, for example, may suffer rather than improve if a professor lectures to twice as many students each hour. Yet, though service workers produced little more in measurable economic terms, their wages and salaries have shot up in response to hikes in industrial pay.
Affluence also changes attitudes toward work. People demand longer vacations, prolong their educations, retire early; all these trends are good, but they exact a price in a slower-growing output of goods and services to meet voracious demand. Much worse, high incomes breed unrealistic aspirations. More and more workers seek what they believe are jobs with meaning, which they often mistake for big salaries. But the real need exists in the blue-collar area--mining, building houses, fixing appliances. Fewer people will work hard at the onerous jobs. The most extreme examples are the assembly-line workers who dose themselves with alcohol or drugs to get through a day of what they consider mindless, repetitive chores. In such an atmosphere tensions rise while productivity falters.
These trends have posed a fearful dilemma for governments. Since inflation as well as recession threatens the good life, political leaders have tightened up on the money supply and slashed public spending, hoping to dampen demand enough to take the fever out of price boosts. But in the nature of modern economies, such efforts add significantly to the unemployment rolls before they much moderate the pace of price boosts. One reason: even in periods of relatively high joblessness, unemployment benefits, savings and other sources of financial support enable out-of-work consumers to keep on buying enough goods and services to prop demand and prices up for a long time. Frightened by the rise in the jobless rate, governments then throw the policy into reverse and pump out enough money to initiate expansion again--at a higher base rate of price increases than prevailed at the start. These stop-go policies interrupt growth, and to make up the production losses incurred in the slow phase, governments run ever larger inflationary deficits and accelerate increases in money supply. In the U.S., the avowedly conservative Nixon presidency has piled up cumulative deficits of about $120 billion, the highest of any peacetime Administration in history. American money-supply growth since 1967 has averaged 6.3% a year, v. 3.2% in the previous decade. The same process has operated in most other advanced nations.
Yet another major inflationary effect of affluence is a matter of sheer numbers: the growing pressure of world demand on the resource base of raw materials. Observes Canadian Economist Carl Beigie, "What is happening is that the fondue pot of the world is being attacked by more people with bigger sticks."
That pressure became intense starting in 1972, when, in a rare and fateful development, almost all the world's major nations entered a boom at the same time. Global competition for raw materials grew to an unprecedented pitch: last year every nation appeared to be trying to buy up all the wheat, corn, copper, soybeans and rice available anywhere, at whatever price frantic bidding might produce. That scramble continues for many commodities; the U.S. Government estimates that in fiscal 1974, which ends in June, American farm exports will total $20 billion, v. $8 billion only two years ago. Prices consequently rise, both in the importing nations that are bidding against each other and in the U.S., which is left with a smaller share of its food production for itself.
The competition is aggravated by the fact that supplies of some raw materials are concentrated in have-not nations that are itching to get back at the haves. Oil is the standout example: some 60% of the world's known reserves lie in Arab nations--about 40% of that beneath the sands of Saudi Arabia alone. The Arabs have now proved that when they want to they can in effect hold the industrial world up for ransom by demanding high prices for making adequate supplies available. Producers of other basic commodities lack the same opportunity to form an effective cartel because they do not have the Arabs' cultural, ethnic and religious unity. But the threat exists.
Faced with all these pressures, some economists throw up their hands and contend that the best way to deal with inflation is to accept it as permanent and make adjustments to anesthetize the pain.* That is a counsel of despair. Such an approach tends to make, say, a 6% inflation rate officially acceptable--and, with that established as a base, other pressures will push the real rate to 8%, 10% and on up.
At the other extreme, some economists argue for "putting the economy through the wringer"--depressing demand enough to bring prices down, at whatever cost in unemployment. That is no answer at all; in the U.S., a 12% to 13% jobless rate for up to a year might be required to bring inflation down to an annual pace of about 2%, and the human suffering caused would be greater than the pain of price increases. A counterargument is to open the throttle to all-out expansion until the last potentially employable person has a job, on the theory that the unemployed would produce enough goods and services to eliminate supply shortages. That idea is superficially attractive but would not work; labor markets just do not operate that way. Long before the last black woman or teen-ager found a job, severe shortages of skilled workers and the expense of hiring the unskilled would drastically lower productivity and cause totally unacceptable inflation.
Yet the fight against inflation cannot be given up. Left unchecked, inflation pries wide whatever cracks already exist in a society. Prolonged inflation represents a failure, and that failure breeds edginess and mistrust. In time it becomes impossible for leaders to succeed because voters demand that government deal with inflation. Yet so various and insistent are the people's other special demands for higher government spending that inflation continues. As Economist Friedman writes: "In virtually all cases of major political upheaval in the postwar period, inflation has been a common element."
Taxpayers' Revolt. The process begins by setting labor directly against government. Police, firemen, sanitation workers and other public service employees, battered by inflation, strike for higher wages and benefits. Services to the general public grow worse, and the infection spreads. The ideal of public service erodes--children watch their teachers walk picket lines. The government becomes an adversary. To yield to labor demands heats up the inflation further; to resist spreads further chaos. With paychecks squeezed on one side by inflation and on the other by rising government expenses, a taxpayers' revolt of one kind or another grows likely. Observes Northwestern University Historian Robert Wiebe: "Twentieth century American society is based primarily on a system of distributing rewards. The system works because it is believed to assure a reasonably equitable allocation of resources. Inflation throws this whole contractual system into question."
Unfortunately, no one has yet discovered a penicillin for the infection of world inflation--a swift miracle cure. But there are practical steps that could be taken to slow price rises. They are unpopular and slow-acting, but nonetheless essential.
Since inflation has become a global disease, an effective attack on it requires extensive international cooperation--an idea that might seem obvious but that has been largely ignored or even rejected by nations determined to maintain sovereignty over their own economies at all costs. Those costs are becoming prohibitive. Without surrendering any essential sovereignty, the world's economic powers could:
> Join to expand world food production. The U.S. has belatedly lifted most growing restrictions on its farmers; the European Common Market should follow suit by scrapping or radically changing its common agricultural policy, which now subsidizes a vast patchwork of small, high-cost farms and inhibits the development of large-scale, efficient agriculture. Beyond that, major agricultural nations, led by the U.S., should join to help such places as Kenya and the basins of the Amazon and Congo rivers achieve their vast food-growing potential. The technology to do the job already exists--sophisticated machinery, high-yield dwarf grains for tropical climates, nitrogen fertilizers --but the Third World countries need massive help in the form of cash, credits and technical assistance to capitalize on it. The advanced nations should supply that help, through the United Nations or some other world body, in their own self-interest. Every additional tomato, ear of corn or pound of meat produced in the world helps to relieve the most painful inflationary pressure.
> Create a world commodities union embracing both consuming and producing countries. Its prime goal would be to seek an agreement to stop the frenzied international bidding for raw materials that has been driving up prices far more than actual shortages would justify. The union could gather, analyze and disseminate figures on likely world production and consumption of key raw materials so that nations could plan their import purchases more rationally.
> Reform trade and monetary practices. Trade is one of the few fields in which non-Communist nations already have a good record of cooperation; in several rounds of negotiations they have reduced tariffs sharply since World War II, and the international flow of goods has increased enormously in consequence. But a maze of nontariff barriers -- discriminatory taxes, import quotas, even regulations on product size --still restricts the ability of consumers in every nation to keep their living costs down by buying inexpensive foreign products. Tearing down those barriers should be the major goal of the current round of world trade talks.
The old world monetary system, based on fixed currency values tied to an unchanging U.S. dollar, became an engine of world inflation in the 1960s; the U.S., through balance of payments deficits, spilled out tens of billions of dollars that other nations had to buy up, swelling their own money supplies in the process. That system blew apart in 1971 and has been succeeded by an unplanned, unregulated slew of "floating" rates that change constantly in response to supply and demand. The new system has so far proved surprisingly stable, but most experts agree that an arrangement of loose, bobbing rates cannot serve the needs of expanding global trade indefinitely. Without returning to the old rigidity, the world's financial powers should define some clear rules for managing changes in currency values. Those rules should include penalties like the denial of foreign loans to international spendthrifts.
International cooperation, however, would not absolve countries from the duty of fighting inflation within their own borders. As the world's richest nation and pacesetter for the global economy, the U.S. bears the heaviest burden. Among other things, it should:
> Legislate stand-by authority to police wage-price behavior, and continue controls in some selected areas. Wage-price controls have had a mixed record; they worked well initially, badly last year. But the Government must continue to voice the public interest in wage-price decisions. A watchdog committee empowered to focus public attention on outsize pay and price boosts could do much to avoid the danger that this year's union negotiations will build wage inflation into the economy for the next three years. In order to make sure that it is listened to, the committee would have to be equipped with stand-by authority to issue delay and rollback orders, which it should use sparingly. In addition, Congress should continue formal controls at least over the construction and health-care industries. Cost of Living Council Chief Dunlop argues correctly that the restraints of the market do not operate effectively in these industries. If controls are lifted, he fears a construction wage explosion, and calculates that hospital charges and doctors' fees would rise $4.1 billion a year more than they otherwise would.
> Break bottlenecks in the labor market. Reducing unemployment at present is inflationary because many of the jobless are unskilled women, teen-agers and blacks who could not produce enough, at least initially, to justify their pay. The U.S. should fund a massive job-training program to equip these would-be workers with the skills to make them productive; Nixon's 1973 cutbacks in job-training programs were the worst sort of federal "economy." Beyond that, the U.S. labor market now does a haphazard job of matching workers' talents to available positions; employers and workers seek each other through state and private employment agencies that have little contact with one another. The Administration has long discussed, but inexplicably failed to act upon a nationwide computer "job bank" linking all state employment offices. Those offices would draw from a central computer daily lists of jobs available all over the country. Gardner Ackley, former chairman of the Council of Economic Advisers, has suggested in addition that the Government pay the travel and moving costs of workers migrating from depressed regions like Appalachia to take jobs in more prosperous areas. At present, Ackley points out, a level of demand high enough to put people to work in the depressed areas creates inflationary labor shortages in the richer regions that could be relieved by increased worker mobility. All three ideas offer a rare chance to attack unemployment and inflation at the same time.
> Reform budget-making procedures. At present, Congressmen working in separate committees vote on varying packages of spending plans with insufficient knowledge of how their votes will affect total federal expenditures and the size of the budget deficit. A bill expected to win final congressional approval in a few weeks would create a Congressional Office of the Budget that would trace all appropriations as they move through the legislative process and add up the totals. That way Congressmen would get an overall view of how much is to be spent and where the money is coming from well before the final budget votes. The bill should pass and become law. The goal is not to eliminate deficits but to make sure that separate votes on spending bills do not produce a deficit more inflationary than anyone would plan--as has happened more than once.
None of these steps by itself will cure inflation, but in combination they should have a strong, long-term impact. Even then, something more will be needed. Inflation is a matter of psychology as well as Government action or inaction, and runaway price boosts have a devastating tendency to produce a sauve-qui-peut mood in which everyone tries to stay one jump ahead of the crowd. Says Swiss Banker Alfred Schaefer: "A successful fight against inflation implies, first of all, a change of mentality in all layers of the population. It is essential to reaffirm the value of the principle of return, of efficiency." In the present climate, that notion sounds almost quaint. Equally quaint, perhaps, would be the ideas that hard work really is a virtue, that blue-collar jobs have dignity, and that increased leisure must be paid for in productivity--or a debilitating price spiral. Yet if any lesson is to be learned from the current surge of inflation, it is the simple and indisputable fact that there is no such thing as a free lunch.
* One "solution" being tested in varying ways in Brazil, Canada and Europe is "indexing"--that is raising or lowering incomes, taxes, savings or even debts in line with price trends. In theory, this arrangement would preserve real incomes and buying power.
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