Splitting on Anti-Inflation Policy

Economic aides press Carter to act; political counselors fear loss of votes

Identifying the nation's most pressing economic trouble is the indispensable first step toward combating it--but in Washington, there is no guarantee that Step 1 will be followed by a Step 2 of any consequence. The Carter Administration now clearly recognizes that accelerating inflation is the biggest menace facing the economy. Yet action against it is being held up by a split between the President's closest advisers. On the one side are his economic counselors, led by Treasury Secretary W. Michael Blumenthal, Chief Economic Adviser Charles Schultze and Federal Reserve Chairman William Miller. In the other camp are his political counselors, principally Vice President Walter Mondale, Domestic Affairs Adviser Stuart Eizenstat and Press Secretary Jody Powell.

Last week the inflation fighters laid a "decision memorandum" on the President's desk urging a variety of actions to curb the Government's own role in promoting inflation. The politicians, however, persuaded Carter to do nothing, at least until he returns on April 3 from Africa and South America. Meanwhile, the Senate last week passed a farm subsidy bill that the Council on Wage and Price Stability (COWPS) condemned as "one of the most inflationary actions of the Federal Government in recent years." The council estimates that the law could further push up retail food prices anywhere from 2% to 5% next year.

The farm bill is only one, though the most egregious example of spending bills that threaten to swell the federal deficit next fiscal year beyond the already frightening $60 billion that Carter had budgeted. Connecticut Democrat Robert Giaimo, head of the House Budget Committee, figures that it could rise as high as $70 billion. Consequently, the memorandum presented to Carter urges him to pledge publicly that he will hold the deficit to $60 billion and at least implicitly threaten to veto big-spending bills. Says one high economic adviser: "If we go above $60 billion, the stock market will be affected and so will the dollar. It's damn important psychologically."

Other proposals in the memo: reduce from 6% to 5% the pay raise scheduled for 1.4 million federal employees this fall; open more federally owned timberland to cutting by private companies in order to increase supplies and hold down the price of lumber; pledge resistance to restrictions on trade; appoint a Cabinet-level "inflation czar" to function as a sort of federal ombudsman who would call attention to excessive Government spending.

Taken together, these scarcely add up to a comprehensive program, let alone a draconian one. But most could be useful first steps. Economic advisers figure they would also give Carter moral authority to make a renewed plea to labor and business for wage-price restraint.

Even this program seems risky to the President's political advisers. They contend that Carter cannot be sure the moves would do much to stop inflation. But he can be quite sure that all would annoy some voters: federal employees, farmers and others who stand to benefit from heavy Government spending. One top official characterizes the political advisers' attitude this way: "There is no way to get these policies to work, and parading them out will only piss off all the constituencies for a risky program."

The politicians seem to be winning --so far. Carter made only one mild anti-inflationary move last week. In his Executive Order demanding that federal agencies write regulations in simple English, he included a new requirement. If an agency drafts a regulation that would force industry to spend $100 million a year or more, it must study and report the possible inflationary consequences of that regulation before issuing it.

Whatever good that may do could be far outweighed by the inflationary increases in subsidies to growers of wheat, cotton and corn provided in the Senate farm bill. Though there was no hard evidence to prove it, and Jody Powell vigorously denied it, there were charges that the White House, in order to win Georgia Democrat Herman Talmadge's support for the first Panama Canal treaty, had agreed to drop its opposition to a Talmadge bill increasing federal payments to farmers who keep wheat and cotton land idle. Talmadge himself estimated the cost of the bill at $2 billion a year. Farm Belt Senators like Kansas Republican Robert Dole tacked so many other subsidy-raising amendments onto the bill that the net effect, according to Senate Budget Committee Chairman Edmund Muskie, could well be to add $6 billion to the nation's retail food bill next year. The Senate in part was reacting to farmer protests; last week some farmers were plowing up wheat to demonstrate against prices that they consider too low.

If the House goes along, Carter will face the nasty dilemma of either vetoing the bill or accepting a law that his Council on Wage and Price Stability denounces as raising "a major risk of returning the country to double-digit price inflation." The President's position is so uncertain that COWPS, in blasting the bill, took care to say that it was not speaking for the President.

The danger of delay on anti-inflation policy is that if moderate action is not taken now, much harsher steps may be necessary later. The Joint Economic Committee last week openly raised the specter of wage-price controls, stressing that they might become unavoidable if inflation speeds up. Controls are still anathema to the Administration, as Federal Reserve Chairman Miller repeated last week. But Miller added that if prices continue rising, the Fed might have to keep money supply tight--and lately its growth rate has in fact been slowing. Tightening up on the money supply still further could kick up interest rates, hurt housing and retard hiring.

To prevent that, the Administration needs to begin immediately crafting a coherent strategy to stop inflation. There are, in fact, political risks in anything it might do, but the risks of waffling will be even greater. Inflation, after all, is the issue that polls show troubling more voters more deeply than anything else.

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