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How Carter puts us in the red

In recent weeks, our President has managed to demonstrate convingly to the nation the utter bankruptcy of his understanding of our economic problems. He did so first with words and then in deeds.

The words came in the State of the Union address. He blames our then 13.3 percent inlation on three villains. The worst of these, he says, is the OPEC oil price increases. If this were true, then how does the President explain the fact that Japan, a country totallym dependent on imported oil, has an inflation rate of 4.9 percent?He can't.

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The other two villains are alleged to be American businessmen who charge higher prices and American workers who ask for higher wages. These two villains , you see, are responsible for the "wage-price spiral" which Carter says is the other major cause of inflation. To fight these meanies, the President proposes to continue the "voluntary" programs to hold down prices and wage increases.

Unfortunately, here, too, there is a major problem in Carter's thinking. He is blaming the symptoms and not the real malady. How indeed can wage increases cause inflation? When was the last time yourm cost-of-living raise even kept upm with inflation? If you earned $15,000 when Carter was elected, you would have to earn $23,000 today to maintain the same purchasing power and pay the extra tax burden. Did you manage to do that? I doubt it.

The plain fact is that inflation is not caused by rising wages and prices. When businesses charge a higher price for their product and when workers ask for a higher wage during inflationary times, they are merely trying to maintain a steady value for the compensation for their services.

The effort to receive a constant and steady value is not causes inflation. Inflation is caused when the government fails to guarantee the steady value of our currency. When President Carter's government and the Democratic-controlled Congress spend more money than they take in and pay for the difference by printing new greenbacks, they increase the number of dollars in circulation dramatically. When the supply of dollars increases in relation to the supply of goods, then the prices of those goods must rise.

The truly regrettable thing about all this is that while we can tolerate the President's words, it is his deeds which we must really endure. Just a few days after delivering his misdiagnosis of the State of the Union, the President socked us with the biggest federal budget in the nation's history. He even boasted that it was merely $16 billion short of being balanced, notwithstanding the fact that he promised us a balanced budget in his first term and that his combined deficits add up to be the largest deficit of any presidential term in US history.

However fine and good the "mere" $16 billion deficit appears, the situation is not so rosy if you consider that, balanced or not, the federal budget is something that must be paid for from the hides of private sector taxpayers. To pay for this particular budget, Carter had to increase taxes for this year alone by $40 billion!

Taxes are now at the highest levels since World War II. CArter's inflation is pushing us all into higher tax brackets. It is getting so bad that, if present Democratic policies and trends continue, a family at the poverty level in my home state of New Jersey will be in the 38 percent tax bracket by the end of the 1980s. Already the middle class is paying taxes at rates foremerly reserved for millionairies. If all this isn't bad enough, the President is preparing to deliver an even more painful and unnecessary blow. He is promising that there will be no tax cut this year lest the economy get "overheated." The problem is that if you are not for cutting taxes, you are for raising them, since they are growing up anyway as inflation pushes us into higher brackets. So, President Carter by his words and deeds is announcing his support for even higher taxes.

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But how much more money does he think he can extract from the already beleaguered taxpayer? There are limits, after all. In fact a good case can be made that those limits have already been reached. When taxes are too high and people are no longer sufficiently rewarded for their efforts and risks, they lose incentive to work, save, and invest.With less work, saving, and investment, fewer goods are produced. And once again if we have fewer goods in relation to the money supply the prices of those goods must rise . . . thus inflation.

The object of economic policy, then, should not be to punish productive activity by high taxation but to reward it. If we cut the taxes and restore incentives, we may even find that we will be so prosperous that we won't need so many of those government services which we are currently demanding. Of course, we shouldn't expect such things from Mr. Carter. It has been said by political pundits that his most reliable supporters are the poor. Unfortunately, it seems that he has been doing his best to swell the ranks of that constituency as much as possible: His remedy is making us all poor.


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