Carter hope: only a 'mild' US recession
The global economic barometer is falling. For a good many Americans double-digit inflation has more personal significance than the drama in Afghanistan. Some political observers think the presidential election will turn on it.
President Carter feels that if a recession comes it will be, at worst, mild.
Key economic indicators of the US Department of Commerce signal a downturn. The composite index of future trends dropped 1.3 percent in November, following a 1.4 percent drop in October.
Gold soared above $534 an ounce with the New Year, a rise set off by anxiety over Iran and Afghanistan.
Mr. Carter gives Congress his new budget Jan. 28, unofficially set at $615 billion. This is $15 billion above the estimate made nine months ago, primarily because of inflation.
There is wide disagreement among economists over what to do: Some urge austerity, others price controls; still others, tax relief. Nearly all cry for "higher productivity," but disagree on how to get it.
The problem is worldwide. Rising petroleum costs are pushing up prices everywhere. Some "less-developed countries" (LDCs) are heavily in debt. By one estimate, loans by US banks account for around 60 percent of $120 billion of LDC foreign debt, with expensive debt-restructuring likely for some of them.
There is extraordinary variety of economic advice. Milton Friedman, a Nobel Prize-winning economist, says the Federal Reserve Board's tight money policy will end inflation "in five years" if accompanied by further austerity.
James Tobin, Yale economist and former Kennedy administration adviser, says the Fed's cure won't work because it trades off lower prices for higher unemployment. His answer is "tough, direct controls." Economist John Kenneth Galbraith agrees.
Keynesian economics, it appears to many, ise played out. John Maynard Keynes appeared during the depression, 4 1/2 decades ago, and contradicted the earlier assumption that the economy is self-correcting. He urged government pump-priming; Franklin Roosevelt wholeheartedly adopted the theory in his New Deal, but World War II intervened and rescued the US economy. Keynesianism worked for President Kennedy and produced a period of growth, employment, and stability.
But today's simultaneous inflation, unemployment, and soaring energy costs make Keynesian remedies irrelevant, most economists think. Things in 1980 are vastly more complicated than in Keynes's time.
A collection of statements by 20 economists, representing a broad spectrum of views, in the New York Times Magazine of Dec. 30 showed no consensus.
Conservatives want tight money, austerity (more unemployment), and minimum government control.
Radicals, on the other hand, feel government intervention (probably with controls) must guide wage, price, and profit policies.
The "middle" group differs within itself but seems united against a money policy so tight as to severely retard the economy; it views government more tolerantly.
In this whirlpool of conflicting advice President Carter, who first unsuccessfully tried voluntary guidelines in 1978, moved over to the policy of the Fed chairman Paul A. Volcker last October. That policy has been dubbed the "new monetarism." It seeks to reduce the money supply (and consequent spending) by allowing interest rates to climb; higher interest rates will brake the economy, it is agreed. Under this Fed policy the construction industry has already been hard hit.
President Carter is hopeful. High officials at the White House expect, at worst, a mild recession, some reduction in inflation below double digit, a decline in interest rates, and a likely, but moderate, increase in unemployment.
Mr. Carter thinks the United States won't be affected more than other countries by the rise in energy costs. He will explain his views more specifically when he gives Congress his budget projections and makes his annual report on the economy.