Inflation's silent gnaw
Austrian autor Stefan Zweig noted the political dangers of inflation: "Nothing made the German people so embittered, so raging with hatred, so ripe for Hitler, as the Inflation." It took a wheelbarrow of marks in 1923 to buy a loaf of bread that cost one mark in 1914. Today in the United States we have a startling 18.2 percent inflation. We also have an anti-inflation brake of 17 3/ 4 percent interest that is supposed to slow prices down. President Carter told us last October that he thought his anti-inflation program was "beginning to take hold" and asked for "a litle patience." Now he proposes a new crash program. Says influential Wall Street economist Henry Kaufman, "we are lurching towards a national economy emergency." And Arthur Okun, a former chairman of the Council of Economic Advisers, now at Brookings, testifies to the House Budget Committee:
"This is the most difficult time for formulating national economic policy that I have witnessed in my professional career."
Why is policy so difficult to formulate? It seems simple enough to most laymen and to practically all presidential candidates: just balance the budget! That will halt inflation overnight, a great many people firmly believe. mr. Okun doesn't go so far, but he does say:
"As the economic news worsens, the case for a more dramatic alternative is growing and will continue to grow stronger."
Inflation isn't just an American problem; it is a world problem. Robert Fuller, former president of Oberlin, now with the Worldwatch Institute here, says that: "The current inflation is the first that is truly worldwide . . . It is a symptom of deeper problems that desperately need attention . . . The world is faced with exploding demand, rising cost curves for essential commodities, stagnating productivity, and a leveling off -- if not an actual decline -- in the real standard of living.'
Maybe yes; maybe no. Certainly global complexities help explain Mr. Okun's frank comment that it is a hard time for formulating policy. The situation today faintly recalls 1929 and the '30s. Economists had doubts then, too. What caused the decade of depression that followed the 1929 crash? Something was wrong! Customers wanted goods, there were factories to make goods, there were unemployed workers to run the factories, and yet the system was stuck. It was frightening, eerie. Then it was deflation; now it is inflation.
Here is a comment by Mr. Fuller:
"Inflation is the only politically feasible way that democratic governments have found for allocating increased real costs or, what is the equivalent, for reducing people's standards of living or at least retarding improvements in them. Its silent, impersonal, unconscious workings allow people to disavow responsibility for the whole, while continuing to pursue their own personal well-being."
Inflation is not simple. In America today the living standard of millions has gone down, yes, wages have risen every year but prices have gone up faster. It is a kind of tax. What has this tax paid for which the government has been spending? A lot of things -- tanks and cannon and airplanes, welfare payments, education, highways. It is so around the world, too; global population is expanding -- there are about a million additional people every four or five days. They need more goods. Meanwhile some of the world's finite resources, like oil, are in reduced supply: prices rise. That's one cause of inflation.
Economists say inflation has various causes, it is a mistake of blame it on one favorite villain. Increased American productivity, for example, hasn't kept up with some other countries. Again, American has been running big budget deficits. President Ford's deficits were bigger than President Carter's yet the rate of inflation was lower -- there is no direct, immediate relationship between deficits and inflation.
Inflation got its toe-hold in America with the Vietnam war -- an example of letting impersonal economics exact the "invisible tax" which politicians wouldn't vote. Then came the era of global resource scarcities, like oil and grain. The World Food Council warns of a world food crisis in the early '80s; that will give a new boost to prices.
America is better able to control inflation than most countries and should do a better job. The outlook is ominous. "It seems clear," says Mr. Fuller, "that the world is entering a new era of scarcity. For the lining up on one side -- against lower prices."