THE ECONOMY: Red Line of Danger

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Never in its history was the U.S. so prosperous. Gross national product, personal income (before and after taxes), nonfarm employment and average take-home pay of factory workers were all at record peaks. But in and out of this good news ran the red line of danger: between September and October, the Bureau of Labor Statistics reported last week, the Consumer Price Index (1947-49: 100) jumped 0.5% to hit an all time high of 117.7. The rise, the seventh in eight months, meant that the cost of living is now 2.4% dearer than a year ago. Main reason for the October jump: higher price tags on the new cars.

For the Administration, which boasted repeatedly during the presidential campaign that it had brought economic stability, the new rise was a jolt. The Federal Reserve Board—with its latter-day independence guaranteed by the White House —has tried to put a brake on inflation by "tight money" policies; i.e., by making credit increasingly expensive, it hoped to restrain excessive business investment. But the new cost-of-living rise seemed to defy such measures. Reason: at the root of the rise are the succeeding wage increases won by union members in the past year—increases which have not been compensated for by higher productivity, but which have resulted in higher manufacturer prices (up 7% since mid-1955). The prospect ahead: more of the same.

How to stop the wage-price spiral wrinkled many a Washington brow last week. One possibility which the Administration shudders to think about: a national policy limiting wage increases to those justifiable by rising living costs and improvements in actual output. Best bet: an all-out effort to warn big labor and management of the dangers of unrestricted wage-price increases. Said Dr. Raymond Saulnier, new chairman of the President's Council of Economic Advisers: "Federal monetary and fiscal policies cannot solve the [inflation] problem, though they can do much. We will also require the efforts of both business and labor to exercise moderation. There will have to be real wisdom in the making of wage settlements and in the fixing of price policies by our business concerns."