The Economy: The Spiral Cloud

The statistical signs and symbols of a serious inflationary spiral continue to mount. Industrial production figures for January indicate that U.S. plants are operating at near-capacity—meaning that soon they may not be able to produce enough goods to meet demand. In steel, the time lag between orders and delivery is still lengthening, and some mills are beginning to allocate output even among steady customers. According to the Commerce Department, manufacturing inventories went up sharply in December, the latest month on which figures have been compiled; this would presumably mean that businessmen are stockpiling against the threat of inflation. And reflecting a general unease on Wall Street, the Dow-Jones industrial average fell off by 13.81 during last week, closing at 975.22.

Preoccupied Voices. The Johnson Administration was acutely aware of the potential for—and the peril of—inflation. Among other things, the Treasury Department raised the interest on U.S. Savings Bonds from 3.75% to 4.15%. Only last month, when such a step was under discussion, the argument in favor was that it would make Government bonds more competitive with others, thereby bringing in added revenues; there seemed to be little thought of using it as an anti-inflationary measure. When the interest increase was announced last week, all the emphasis was on anti-inflation: raising the rate, it was argued, would not only spare the Government from having to seek elsewhere, and pay more, to finance many of its operations, but it would also draw money out of the marketplace and into savings.

At one point last week, Administration fiscal journeymen let it be known that, just in case the present "inflation" turns into something more serious, they already are drawing up plans to increase both personal and corporate taxes. But neither of these is attractive—especially in a congressional election year. Therefore Treasury Secretary Henry Fowler swiftly denied that any such studies were under way, inveighed against "the same voices which have been historically preoccupied with inflation—they were apprehensive about inflation in 1962, 1963 and 1964."

Varied Voluntaryism. For the moment at least, the Johnson Administration continues to rely most heavily in its fight against inflation on the guidelines that request both U.S. management and labor to restrict themselves—"voluntarily"—to price or wage increases of no more than 3.2% a year. The Administration has established two rather different varieties of voluntaryism. Whenever a major U.S. industry starts getting out of line on prices, Washington rams it back into place. When a union fractures the guidelines in its successful wage demands, the White House seems to be looking the other way.