The Economy: From Mist to Rain

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From Capitol Hill committee rooms and economists' computers came the same insistent message. Inflation is no longer a threat but a reality. Politicians and Ph.D.'s wrangled earnestly over varying techniques to fight the fire, but few could disregard the smoke signals. After seven years of immobility, the wholesale price index has spurted 4.1% in the past year, last month alone rose seven-tenths of 1 %, the steepest February increase since the precipitate price escalation early in the Korean War. Industrial production was up 9% over the preceding February; personal incomes grew 8% to a record annual rate of $556 billion.

Moreover, with increased defense spending for Viet Nam, virtually full employment and unprecedented production levels, inflationary pressures seemed certain to become more, not less, severe. Economists of all stripes, from classical conservatives to New Economics liberals, urged the President to damp down the boom, whether by raising income taxes, suspending industry's 7% investment credit, or cutting Government expenditures.

Pious Caveat. Delivering the Godkin Lectures at Harvard, former Council of Economic Advisers Chairman Walter

W. Heller, who sold both John F. Kennedy and Lyndon B. Johnson on the idea of a $12 billion tax cut, declared: "The economic evidence for restrictive steps is weighty." At a seminar in Detroit, Columbia's Dr. Arthur F. Burns, who was Dwight Eisenhower's top economic adviser, complained that the Government is making "excessive use of monetary weapons and insufficient use of fiscal tools," called for a "modest" tax hike "to cool down the economy." Of eleven experts who testified before a subcommittee of the Senate-House Joint Economic Committee, three urged a cutback in Government spending and eight favored increased taxes, but all wanted some form of fiscal restraint to avert inflation. "Without an increase soon," said Yale's conservative Henry C. Wallich, "we will run into very serious problems."

The economists' concern was echoed by the 16 Congressmen who comprise the Joint Economic Committee. The Democratic majority called, as expected (TIME, March 18), for "standby" tax increases that could be put into effect whenever needed by a joint resolution of Congress, plus immediate suspension of the investment tax credit. In deference to the Great Society-and the November elections-the report contained a pious caveat that "the poor, the sick, the aged, the infirm and the discriminated against" should not, in any case, be asked to "carry the major burdens of preventing inflation." The six-man G.O.P. minority demanded "an immediate deferral of federal spending for nonessential and low-priority projects," though New York's Senator Jacob Javits cautioned that he would resist cur tailment of education, welfare and antipoverty programs.