Business: The Showdown Fight Over Inflation

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IN other times and other places, at least one good thing could be said about inflation. It usually brought more pleasures than immediate problems. Prices rose, but paychecks and profits scooted up even faster. Few people could resist the urge to go on a buying spree to stock up on clothes, cars and all sorts of consumer goods in order to beat the next price hike. Daring entrepreneurs became instant millionaires; even penny-ante plungers built up neat nest eggs in the stock market. Inevitably, an exhilarating boom faded into sobering recession. But the letdown was usually short and sharp, followed quickly by rebound and prosperity.

Not now. Today's lingering inflation hangs on—and on and on. It is a particularly joyless affliction. Instead of expanding fast, businessmen are holding down their capital budgets and laying off workers. Instead of spending and investing, the public is saving at record rates and staying out of the stock market. For one of the rare times in U.S. history, almost everyone feels less well off than he was several years ago.

Businessmen have kicked up their prices more rapidly than at any time since the Korean War, but profits before taxes have fallen from $88 billion in 1968 to an estimated annual rate of $84 billion in this year's first half. Workers have won many extortionate wage raises—labor costs have been rising more than 7% annually—but since 1968 the real weekly earnings of the American wage earner have inched up from an average $90.67 to only $91.96. In the past 2½ years alone, inflation has cut the value of the dollar by 12¢ and the once-prized greenback is now the weakest major currency in the world.

On the other side of the coin, business is improving. The nation gradually lifted out of its recession late last year; from their 1970 low points, production has risen 3.9% and personal income has advanced 8.6%. Consumers complain about being broke, but in fact they have more money than ever (though their dollars are worth less than before). They are increasing their savings at a spectacular annual rate of $64 billion. If they could be tempted to part with some of that cash, retail sales and the stock market could soar. Businessmen have trimmed the overly large payrolls that they accumulated during the 1960s, and the nation could be ready for a surge in productivity, rising from last year's abnormally low gain of .9% to 4% or 5% this year and next. Administration spokesmen insist that the U.S. is poised to enter one of history's most prosperous and productive periods.

Signs of Pessimism

What is needed to start a buoyant economic revival is a combination of decisive leadership in Washington, plus a revival of consumer confidence. And that confidence is hard to come by. Across the country, people seem to have lost faith in Washington's economic management; there is a growing feeling that the President and his advisers are making roseate promises instead of taking politically painful actions to hold down both wages and prices. The Harris poll shows that 70% of those queried believe that the President is not doing well in his handling of the economy.