Business: Inflation: The Big Fight Opens

Stage 2 had better succeed if a recession is to be avoided

STOCK MARKET SUFFERS RECORD ONE-WEEK LOSS. DOLLAR SCRAPES NEW LOWS. INTEREST RATES SOAR, PINCHING BORROWERS. Different combinations, but the same old dismal headlines; congressional passage of the long-awaited tax and energy bills changed them not at all last week. So what else is new? This week one highly significant element: President Carter goes on TV to start his most serious attempt yet to douse the raging U.S. inflation that is the basic cause of all the other economic damage.

In a speech from the White House Tuesday night, the President is scheduled to unfurl Stage 2 of his anti-inflation program (Stage 1 began with the limp voluntarism he announced last April). The program that his advisers described in private briefings to top businessmen last week is quite detailed—so much so that the Government is preparing a thick book of definitions and a 300-question-and-answer fact sheet to explain the wage-price guidelines that are the heart of the program. Stage 2's main features:

WAGE GUIDELINES. Most workers will be asked to settle for wage-and-benefit increases averaging 7% over the next three years, with no more than 8% coming in the first year. One exception: workers earning less than $3 or $3.50 an hour (the final figure was uncertain) will be free to get all they can.

PRICE STANDARDS. Companies will be expected to hold price boosts to a half point below the average of the past two years. If everyone obeys, the Administration hopes the increase in all industrial prices can be held to between 6% and 6.5%. Again there will be exceptions for companies that are suffering rapid cost increases and have low profits.

MONITORING. Companies will not be required to report wage and price increases to the Government. But the top 400 or so—those whose annual sales total roughly $500 million or more—are being warned that they will be watched closely by 20 to 100 bureaucrats being added to the staff of the Council on Wage and Price Stability (COWPS). The 400 biggest companies in turn will be expected to watch wage-price boosts by their suppliers

PENALTIES AGAINST VIOLATORS. They will first be warned privately, then denounced publicly. If they do not reform, the Government will try to exclude them from bidding on federal contracts, possibly threaten them with unfavorable regulatory and antitrust action, and loosen restrictions that now protect them against import competition—in brief, says one executive, use every extralegal lever available "short of sending in the FBI for the files at night."

HIRING FREEZE. There will be a ceiling on new federal hiring, and reduction of the Government work force by attrition. According to one plan, only half of all Government employees who retire or quit will be replaced.

BUDGET TRIMMING. The federal deficit will be further reduced. Red ink in fiscal 1979, which has just started, is estimated at $40 billion, down from $60.6 billion projected last January. For fiscal 1980, advisers are determined to bring the deficit down to no more than $30 billion. Treasury Secretary W. Michael Blumenthal advocates a figure in "the 20s," and Budget Boss James Mclntyre would like it held to $25 billion.