Nation: Man in a Box

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The eyes of the U.S. last week turned anxiously toward Wall Street, where drama and despair marked the stock market's worst week's plunge since June, 1950.

The sad news on the Big Board did not mean that the U.S. economy was in bad trouble. But it did highlight a dilemma for the economy and the Kennedy Administration. As a keystone of his Administration, President Kennedy promised to do two things: increase economic growth and check inflation. The trouble is that while both aims are laudable in theory, they do not necessarily go together. In trying to achieve both of them at the same time, and in using methods that have alarmed businessmen, the President may have thrust himself into an economic box.

"Normal" Inflation. Inflation has long been a companion to economic boom.

Over the last 60 years, prices have edged upward at a rate of 2½% a year—while the U.S. economy achieved the most remarkable growth in the world's history.

Many economists believe that the price of a prosperous and growing economy is a "normal," or controlled, inflation of 2% or 3% a year, and that economic expansion is bound to raise the price of labor and materials. They point out that although prices have risen, the U.S. consumer has usually got better products for his money—and that his rising wages have given him the added spending power to enjoy them. To such men, the alternative to "normal" inflation—as opposed to the runaway inflation of post World War I Germany—is economic stagnation or downright recession.

The U.S. has achieved comparative price stability over the last four years, but that stability has not been accompanied by robust economic growth and was, in fact, accompanied in 1958 by the worst recession since World War II. Even though the consumer price index has been edging up—the Commerce Department announced last week that it had risen .7% in the first four months of 1962—its rise has been only a modest 1% or 1½% in recent years. In the economic boom of the 1950s, that rise averaged 3%.

Dropping Labels. Yet it is the expectation of rising prices, profits and wages that spurs the whole economy—and that expectation has been badly dampened by President Kennedy's determined anti-inflation drive, particularly by his "guidelines" for industry and labor. The stock market's plunge reflects the investor's belief that prices and profits will not rise enough to give him a chance for good investment gain. The businessman's notable lack of confidence reflects his fear that the President may further interfere in the normal workings of a free market. As measured by the latest Gallup poll, President Kennedy's popularity has dropped four points, to 73%, since he pounded back the steel industry's price hikes.

Recognizing this, the President last week asked a business and labor conference in Washington to "drop our labels" and face economic problems together.

"Unless we can work them out together," he said, "all of us are going to suffer." Yet neither business nor labor showed much desire for togetherness with Government.