The Creeping Enemy

Four years as President Eisenhower's No. 1 economic adviser gave shaggy, pipe-puffing Arthur Frank Burns a practical postgraduate education of a kind that rarely comes to economics professors. Burns's tour of Government policymaking, plus his repute as one of the U.S.'s top economic thinkers, lends great weight to a slender (88 pp.) book published this week by Fordham University Press. Author Burns, who resigned the Council of Economic Advisers' chairmanship in late 1956 to become president of Manhattan's nonprofit National Bureau of Economic Research, argues in Prosperity Without Inflation that the U.S. should make stable prices a prime objective of national policy.

New Pattern. The inflation threat has temporarily eased, writes Burns, but it "will return to haunt us." Over the past few decades two far-reaching changes in the nation's economic structure have made creeping inflation a much more serious long-range menace than it used to be. The changes: 1) Big Labor's monopolistic power to force wages up, and keep them lap, even when demand is falling or productivity is stagnant; and 2) Big Business' tendency to eliminate price as a competitive factor, restricting competition to quality, service, etc. Following classical economic rules, prices (and wages) used to rise during booms, sink during slumps. But the combination of union monopolies and noncompetitive pricing has altered the pattern of price behavior from up-down-up-down to up-up-up-up.

With creeping inflation built into the economy, Burns urges that Congress amend the 1946 Employment Act to make the Federal Government clearly responsible for promoting "reasonable stability of the consumer price level." The Employment Act, reflecting memories of the Depression, pledges the Government to "utilize all its plans, functions and resources" to foster "maximum employment, production and purchasing power," and Burns heartily endorses it. But the nation's lawmakers, "preoccupied with the need to prevent the miseries of depression," have "slighted the injustice and hardships that flow from inflation . . . Serious depressions are no longer the threat they once were, while creeping inflation has become a chronic feature of recent history and a growing threat to the welfare of millions of people."

Adding price stability to the Employment Act's list of national economic goals would serve as an antidote to the inflation-breeding "belief that we are living in an age of inflation and that our Government. . . is likely to pursue an inflationary course over the long run." When consumers, businessmen and union leaders expect prices to rise, says Burns, they act in ways that tend to push prices upward.

New Look. Without a firm statutory commitment to fight inflation, the Government has failed to build up an adequate arsenal of anti-inflation weapons. Federal Reserve Board monetary curbs, e.g., the recently eased "tight-money" policy, are no longer as effective as they were in the 1920s. Among the reasons: sources of capital that are exempt from direct FRB control--life insurance companies, savings and loan associations, investment companies, pension funds--have grown much faster than have FRB-controlled commercial banks.

Along with using monetary curbs, argues Burns, the Federal Government "must lead the economic community in the practice of restraint" by squeezing expenditures during times of full employment, even though this means shelving programs that are desirable in themselves or demanded by some politically powerful group. And a vigorous anti-inflation policy, he adds, should take a cold-eyed new look at the inflationary effects of such minority privileges as protective tariffs, agricultural price supports and union monopoly power.

Far from pretending that achieving price stability would be painless or 100% popular, Burns frankly admits that it would require "great and continuing effort." But the effort, he adds, "is surely worth making."

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