To Cool a Fever

After seven fat years, the greatest danger confronting the U.S. economy is not seven lean ones. Warned Lyndon Johnson last week in his annual Economic Report to Congress: "The pace now is--and in the months ahead will be--too fast for safety." Agreed the President's Council of Economic Advisers in a supporting statement: "Whatever additional gains in output and employment might be obtained during the inflationary boom would be paid for many times over in a subsequent bust."

Johnson and his advisers buttressed their case by noting that while 1967 began slowly, the pace quickened so much that interest rates, retail and wholesale prices and other indices were in danger of spiraling out of control by year's end. The momentum is carrying over into 1968, with heavy auto and steel production pacing an expected surge of $20 billion in the gross national product during the first quarter--an alltime record.

Pleading for "the most rigorous restraint," Johnson asked business and the unions to slow the wage-price cycle. Wage settlements, he said, must be reduced voluntarily from last year's 5.5% average. Where possible, extra costs must not be passed to consumers. On the international side, he urged approval of his program for reducing the balance of payments deficit.

Loose Wires. To cool the "feverish boom," Johnson once again "urgently" asked for prompt congressional approval of a temporary 10% surtax. The measure would take $10 billion out of circulation in the next fiscal year, easing pressure on interest rates and prices. At that, 1968 would hardly be austere. According to Johnson's projection, the G.N.P. would still rise more than 7%, to about $846 billion. Of the total, about 4% would reflect genuine gains, with the remaining 3% attributable to inflation. Without the tax bill's restraining influence, the Administration believes, these estimates would be thrown off completely.

With unusual candor, Johnson admitted that the Administration's monetary and fiscal actions have "not always been perfectly timed or in precisely the right degree," but he insisted that he had moved "consistently in the right direction." The trouble with the tuning machinery of the new economics, he seemed to be implying, was mostly some loose wires in Congress. Johnson asserted that "damage has already been done" by congressional failure to enact the tax surcharge. "In the next few weeks," he added, "we must demonstrate that we can raise as well as lower taxes."

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