INFLATION: WHAT MORE CAN NIXON DO?

IN its frustrating struggle against inflation, the Nixon Administration has relied almost entirely on classic, conservative weapons. The Government has severely constricted the supply of money and restricted its own spending. Most economists agree that this is the proper course. But the stubborn persistence of price increases is straining the patience of consumers, labor leaders, businessmen and members of Congress. With increasing urgency, critics are demanding that Nixon "do something"--that is, something more. They propose wholesale slashes in the federal budget, a return to wage and price guidelines, or even severe wartime controls.

Nine-Month Wait. Despite some internal debate, the Administration has shown more inclination to defend its strategy than to change it. Paul McCracken, the President's chief economist, insisted last week that the economy is entering "a period of transition" and that "we must not lose our cool." He has impressive evidence to bolster his argument. The growth of the output of goods and services has slackened. Profits are expected to fall in this year's third quarter. Housing, industrial production, new orders for factory goods and stock prices have declined. Over lunch at Pittsburgh's elite Duquesne Club, industrialists grumble about slipping demand and sales. Automakers have scheduled 7.5% fewer car assemblies for the final quarter of this year than during the same period a year ago, and Chrysler is about to lay off some of its 40,000 white-collar workers to reduce costs. A. W. ("Tom") Clausen, vice chairman of the Bank of America, predicted last week that banks will cut their prime rate from the present record 81% early next year, or perhaps even sooner. Walter Heller, the former White House chief economist, maintains that "inflation has probably now passed its peak of intensity."

The public is not impressed with that sort of optimism. There is usually a distressing lag between the time an anti-inflationary policy is adopted and the time when prices actually start to level off. Economists figure that it takes six to nine months for tight-money policies to slow down an overly accelerated economy, which is what is happening now. After that, still another three to six months generally pass before price increases start to lade. By this reckoning, the Administration will do well if it manages to reduce today's 6%-a-year price inflation to something approaching 4% by the early or middle part of next year.

Campaign for Controls. The slowness of this schedule prompts the cry for more direct action against prices. Senator Daniel Inouye of Hawaii warned the annual conference of the American Bankers Association in Honolulu last week: "No one likes wage and price controls, but we may have to institute them temporarily to halt galloping inflation." Many labor leaders agree, provided that similar controls are put on profits and dividends. At its convention in Atlantic City, the A.F.L.-C.I.O. last week called for Government action to hold down the costs of medical care, insurance and housing. The Administration, however, remains dead set against price controls on the grounds that they are unwieldy, unworkable and fail to attack the real causes of inflation.

Credit controls, which were last imposed on the U.S. during the Korean War, might work more selectively to restrain lending, and in turn, demand for some kinds of goods. But neither Congress nor the Administration favors such an approach. The Administration is also adamant in rejecting a return to wage-price "guideposts" or "jawbone" jousting with business and labor over excessive price or wage boosts. The old guideposts permitted annual wage increases of 3.2%, an amount equal to average gains in productivity over a long period. Now productivity is falling, and workers can hardly be expected to take wage cuts to match the decline in output per man-hour. As for jawboning, Nixon's Republican advisers consider it unfair and almost immoral to single out individual companies or industries, as Presidents Kennedy and Johnson did, for public or private attack over prices.

Nixon has already had some success in convincing businessmen that economic exuberance will not continue indefinitely. Even so, many in the business community worry that rising unemployment or the approach of the 1970 elections may cause the Administration to lose its nerve and ease its battle against inflation too soon. After four years, the disease is too deeply embedded in the economy to be susceptible to a quick cure.

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