Perils of a Breakneck Boom

A LONG string of danger signals began to blink ever more insistently last week. The message: like a runaway freight train, the economy is hurtling forward at an inflationary speed that could send it off the rails into recession next year.

"The warnings came in a series of statistical reports. During the first quarter, the Commerce Department disclosed, U.S. output rose a stunning 14.3%, tying the first quarter of 1971 --when the economy was recovering from a General Motors strike--for the largest advance since the Korean War. Ballooning prices pushed the gross national product up about 6%, but the rise in real terms was around 8%, nearly double the rate that economists figure can be sustained over the long run. Industrial production in March increased a spanking 9.4% over a year earlier; personal income hit a trillion-dollar annual rate for the first time; and consumer spending rose at a pace clearly indicating that inflationary psychology is prodding people to buy all sorts of goods before the prices go up further.

That mood, though disruptive, is hardly unreasonable. The Government reported at week's end that consumer prices in March jumped a shocking .8% after seasonal adjustment. That equaled the February increase, which was the largest in 22 years. In the first quarter, living costs soared at an annual rate of 8.8%, more than triple the 2.5% figure that Nixon has set as a goal. Retail food prices leaped 3.2% in March alone, the biggest rise since record-keeping began in 1952. The price surge all but ended the second honeymoon between AFL-CIO Chief George Meany and the White House. Said Meany: "In his Inaugural Address in January, the President advised Americans to help themselves. It is obvious that this is what unions are going to be forced to do at the bargaining table."

Resist. Yet the Nixon Administration continues to resist all efforts to push it into wage-price controls that would go beyond the ineffectual voluntarism of Phase III. Treasury Secretary George Shultz announced that "a general across-the-board freeze is not under active consideration." Instead, the Administration turned its energies to lobbying against a House bill that would have frozen most prices and interest rates at March 16 levels. It succeeded, with help from businessmen and farmers who cried to their Congressmen that the bill would force them into profit-wrecking price rollbacks. The House defeated the bill, and by week's end a Senate-House conference committee cleared a measure that would give Nixon exactly what he wants, a one-year extension of his carte blanche to establish any kind of wage-price policy he chooses. A final vote is scheduled for April 30, the day the present law expires.

Meanwhile, the Administration continues to make much of those steps that it has taken to curb inflation: imposition of ceilings on retail meat prices and of mandatory controls on oil prices, and revisions in farm policy aimed at boosting production. Last week President Nixon also asked Congress for authority to sell off from Government stockpiles $6 billion in "strategic" materials, including rubber, silver, aluminum, copper and lead. The President hopes that the sales will hold down price boosts that are now being caused by hot demand pressing against scarce supply. But even if Congress approves, the sales will be spread out over too long a period to have much immediate impact.

The real burden of checking inflation by restraining the breakneck boom is increasingly falling on the Federal Reserve Board. The board held the growth of the U.S. money supply in the first quarter to a meager annual rate of 2%, v. an 8% rise for all 1972. Such a tightening, if continued, would indeed slow the economy--perhaps too much --but it risks also provoking an upsurge in interest rates and a credit crunch.

Economists increasingly doubt that any of the Government measures taken so far will work rapidly enough to achieve the Administration's goal of guiding the economy into a slower, less inflationary and more sustainable growth path later this year. They express a rising fear that, without strict wage-price controls, inflation can be restrained only by a money squeeze tight enough to cause a 1974 recession. Even Alan Greenspan, a member of TIME's Board of Economists, occasional adviser to Nixon and firm opponent of controls, foresees "something close" to a recession next year--specifically, an economic growth rate of little more than 3%. His reasoning: "To slow this type of inflation requires strong action, and it is difficult to do without tilting the economy down." Nixon, however, retains the option of ordering another wage-price freeze or going back to the formal controls of Phase II, and though Free Marketeer Shultz argues against it, the President is aware of rising public clamor for controls. This growing annoyance was called forcefully to his attention last week by pickets from the National Consumers Congress, who paraded in front of the White House carrying signs demanding not just a price freeze but a rollback.

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