What Might Have Been

By Marshall Loeb

Jimmy Carter's favorite authors are Dylan Thomas and James Agee, but this week the speed reader from Plains may be pondering the works of Rudyard Kipling ("If") and John Greenleaf Whittier, who wrote, "Of all sad words of tongue or pen the saddest are these: 'It might have been.' " It might have been that if Carter had taken certain steps earlier, inflation would be lower, the economy would be stronger and the President would be more popular. Hindsight, of course, is one of the few cheap things in this inflationary age. But it has value as a guide to those who do not wish to be condemned to repeat the past. In short, Carter may learn from previous mistakes --his own and those of others.

Certainly Carter did not start the spiral. The blame for that is ingloriously bipartisan. The bulge began when Lyndon Johnson in 1966 failed to level with American people about the true costs of the Viet Nam War and refused to recommend an income tax increase. So the nation plunged deeply into deficit, and inflation roared from little more than 1% in the mid-'60s to 4.2% in 1968. Richard Nixon grossly worsened a bad situation by also using deficit spending and then clamping on controls; prices soared after they were lifted rising 6.2% in 1973 and 11% in 1974. Gerald Ford, inheriting an economic mess as well as a moral mess, pursued stringent fiscal policies that brought inflation down to 5.8% in 1976, but only after the nation had suffered through a severe recession.

Events abroad, also well beyond Carter's control, had conspired to aggravate inflation. OPEC'S quintupling of oil prices inspired the money-poor but materials-rich nations of the Southern Hemisphere to pump up prices for commodities as disparate as copper, tin, rubber, jute, cotton, bauxite, coffee, cocoa, tea, sugar. Instant communications--TV and transistor radios--spread the message of the good life. People in Timbuktu no less than in Toledo demanded more--more than society could reasonably produce. Communication, education and sophistication enabled the world in the 1970s to virtually defeat smallpox--and helped make just about every country fall victim to inflation.

When Carter took office, the polls already were showing that the public ranked inflation as domestic enemy No. 1. He might have seized a rare opportunity to stir and rally the people against it with his very first act: his inaugural speech on Jan. 20, 1977.

The country then was on an emotional high, ready for new politics, prepared to change, to dare, to follow where the new President might lead. Carter might have called for sacrifices by special interest groups for the benefit of all. He might have championed the repeal of narrow and highly inflationary laws --legislation that, to cite only two of many examples, mandates that the steepest union wages be paid on Government-aided construction jobs and requires that high-cost U.S. ships carry all cargo moving between domestic ports.

Most important, he might have called for a severe reduction in the growth of federal spending, because it is deficit spending that obliges the Federal Reserve to print the money that generates inflation.

He did none of that, and if he had tried, he would have had a tough tangle with the profligate Congress. Instead, the Administration sent out signals that it worried much less about stemming inflation than stimulating the economy. Who could mistake the message in Carter's call, early in his presidency, to add billions to spending and to rebate $50 to every American taxpayer? Carter attempted to meet the demands of every constituency of the old Democratic coalition, and practically everybody else as well. He gave in to--or actively encouraged --increases in the minimum wage, Social Security benefits, veterans' benefits, farm subsidies, civil service pensions, grants to states and a plethora of other payouts. He acceded to tariff increases or stricter import limits on sugar and steel, TV sets, CB radios and other products, thus sheltering domestic producers from competition and enabling them to get theirs--by raising prices.

Some of Carter's economic aides served him about as well as Typhoid Mary in the kitchen. Treasury Secretary Michael Blumenthal talked down the value of the dollar last year --a cheap dollar was supposed to stimulate exports. Carter might have foreseen that as the dollar fell, prices of imports would rise, lifting with them the prices of similar domestic products, from Wisconsin gorgonzola to Detroit subcompacts. Budget Chief James Mclntyre last January submitted a fiscal 1979 budget that projected a $61 billion deficit, even though the country was entering the fourth year of .economic recovery. Carter might have recognized that this would be grossly inflationary--and that leaders of business and labor would post higher prices and press for steeper wages just to keep up. Robert Strauss, who was Carter's anti-inflation czar until last week, strong-armed coal mine operators last March to accept a highly inflationary contract (39% increases over three years). Carter might have recognized what would happen: every other union leader, just to prove his manhood and keep his job, would strive to equal or top that figure. Blumenthal, Strauss and Carter himself repeatedly, if sometimes vainly, cajoled the Federal Reserve to keep credit easy and hold down interest rates. The President might have known that bankers and businessmen, many of whom considered money policy to have been loose in months past, would interpret this as yet another sign that the Administration was soft on inflation.

As late as last spring, although new jobs were being created at record rates, Carter's aides bickered over which was the greater peril: inflation or unemployment. Even when they agreed that it was inflation, they divided over how strongly to fight it. Political aides wanted the President to go gently, at least until after the November elections, lest any budget cuts alienate unionists, veterans, farmers, welfare recipients and other voters. Economic advisers wanted him to act firmly, paring away at programs. Characteristically, Carter split the difference, calling in April for a timid policy of a modest bud get constriction and limits on federal pay increases. He might have known that this policy would not be enough, that inflation would continue to accelerate.

The inevitable result was the summer of double-digit dis content, followed by Stage II. Announcing it, Carter conceded that the tom-toms reverberating from the Oval Office in the past had signaled anything but a determined anti-inflationary policy. The regulators who he now suggests are out of control are Carter appointees. The budget that he says is too big is a Carter budget. But the good news is that the President pro fesses at last to recognize the problems and to have learned from past misjudgments.

With Stage II, Carter may not have bitten the bullet, but at least he bit the aspirin. The much debated new program is harmless enough, and it may give the President some time and space to do what needs to be done: cut the bloat in the budget, reduce costly regulation, encourage the Federal Reserve Board to let the money supply grow only slowly and steadily. That, and only that, can slow the price spiral.

The question is whether, after all the what-ifs and might-have-beens, Jimmy Carter has the will and the courage to fight not only the surface symptoms but also the root causes of inflation. -- Marshall Loeb

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