THE NEW INFLATION: The Least of Three Evils?

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To many economists, alarm over automatic wage increases and administered prices and the cost-push inflation they cause seems exaggerated. They point to the absence of factors that produce a runaway inflation, notably a shortage of goods and an excess of money. The soft spots in the economy are expected to prevent major wage increases from spreading through the entire economy, as in the past, just as the ample supply of goods is expected to check overall price boosts. Last week outgoing Treasury Secretary George Humphrey told the Byrd committee probing Administration fiscal policies that the Administration's tight-money policies have begun to pinch off the new inflation and that increases in the cost of living will soon stop. Wholesale prices have leveled off, he said, and this will soon show up in stabilized retail prices.

Even the new inflation might have been checked, said Humphrey, if the Federal Reserve Board had earlier tightened credit more drastically, thus pinched off plant expansion and full employment. But he also agreed with the growing body of economists who think that the cost of doing this might be greater than the price of bearing inflation for a while, since the new inflation is a natural result of the economy's continuing prosperity. They feel that severe cures would hurt even more than the malady itself. Says Harvard Economist Sumner Slichter, who predicts a controlled inflation of 2% to 3% annually for the next decade: "In this imperfect world we are often compelled to choose between evils, and if the choice is between enough unemployment to halt the rise in labor costs, direct controls of wages and prices, and creeping inflation, let us by all means have the creeping inflation. It is the least of the three evils."

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