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These views hot up the collars of classic economists such as Dean Neil H. Jacoby of the business school of the University of California at Los Angeles. In the Harvard Business Review he called Slichter the exponent of a "defeatist school," which is coldly callous to the fact that creeping inflation has "pauperized countless retired and disabled American citizens" living on fixed incomes. Jacoby urges the Government to make its goal an "absolutely stable price level." This means stopping the wage-price spiral by tightening credit and reducing federal spending, leading to less buying, bigger inventories, production cuts, lower profits, and layoffs. He argued, in effect, for a small recession.
On Jacoby's side are such authorities as C. Canby Balderston, vice chairman of the Federal Reserve Board. If people become convinced that the Government intends to make inflation permanent, he says, an "inflation psychology" will corrupt all decisionmaking. Businessmen will not fear overexpansion because higher profits will bail them out. The public will stop buying life insurance and fixed-income bonds and scramble to buy land, commodities and equities, bidding up prices. Says Balderston: "The infant ceases to creep. It learns to walk, then run and finally gallop over the brink of the precipice" and bring the bust "which everyone agrees must be avoided."
Actually, most signs last week indicated that the creep, far from increasing to a gallop, was slowing to a stop. Sales of fixed-income bond issues are booming. The commodity market, classic escape for capital in inflationary periods, is in the doldrums. Washington officials see a chance that the September consumer price index figures will show no rise over August because of the seasonal drop in used-car and food prices. Eventually they expect that inflation will begin to creep again. To keep it from accelerating to a gallop, both sides agree on the need for wise use of credit and fiscal controls. Says Slichter: "The greatest danger confronting the economy today is that political pressure will force abandonment of credit restraint."