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Lately, sociologists have detected a powerful emotional backlash behind some exorbitant wage demands. Skilled craftsmen feel squeezed and cheated by the proliferation of Government programs to aid people who stand below them on the economic ladder, particularly Negroes and welfare recipients. Some of these groups also seem to threaten the social values and institutions that the craftsmen revere. Resentful, rebellious and well organized, the craftsmen are out to win all they can at the bargaining table, if only to even the score.
Voters across the U.S. are venting their irritation by rejecting more and more municipal bond issues, school budgets and local tax increases. Two weeks ago, Oregon voters rejected a proposed 3% sales tax by a margin of 8 to 1, the most lopsided defeat for a ballot proposition in Oregon's 110 years of statehood. Construction costs are so high that many communities have had to cut back on civic improvements. Kansas City has curtailed its road-building program; it is short $1,000,000 to finish a $2,000,000 jail; it has built only three, rather than the six community centers for which people voted bonds.
If inflation worsens in the months ahead, more and more federal social programs will have to be reduced or deferred. The Government simply will not be able to finance them without adding to the price spiral. On the other hand, if Nixon's anti-inflationary measures are strong enough to produce even a mild recession, the President may find himself in serious trouble with many voters.
Nixon's most delicate problem is how to overturn so-called inflation psychology—the public's feeling that inflation, like poverty, has taken permanent root in the U.S. This pervasive belief is the potent new force in the nation's economic pattern. It prompts millions of Americans to save less and to buy now, borrow now, build now, invest now. Businessmen in particular have done that on the hitherto sound theory that delay will only lead to higher costs and that inflation is likely to bail out even the most marginal venture.
Bankers realize that Washington's policymakers are deadly serious about defeating inflation, but businessmen's plans to spend a record $72.2 billion on plant expansion and modernization during 1969 show that they expect the price spiral to persist. If prices continue to go up at the current rate of 8% annually, then businessmen can easily afford to borrow at 10%. The income tax deductibility of interest cuts the real cost in half, to 5%. Then, every dollar repaid next year will be worth only 920 in today's terms, so that the real cost of the loan will be almost nil.