POLICY: Nixon's Other Crisis: The Shrinking Dollar

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Though the economy's troubles may seem disparate, they are linked by a central theme. It is a cheapening of the dollar — at the supermarket counter; on Wall Street, where a dollar invested in almost any stock in January is worth much less today; and in for eign countries, where a dol lar buys progressively fewer marks, francs or guilders. The core problem is inflation, which both directly worsens the lives of most U.S. citizens and intensifies the malaise on Wall Street and in the curren cy markets.

Inflation is most visible — and pain ful — in food prices, where it also has been in part preordained. As an election-year ploy aimed at winning the farm vote, the Administration deliberately pumped up farm prices during 1972 by spreading around a record amount of federal cash in subsidy and price-support payments. The President did little to repair the resulting wreck age at the grocery counter when he imposed ceilings on retail meat prices in March in response to the approaching nationwide meat boycott. He merely kept meat prices at record levels. Prices for other food products, including grains, milk and fresh vegetables, have continued to soar. The Administration early this year moved to increase farm production—and thus bring down prices—by freeing for planting much land that had been idled under price-support programs, but the move came pitifully late.

Meanwhile, the Administration compounded its error by replacing the tough Phase II controls on nonfood prices with the flabby voluntarism of Phase III. Coming just as food prices were starting to explode, Phase III fostered a spirit of anything goes among some businessmen. C. Jackson Grayson Jr., the activist price czar of Phase II who has returned to his old job as dean of the Southern Methodist University business school, observes: "No one wants to get caught with his prices down. The attitude of many businessmen is that Td better get mine while I can.'" Even George Shultz, a prime architect of Phase III, conceded that the controls that were retained need to be enforced "more flamboyantly."

Since they have not been so far, inflation is no longer just a food phenomenon. Robert Nathan, a member of TIME'S Board of Economists, points out that during the 14 months of Phase II, wholesale prices of industrial commodities (structural steel, lumber studs, man-made fibers) rose at an annual rate of 3.5%; but during the first four months of Phase III, they shot up at a yearly rate of almost 15%. Rising retail prices have kept most Americans from enjoying a rip-roaring 1973 boom that is raising national production to undreamed of heights: incomes are rising, but prices are going up even faster. In April, for the first time in two years, the average U.S. worker's spendable earnings actually declined from a year earlier. In the face of all this, union members have been accepting wage settlements that so far have averaged close to a very reasonable 5.5%. But no one can guarantee that labor will not soon demand fat pay increases that would force prices up still more rapidly.

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