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A long-term program of holding down demand would mean that for years the nation could not reduce the jobless rate to the 4% "full employment" level; unemployment might well rise beyond the present 5.2%. The unemployed, of course, cannot be callously written off— but heating up the whole economy to the point at which employers are eager to hire everyone who turns up is at present a sure prescription for accelerating inflation. Instead, the jobless should be helped by higher unemployment benefits, public-service employment programs, massive job-training efforts to give them marketable skills—and the budget should be cut in other places to provide the money.
Even a consistently pursued policy of fiscal and monetary restraint, however, would not defeat inflation by itself.
It should be reinforced by an array of other policies, all of which should be put into effect together. No one of these policies is likely to have much impact on its own, but cumulatively they could put a substantial dent in the inflation rate.
For one thing, the President—possibly acting through a revived Cost of Living Council—should monitor wage-price increases in key industries with a baleful eye and demand from Congress stand-by authority to roll back those that are far out of line. Even liberal economists are generally reluctant to go back to comprehensive wage-price controls. But in a highly inflationary climate, the Government must try to counter the temptation for unions and companies to push for the biggest increases that their raw economic power would temporarily command. Indeed, many economists fear that high wage demands are about to replace shortages as the prime inflationary force in the economy—and the Government cannot persuade labor leaders to moderate them unless it makes a conscientious effort to restrain business too. The President, as wielder of the nation's largest jawbone, should define what wage and price behavior is responsible and focus public opinion pressure against increases that violate the guidelines. In order to assure that he is listened to, he needs the authority to order occasional rollbacks.
-A resurrected Cost of Living Council or some other body should also monitor the Government's own price behavior. As economists tirelessly point out, Government departments and regulatory agencies, in an effort to please narrow constituencies, often adopt policies that spur rather than slow inflation. For example, the Agriculture Department is now buying up $100 million worth of "excess" beef and pork in a deliberate effort to keep prices paid to farmers and feed-lot operators from dropping. Federal regulatory agencies often set railroad, truck and barge freight rates high enough to protect the most inefficient carriers from competitive damage. A separate federal agency should be empowered specifically to watch for such practices and try to get them stopped.
The Government should also explore all possible ways to increase the productivity, or output per man-hour, of the nation's work force. High productivity enables employers to grant wage increases without raising prices, but U.S. productivity fell at an annual rate of 5.5% in this year's first quarter.