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Just as forcefully, the new economists argue that the Government can and should come up with specific programs to bring more goods and services to market, letting competition curb the price spiral. Economist Jerry Jasinowski, 40, Assistant Commerce Secretary for Policy, is one of many who believe that boosting supply is the only long-term antidote to rising prices. Says he: "We must admit openly that manipulation of demand via public expenditure, taxes and control over credit does not get to the heart of the problems of the 1970s and 1980s. The source of these problems lies not with the ability to consume but with the capacity to produce."
The unsettling ideas of the incentive economists are becoming a new orthodoxy in much of Government. Last week the congressional bipartisan Joint Economic Committee issued a grave warning in its midyear report: unless major improvements are made in expanding the "supply side" of the economy by boosting saving and investment in order to lift productivity, the nation will face a drastically declining standard of living in the 1980s. Inflation will push prices up to almost incredible levels—$5.80 for a gallon of gasoline, $2.06 for a loaf of bread—even as unemployment itself stays high. But, wrote Chairman Lloyd Bentsen, the Democratic Senator from Texas, "this committee believes we can and we must produce our way out of our economic problems."
Legislative and Administration leaders are pressing new policies to enhance production and supply. New Treasury Secretary G. William Miller, among many others, urges faster depreciation—that is, bigger tax write-offs for business spending on factories and tools—to spur capital investment in expansion, modernization and automation. Last year's passage of a version of the Steiger Amendment to reduce capital-gains taxes and stimulate investment has boosted venture capital (the money that investors risk on new businesses) by 1,000%. To shift still more money into investments, Senate Finance Chairman Russell Long and House Ways and Means Chairman Al Ullman champion lower taxes on capital, profits and personal income, and correspondingly higher sales taxes.
Support is also building for proposals by Long and many other legislators to reduce income taxes on interest from bank accounts to encourage people to save instead of spend. Dollars put into saving are reinvested by banks in wealth-creating projects, such as home construction and factory expansion. That not only provides jobs but also slows rising prices by stimulating production. On the other hand, money spent on end-use consumer items, such as a car or TV, buys just one thing.