Business: THE RISING RISK OF RECESSION

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High-income people come off better. If you have property, you get the benefit of this, plus social security. The system redistributes income from the young (rich or poor) to the old (rich or poor). I think we ought to help the poor indiscriminately." GOVERNMENT PRIVILEGES. "All over the world, the predominant source of great increases in private fortunes over the past several decades has been Government privileges." For example, the issuance of radio-TV licenses is "an enormous giveaway of valuable capital sums to individuals who are not low-income people." Friedman also holds that the Federal Communications Commission should auction TV channels to the highest bidder and thereafter stay out of the picture.

INFLATION. Friedman challenges the popular theory that full employment and price stability are incompatible. "The belief, like most of those propositions that get widely accepted, is a half-truth," he argues. The two goals conflict over brief periods when an economy is shifting from one rate of inflation to another, he concedes. But over any period of five, ten or 20 years, says Friedman, fast economic growth and full employment can be meshed with stable prices.

That reassuring thesis may be difficult for some inflation fighters to accept, because 1969 has been such a frustrating year. Repeatedly, Administration leaders have announced that, as Nixon said on Oct. 17, "we are on the road to recovery from runaway prices." Paul McCracken's original year-end deadline for arresting the price trend faded quietly into oblivion. "We underestimated the inflationary expectations," says Under Secretary of the Treasury Charls Walker. "They were deeply ingrained. We didn't expect that it would be so tough."

Evading the Squeeze

Tight money might have reduced inflation faster if big banks had not discovered ingenious methods of avoiding the Federal Reserve's pincers. To help meet corporations' vast appetites for loans in the face of the credit shortage, U.S. banks borrowed $13.3 billion in Eurodollars—U.S. dollars in private hands abroad—and brought them home. The board finally closed that loophole by imposing a 10% reserve requirement on borrowed Eurodollars. Thereafter, the banks circumvented restraint by issuing vast quantities of commercial paper —unsecured promissory notes. Belatedly, the Reserve Board plugged that loophole by placing an interest-rate ceiling on commercial paper. Now, big Manhattan banks have found still another gap in the Federal Reserve's regulations. To raise funds for domestic loans, they have begun selling large-denomination certificates of deposit to foreign central banks, which have plenty of U.S. dollars.

Some of the loopholes were deliberately allowed to stay open, authorities admit. Federal Reserve officials feared that if they had closed every gap in the regulations, some banks might have failed. In a banking system based on confidence, that might have touched off a financial panic, something that the Federal Reserve is sworn to prevent. Still, Board Chairman Bill Martin admitted to Congress that the "safety valve" had become "an escape hatch through which restraints are being avoided." The banks also flooded the country with new credit cards, which stimulated consumer spending and certainly did not reduce