Business: Trying Anew to Bash Inflation

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So economic policy runs constantly at sixes and sevens. Anti-inflation actions, such as the wage and price guidelines, have repeatedly been half measures taken halfheartedly. Says Yale's William Nordhaus, a former member of the President's Council of Economic Advisers: "The Administration backed off from its anti-inflation policy all along the way. The policy has been a hollow shell."

The Carter economic rhetoric has long diverged from the Carter reality. Having campaigned on a promise to balance the fiscal 1981 budget, the President piled up a mountainous and inflationary cumulative deficit that by the end of this fiscal year in September is expected to total $116 billion. The fiscal 1981 budget that the President submitted to Congress last month is now likely to add as much as $30 billion more to the federal debt.

Though the Administration clearly runs the risk of raising expectations too high over what is likely to emerge from its policy review, economists both in and out of Government now increasingly expect to see at least some stiffer measures to limit the explosive and inflationary growth of credit. Says Gary Wenglowski, director of economic research for Wall Street's Goldman, Sachs investment firm: "I'd give odds of 60 to 40 that the Administration's new package will include credit controls."

Unlike wage and price restrictions, which require congressional authorization before enactment, the President could impose credit controls immediately under a 1969 federal law. Anticipation that the White House was on the verge of actually issuing such an order kept the bond market, which is highly sensitive to inflation expectations, in a state of wild agitation all week.

Federal Reserve Board Chairman Volcker, who would be responsible for administering any program of credit controls, remains opposed in principle to the concept. He objects, in addition, because any limitation on consumer credit would have a disproportionately severe impact on two sectors of the economy that are already suffering: housing and auto sales.

Although Volcker still retains enormous respect from the business and banking communities, he is beginning to come under some criticism for failing to tighten down on credit and the money supply enough to cool off inflation. Says John F. McGillicuddy, chairman of New York City's Manufacturers Hanover Trust: "Money has not been particularly tight in large money-center banks. It has been expensive, but not all that tight." Selective credit controls, which could perhaps include a boost in the down payment required for a house or auto loan or an increase in the minimum monthly payment on a Master Charge or Visa card, would be a quick and easy way for the Fed to try to accomplish what a rise in interest rates has so far failed to achieve. Predicts a top Administration policymaker: "Volcker is still philosophically opposed to controls, but I think he's beginning to budge."

A renewed effort to cut federal spending is also gathering force. The 1981 budget submitted only five weeks ago is virtually a dead letter. Administration officials are now hoping to reduce the proposed $15.8 billion deficit to zero. Some top economists like Arthur Okun want an extra $15 billion or so in federal fat removed from the current budget, which ends in September.

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