INFLATION; How and when it started

By , Staff correspondent of The Christian Science Monitor

"Liberals in Congress," says Andrew F. Brimmer, "have lost the battle to conservative Democrats and Republicans. The [1981] budget will be balanced." Thus Mr. Brimmer, a former governor of the Federal Reserve Board, sums up a national consensus around which President Carter shapes his anti-inflation program.

Centerpiece of that policy is a balanced budget in fiscal 1981, a goal which -- if it is to be achieved -- will require that a Democratic White House and Congress whittle sharply away at social programs cherished by liberals over the years.

Recession may unbalance the budget, no matter how deeply congress and the White House are willing to slash existing programs. But the politics of inflation requires lawmakers and the President to at least pay lip service to getting the budget out of red ink.

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Mail flowing to congressmen, buttressed by national polls, indicates that millions of Americans blame extravagant government spending for a good part of the inflation that cuts deeply into real personal income.

Experts agree that years of deficit government spending -- the federal budget has been balanced only once since 1960 -- contributes to inflation. Other causes:

President Lyndon Johnson failed to raise taxes to pay for the Vietnam war. An upward spiral of wages and prices outstripped productivity gains, so the real cost of producing a good or service climbed. Soaring oil prices sent inflationary shock waves through the economy, as did world food shortages in the early 1970s.

Economists may argue that cutting federal spending by $15 billion or so in a index.

But politicians read a different message roma ngry votes: Balance that budget. Thus, a policy that in ordinary times would be unpopular with many Democrats now finds wide acceptance.

To a degree, therefore, the political impact of inflation has been muffled because the President appears to be pursuing a course approved by many Americans.

Nonetheless, warning signals are beginning to flash as the nation prepares to elect a president, all US representatives and one- third of the senators this November.

Within his own party, Mr. Carter faces a challenge from Sen. Edward M. Kennedy of Massachusetts, who outlines an economic policy very different from the President's. Senator Kennedy wants higher, not lower, social spending, to be paid for in part by cutting the defense budget and closing various tax loopholes for the rich, including oil firms.

Mr. Kennedy also favors temporary controls over much of the US economy -- wages, prices, interest rates, profits -- with gasoline rationing thrown in to boot in an effort to halt inflation in its tracks.

The senator argues, with some logic, that president Carter undercuts his own anti-inflation efforts by decontrolling the price of domestic crude and by imposing a $4.62-a-barrel import fee on foreign oil.

Decontrol, designed to bring the cost of domestic oil to the world level by Oct. 1, 1981, will add abut 10 cents a gallon to the retail price of all petroleum products this year and will add a similar amount in 1981. The import fee would boost the cost of gasoline by 10 cents a gallon.

Congress is unlikely to halt the process of decontrol. But Mr. Carter's controversial oil import fee is under court and congressional challenge, and it may not survive.

The problem, from the White House perspective, is that the battle against inflation collides with another urgent national goal: energy conservation.

Mr. Carter sees no effective way to reduce US dependence on foreign oil except to raise the price enough to discourage use. Senator Kennedy would reimpose price controls on domestic oil and erase the import fee.

Mr. Kennedy's approach may gain wider voter appeal as deepening recession throws additional Americans out of work. Then many liberals will plead for extra help for the jobless and disadvantaged.

Existing law -- with no new programs added -- requires the US Treasury to dole out an extra $4.5 billion in unemployment compensation and related welfare costs each time the jobless rate climbs by 1 percent.

Assuming Mr. Carter prevails within his own party and squares off against Ronald Reagan this fall, voters will find two candidates with roughly similar economic outlooks, except on the matter of tax cuts.

The President would postpone tax cuts until the 1981 budget is safely balanced. Mr. Reagan advocates a 30 percent across-the- board income tax cut over three years. Such a move, he says, would spur economic activity, boost productivity, and swell federal revenues.

Mr. Carter disagrees, arguing that so huge a tax cut would be inflationary and might plunge the federal budget into deeper red ink.

As a Carter-Reagan campaign wore on, the President might feel the need to put economic distance between himself and the former California governor, especially if the independent candidacy of Rep. John B. anderson (R) of Illinois appeared to be draining support from Mr. Carter.

Then the voice of Democratic liberals, urging higher social outlays, might become more alluring to Jimmy Carter, particularly if recession began to outweigh inflation as the public's No. 1 concern.

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