Boston — The two economics books on the best-selling lists these days are doomsday tomes. The United States, they state, is headed soon for hyperinflation, followed by deep depression.Woe! Woe!
Don't go jumping out of any 40th-floor windows. Such gloom and despair may sell books. But the chances of such grim predictions coming true are slim. Most scientific economists consider such alarmist books shameful.
In fact, any slight possibility of a future hyperinflation-depression is already fading. Americans have by now seen too much inflation, as was shown in the results of the fall elections.They blamed President Carter for the economic mess and replaced him with a man pledged to fight inflation, Governor Reagan.
Reading the polls, the Federal Reserve System applied more firmly and persistently its anti-inflationary monetary policy, tolerating high interest rates in the process.
Early last fall many in the financial community questioned the Fed's seriousness of purpose when money growth accelerated. However, the money-supply figures for the week ended Dec. 31, announced last Friday, showed that the Fed managed to reach its 1980 growth targets. The M-1B measure of the nation's money supply fell $7.1 billion in the last four weeks, to a total of $406.8 billion. That brought the level narrowly within the 4- to 6.5-percent growth level sought from the fourth quarter of 1979 to the fourth quarter of 1980. M-1 B consists of currency in circulation, plus checking and checklike deposits at banks and savings institutions.
Similarly, the narrower measure, M- IA, ended the year comfortably within the Fed's target of 3.5- to 6-percent growth.
As a result, more and more economists are expecting inflation to start coming down -- not soar into hyperinflation where money becomes practically worthless. That view is shown in the January survey by blue Chip Economic Indicators (Sedona, Ariz. 86336) of some 42 mostly business economists. They expect on average that the broadest measure of inflation, the so-called gross national product deflator, will rise 9.6 percent this year and 8.9 percent in 1982. They predict that the consumer price index will climb 11.2 percent in 1981 and 9.5 percent in 1982.
That's far from a rosy inflation picture. But neither is it disaster, as in Weimar Germany in 1923, when an egg cost as much as 80 billion marks.
The consensus of these economists also calls for a flat, sluggish pace for the economy during the first half of 1981. Indeed, they reckon that the current quarter may show a slight dip in the real output of goods and services as a result of tight money. Then, however, they expect a modest recovery, with the gross national product (total output of goods and services) growing 0.7 percent in 1981 and 3.6 percent in 1982.
Again, that's not a stellar performance. But it isn't a Great Depression, either, with perhaps 25 percent unemployment and widespread business failures.
The good news is that these top-flight economists are expected interest rates to continue to move downward. Short-term rate (measured by six-month commercial paper) should drop to an average of 14.1 percent this quarter and then to less than 12 percent through 1982. Unemployment, they figure, could rise to 8 percent by midyear and then decline gradually to 6.9 percent by the end of 1982.
This picture shows that the turn to a more stable economy could come slowly. Warns Harvard University economist Martin Feldstein: "There is always the danger that the political process won't be patient enough." In other words, he's somewhat concerned that the federal government might panic and step on the fiscal or monetary gas once more, prompting another round of increasing inflation.
For the time being, however, the amount of money being fed the economy has been reduced sufficiently to produce some progress in fighting inflation. To a major extent, inflation is a monetary phenomenon -- that is, it rises and falls with the amount of new money created in an economy. Other factors, such as OPEC oil price increases, bad weather destroying crops and boosting food prices, changes in taxes or regulation, inadequate investment, and others, influence prices. But nothing is more important to prices than the money supply.
That is shown by comparisons of rates of inflation and money growth in various industrial countries. Citibank notes in its latest monthly economic letter: "OPEC oil-price increases have hit the German economy at least as hard as the US economy. Nevertheless, German inflation remains well below that of the United States and has been trending downward. Similarly, high productivity growth has been associated with low inflation in Japan but with high inflation in France. Meanwhile, low productivity growth has been associated with high and increasing inflation in the United States but with low and decreasing inflation in Switzerland."
The letter goes on to cite trends in money growth in these countries that do explain their inflation patterns. Germany, Japan, and Switzerland met the 1973- 74 oil price increases with monetary restraint. They experienced a two- to four-year period of slow growth and persistent unemployment as domestic expectations about prices adjusted downward. France, Italy, and the US did the opposite and inflation rates went up. So, eventually, did unemployment in the US.
Pieter Korteweg and Edward J. Bomhoff, both economics professors at Erasumus University, Rotterdam, noted last week in the Wall Street Journal that the capital formation necessary for increased productivity and higher living standards also benefited in the low-inflation countries and suffered in the high-inflation countries.
The more of this story is that cutting back money growth, thoug economically uncomfortable for some time, pays off in economic progress o ver the long run.