Must The Price Of Progress Be Lost Jobs
Inflation and unemployment tend to perform like people at opposite ends of a seesaw. When one goes up, the other goes down.Skip to next paragraph
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During the current recession, the US jobless rate has moved to its highest point since 1941, while inflation - though still high by postwar standards - has markedly declined.
Much of the gain against inflation, in other words, has been achieved at the cost of putting the economy through a wringer, inflicting misery on millions of Americans. Businesses are going bankrupt at a pace not seen since the depression years of the early 1930s. Through August 1982, says Dun & Bradstreet, this year's crop of corporate failures totaled about 15,830, up 47 percent from the same period of 1981. More than 12 million Americans are out of work, if one counts the 10.8 million officially unemployed, plus a record 1.5 million ''discouraged'' workers, who have given up looking for jobs.
But equally impressive is progress against inflation. Through the first seven months of 1982 the consumer price index (CPI) climbed only 5.4 percent - a lot less than the 8.9 percent for all of last year, the 12.4 percent of 1980, and the 13.3 percent of 1979. That year marked the highest rate of inflation since 1946, when the economy was adjusting from wartime to peacetime footing.
But the CPI samples a market basket of consumer goods - including volatiles like food and energy, which gyrate up and down. It fails to yield a full measure of inflation. More accurate is what economists call the underlying inflation rate, expressed in the gross national product (GNP) deflator. The GNP deflator measures a complete range of costs throughout the economy. This gauge, analysts agree, has dropped from about 10 percent a couple of years ago to 6 or 7 percent in 1982.
Either of these economic miseries - inflation or unemployment - can wipe out the life savings and retirement hopes and aspirations of individuals and families, depending on the situation in which they find themselves. The tragedy is that progress against one seems to exacerbate the other. From this arise questions:
* Will inflation heat up again, when the current recession ends and the economy picks up steam?
* Must millions of Americans remain jobless to prevent inflation from surging again into double-digits?
* Has the Federal Reserve Board's long fight against inflation been worth the cost?
In coming months the answers to these questions may not be clear, for evidence points to a weak recovery through the remainder of 1982 and into 1983. Unemployment will remain high, while inflation stabilizes around the current level. Sooner or later, however, the questions will reemerge when a full-fledged recovery pits private sector demand for capital against the immense borrowing needs of the US Treasury to finance deficits in excess of $100 billion a year.
Either the Fed will be forced to accommodate that demand by letting the money supply grow, implying renewed inflation, or it will tighten credit, driving up interest rates. In either case the weary cycle would seem to repeat itself.
The Reagan administration had hoped that its combination of huge tax cuts and tight money would break the vicious circle and lead to a new era of economic expansion without inflation. The tax cuts, according to White House supply-siders, would stimulate savings and investment, in turn leading to corporate expansion and more jobs. End result would be a rich harvest of tax revenue, causing deficits to shrink. This would enable President Reagan to boost defense outlays by record amounts and avoid, initially at least, cuts in the growth rate of social security benefits.
Some of the nation's most experienced economists welcomed the President's desire to shrink the government's economic role but punched holes in White House logic.