The redoubled surge in inflation that has the White House worriedly rethinking its economic policy is causing the Republican presidential candidates to do the same.
Tough trade-offs are getting a look: especially whether Americans may prefer high unemployment again to high inflation.
Sen. Howard H. Baker Jr. (R) of Tennessee has called for an economic summit to review all possible anti-inflation strategies -- even the wage-price controls trumpeted by Sen. Edward M. Kennedy (D) of Massachusetts and so far denounced by all the Republican hopefuls and President Carter.
Mirroring the White House's current economic huddle, Republican candidate George Bush's team of economic advisers has gone back to the drawing boards, too. The original Bush policy was put together by Yale economist Paul MacAvoy and others last September, when a 9 percent rate was anticipated instead of the 13.3 percent consumer price rise that climaxed 1979, and the 18 percent annual rate that started off 1980.
Mr. Bush had keyed his economic strategy, as had some of his colleagues, on a balanced budget requirement and along- range tax policy to encourage business investment, familiar Republican positions.He has talked about Mr. Carter's failure to create "a monetary policy and fiscal policy that work hand in hand."
Now the advice is getting tougher.
Prolonged recession, tight money, and reduced credit growth are needed to straighten the inflationary bent out of the economy, says Martin Feldstein, Harvrd economist and a Bush adviser.
Unemployment at 7 percent for three years would wipe out inflation, Mr. Feldstein says.
Mr. Feldstein blamed "our current onstinately high rate on inflation" on the "mismanagement of monetary policy over the past 15 years," in remarks prepared for Federal Reserve System academic consultants meeting Feb. 26.
"Reducing the rate of inflation will rquire increasing the amount of slack in the economy and changing the public's expectations about future monetary policy, " Mr. Feldstein says.
"These two are mutually reinforcing. A further tightening of monetary policy would both increase slack in labor and product markets and begin to alter expectations about future monetary policy. Maintaining such a tight monetary policy as capacity utilization falls and unemployment rises would have an even more powerful effect on expectations."
Mr. Feldstein proposes that the Federal Reserve should announce target ranges for money growth and credit expansion for several years beyond 1981, but with the blight startting next year -- a warning to Congress and the administration to get tax incentives in place to increase plant and equipment investment.
Mr. Feldstein would worry less about budget balancing and erasing the deficit in the short run. "Our forecasting ability and our understanding of private behavior are too limited for fine-tuning the size of the deficit or for rejecting a temporary increase in the budget deficit, . . . " he says.
Over the long run, however, budget deficits should be opposed, Mr. Feldstein says. "Long-run government deficits . . . create inflation, reduce capital formation, or both," he explains. "But long-run budget balance does not mean budget balance for every year. A recession automatically reduces tax collections and creates a deficit; this should clearly not be offset by a temporary increase in tax rates or reduction in government spending.