A basic change is sweeping over government economic policy these days, with the spotlight of attention fading on inflation and coming up on recession. Such a change involves risks, notably that inflation may be rekindled during the battle to control recession and unemployment.
Illumined by the whole experience is the fact that the tools possessed by government to manipulate the vast United States economy are, at best, clumsy.
"We knew we were taking a risk," said a top-level government official, "when we clamped on credit controls in mid-March."
The risk was that the US economy -- even then showing signs of creaking to a halt -- would be shoved deeper into recession, throwing many Americans out of work.
To a degree, this is what happened. As a result, the Federal Reserve Board is hastily dismantling some of the stringent credit curbs imposed less than three months ago.
Why, then, did the government impose credit controls in the first place?
Because in mid-March inflation was roaring along at an 18.1 percent annual clip, interest rates had shot sky high, farmers and small-business men were being squeezed to the wall, and families were plunging deeper into debt in order to buy goods today that might be more expensive tomorrow.
So President Carter, invoking the Credit Control Act of 1969, granted emergency powers to the Federal Reserve to clamp down hard on lending and borrowing, with the aim of breaking the nation's inflationary psychology.
It worked -- more quickly and completely than anyone had expected.
A banker in Reading, Pa., summed up the myriad effects this way:
In three weeks' time, local banks shut down two auto dealerships and put their stocks up for auction. Any business that supplied the automobile industry was hard hit. A local battery manufacturer was in trouble.
"These credit restrictions," the banker said, "put the lid on the buying and selling of companies -- mergers, acquisitions. This fell off 50 percent."
The Fed, the banker said, had asked banks not to grant credit for this type of activity and bankers obeyed.
Multiplied a million times across the land, the new credit controls were stifling business. It seems clear, in retrospect, that the curbs greased the skids on which the economy, by itself, was beginning to slide downward.
Caught in the middle was the American consumer, who had gained the clear impression form the White House in mid-March that the patriotic thing to do was to quit spending.
So, many families did, concentrating on paying off old debts, rather than acquiring new. Because consumer spending provides two-thirds of the push for the entire US economy, this accelerated the slide.
Interest rates plunged, inflation dropped -- and unemployment began swiftly to climb. Time to change signals.
Now consumers hear that, indeed, it is patriotic to spend -- but wisely. To make it easier for banks to loan and people to borrow, the Fed unravels controls.
Now, too, comes the counterrisk -- that everyone, encouraged by the sharp drop in the consumer price index (CPI), might relax in the fight against inflation.
That CPI decline can be deceptive. The "volatiles," says Charles L. Schultze , chairman of the Council of Economic Advisers -- energy and mortgage costs -- indeed are growing less, giving hope of a CPI rate of about 10 percent in coming months.
This would be much improved from the 18.1 percent pace of the first quarter. Remaining, however, would be a core inflation rate of 9 to 10 percent -- representing the extent to which the basic wage-price spiral is built into the economy.
Only two years ago this underlying inflation rate was 6 percent. Now it stands 3 to 4 percent higher, requiring, Dr. Schultze says, a long-term effort to whittle it down by improving productivity.