So far, so good

The American economy is doing unexpectedly well. The recovery is nearly a year old now and the two most dire predictions about what would happen if it continued with unchecked high federal budget deficits have not happened.

Interest rates have been edging up a little, but not enough to check the recovery.

The inflation has not returned - at least, not yet.

Had interest rates been soaring again by this time we would presumably be back into high inflation.

What keeps interest rates and the inflation in check while the Treasury is being forced by a $200 billion deficit to draw that much money out of the system in federal debt?

The answer is both interesting and in a political sense disturbing. It is simply that recovery is being achieved without revived inflation, so far, at the expense of a substantial part of the labor force.

The strike by Continental Airlines employees is not working. That is only one place where labor is failing to maintain the momentum to which it had been accustomed in annual wage improvements.

There is disgruntlement in the labor force. For example, Chrysler employees feel that, having taken a big cut in wages and fringe benefits in order to save the company, they are entitled now to share in the profits as Chrysler moves back into the black, rather better than its competitors.

But disgruntlement is being expressed in strikes only rarely, and then, not often successfully. The wage level has not been as stable as this for many a year. If inflation comes back, it will not be because of labor forcing a big round of heavy wage increases.


Unemployment is said to be down below 10 percent, but still, 10 percent of the American labor force means a lot of people still out of work who want work. The new airlines are proving this by offering lower wages than the old lines. Plenty of workers come forward to take new jobs at lower wages.

In theory it is possible to have full employment without inflation. It happens in all utopias. It comes close to happening in some small countries like Switzerland, which enjoy the old style work ethic plus high national discipline. Those who can balance their budgets and be satisfied with wage rises based only on merit come close to being utopias in this respect, provided of course they also enjoy a balance between population and national resources.

But unfortunately that kind of situation exists only in theory for large countries like the United States with a steadily rising population often composed of immigrants difficult to integrate into the existing system.

The politicians of the big Western democracies have dreamed of abolishing unemployment without wrecking the economy in the process. But so far none have succeeded in doing it.

And let it be added quickly that the communist countries have been unable to do it either. They claim to provide full employment and, often, on the surface, they succeed. But what happens is that they load their economy with overemployment, or underuse of the work force they have.

One of the major reasons why the Soviet economy is stagnating while Western economies are recovering is precisely because they have made a fetish of full employment and do not know how to break away from it.

One theory much favored in Washington is that the Soviet system could be strangled by withholding modern Western technology. But the Soviets have more technology than they are using. Their system resists application of the new technologies simply because they mean fewer jobs. The local party boss clings to the old factory and the old techniques in order to protect jobs in his community , including one for himself.

Mankind has solved many of his economic, social, and political problems but he has yet to solve the problem of providing full employment without paying the penalty either of a pool of actual unemployed as in the West, or of underuse or overemployment as in the communist countries.

The Western countries are doing better economically right now because they tolerate a higher level of unemployment than any of them would like.

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