Mr. Reagan's essential ally

The American presidential election of 1984 looks more like a real race now. The Democrats held a convention that turned out to have dramatic quality. There was a big surprise - the selection of Geraldine Ferraro for second place on the ticket. And there were suspense and conflict, too, contributed by Gary Hart and the Rev. Jesse Jackson. Would they make it unanimous for Walter Mondale?

The result of the convention's becoming dramatic instead of being another Dullsville was a Gallup poll showing Mondale leading President Reagan, 48 percent for Mondale against 46 percent for Reagan.

A slight, 2 percent lead just after the Democratic convention is no sign of a likely Mondale victory in November. It leaves unchanged the basic long-term calculation about American politics in 1984.

If the American economy remains as sturdy and vigorous right through election day as it is now, then Mr. Reagan is probably a winner. But the reverse side of the coin is strengthened. If something goes wrong with the American economy before election day - well, then, the Democrats have a clearly visible chance of capitalizing on change in the economic picture. They could win. They can win.

So, even more now than before the Democratic convention, the outcome in November hinges on the state of the economy. What then are the prospects for the economy?

You and I know from personal experience that there is still much inflation working its way through the economy. The prices at the restaurants where I like to eat keep going up. The price of clothes where I like to shop has gone up again, enough to cause the conclusion that I really don't need new clothes.

I was about to order a pair of shoes from my London bootmaker - until ... until he mentioned that the price for a pair of oxfords is now $735. I am making do with a pair he made for me 10 years ago when the price was about $50.

When my wife comes back from the grocer she is almost always in a state of shock over the prices.

Add that the interest rate on borrowed money is still going up and that in turn keeps pushing up the price of housing and rents. Remember also that the United States is running a trade deficit of about $10 billion a month. It is piling up debt, both internal and external, and the effect of debt is inflationary. The rising load of debt and the cost of servicing the debt could trigger a new wave of inflation. Mr. Reagan could no longer claim that he had brought inflation down to manageable levels.

But there is another side to the economic condition. Not all prices are going up. The official rate of inflation is almost stationary, because a number of wholesale prices are going down and balancing off the continued rise in retail prices.

Within the past two weeks I have twice found gasoline at less than $1 a gallon. While I pay more for a loaf of bread, the farmer is getting less for his wheat. The value of farmland is dwindling throughout the Midwest.

We will get a better reading on economic prospects when we see how the negotiations go over new labor contracts in the automobile industry. The talks opened with GM on Monday and with Ford on Tuesday. Profits made over the past year by the American companies were high. Labor is bound to think that with such profits the industry could afford a round of higher wages.

That could trigger more inflation.

But there are still some 8 million Americans wanting work who can't get it. The main reasons wages have been slow to follow rising prices is the dampening effect of that pool of unemployment. Nothing else restrains a wage spiral as well as a pool of unemployed workers waiting for a chance at a job.

At present, inflationary and deflationary forces seem to be at an almost perfect balance in the American economy. But it is also a precarious balance, will not necessarily continue through election day. That is enough to justify the Democrats in keeping on trying.

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