Business: Inflation's Stubborn Resistance.
Monday, Dec. 14, 1970.
Question: Faced with runaway inflation, the Government adopts policies that cause a year and a half of falling production, dropping profits, financial squeeze and—most important—sharply rising unemployment. What is the result?
Answer: More inflation.
THAT answer would draw an F in just about any class in economic theory, and it could yet earn Richard Nixon an F from the voters. It flies in the face of just about everything that economists have believed, but it describes a grim fact of life in the U.S. today. Unexplainable by the philosophy of Adam Smith, John Maynard Keynes or even Milton Friedman, a new strain of inflation has become a hard reality for millions of Americans. So far, it has proved stubbornly resistant to the classic remedy of business slowdown that has cured inflation in the past. To rescue the nation from it, the Nixon Administration may have to make some imaginative and unorthodox new moves.
In April 1969, when the Administration was just setting out to fight inflation, the consumer price index was rising at an alarming rate of 7.2% a year. As a result of purposeful policies of slowdown since then, the nation's factories have been forced to pare production 5½%, and stock and bond markets have shuddered through their worst crisis in three decades. The jobless rate, which was 3.5% then, jumped last week to 5.8% as the November figures were issued—the highest monthly level since 1963. All together, 4,600,000 Americans are out of work, and 21% of the people queried in a recent Harris Poll reported that they have felt the pangs of layoffs, loss of overtime or reductions in regular work weeks. Yet at last count during the month of October, consumer prices were still rising at the same annual rate of 7.2%. Measured against the Government's commonly used 1957-59 average, the buying power of the dollar dropped to 73¢. A new couplet is making the rounds:
Unless we all begin to holler
We soon may have a five-cent dollar.