June 21, 1978

"Tithe" Of Work Quick Inflation Cure

Hear now the quote of the week:

"I give the economy no more than six months.  If we can't do something this year about inflation, we are going back into another recession!"

We have come to expect this kind of "scare talk" from Republicans, conservatives and business men.  In this case, however, we are inclined to take the warning more seriously.  The speaker is Barry Bosworth, President Carter's director of the Council on Wage and Price Stability.

"We have just put this economy through a roller-coaster, and no one knows where it's going.  We are rapidly emerging into a state of chaos," Barry told members of the Airline Pilots Association.

Significantly the speech is the first indication by a key member of Carter's administration that the inflation problem is serious.  It seems a little late in the game to be committing truth, but the longest journey begins with a single step.

Carter vows to do his part in the battle of inflation by vetoing a billion-dollar public works bill, trimming the federal deficit from $60 billion to maybe $50 billion, and disallowing expense account martinis.

The president admits much of his anti-inflation program to date has been "symbolic," but he now is ready to get tough.

Too little, too late.

The shape of the next recession was circumscribed last winter when Carter forced a wildly inflationary settlement of the coal strike.

It is hypocritical of the administration to rail against high executive salaries after his fiscal blackmail of the energy companies.  To force acceptance of the settlement Carter threatened to open the doors wider to imported oil.  He avoided having to nationalize the mines.  But he set up the next recession which will bear his name.

So what can we do now?

Congress is toying with a tax cut for business of approximately $20 billion.  A reduction of the capital gains tax is under consideration.  Democrats are swinging over to a GOP plan to whack personal income taxes one third.  Very little is being said about the most important antidote of all - cut spending.

The theory behind all presently proposed tax cuts is that by putting capital into the hands of private citizens they will put some of the savings into job-producing expansion.

Only half right.

Unless the tax cut is matched dollar for dollar with spending cuts our economy will get worse.  We have created inflation by spending more than we take in.  The only cure is a reversal of the process.  Even equal parts of tax and spending cuts merely freezes inflation at 10 percent.  It would require massive cuts in spending to affect a net gain.

Congress does not have the will to say "no" to the special interests that pressure for handouts.  We can not look to Washington for any real progress against inflation.  The citizens, themselves, must find their own solutions.

Nick Anthony, provocative host of the popular Akron WHLO forum, and I had an on-the-air discussion recently about the need for direct, citizen action.  We agreed that an instant cut in all prices, wages and government expenditures deserved study.

On a given date the President would declare an across the board reduction - say ten percent - in all the components that constitute our economy.  Our paycheck would be less, but so would our mortgage, the grocery bill and the raw materials needed for manufacturing.

It is an intriguing idea, but only half a solution.  President Nixon used the technique to bolster the dollar abroad - he called it devaluation.  By administration decree he set the rate of exchange at approximately 90 cents on the dollar.  Simultaneously through the United States our wages and purchases at home were lowered.

We hardly noticed the cuts in wages and prices because there was no relative change in purchasing power.  We made it easier for foreigners to buy U.S. goods, but we found it more expensive to buy German autos, Japanese cameras and French wines.

Our reductions, while our trading partners continued their higher rates, gave us a temporary advantage.  Money manipulation brings relief only at the expense of one participant of a barter.  When an American is at both ends of a barter, then a maximum of only half the citizens can benefit from fiat decision.

This economic reality is the basis of the dictum, "There's no such thing as a free lunch."  Sooner or later all debts must be paid or repudiated.

The other part of money manipulation is production.  Wealth - the excess of income over costs - comes only when we produce and sell more than we consume.  The wisest balance of taxes, expenses, wages, prices, capital accumulation and investment return is meaningless without an excess of production.

Finally, only working and investing citizens produce anything.

The quick answer to inflation would be a tithe of production - a day of free work every tenth day until the economy is back in balance.  The problem of offsetting this contribution with equal sacrifice by investors is great, but the alternative is catastrophe.

Either way, we've got a bunch of work ahead of us during the next six months.

Author: Lindsey Williams