December 6, 1978

The Trouble With Money

The trouble with money is its pressure to be spent.

And therein lies the chief obstacle to George Meany's solution to inflation.

The president of the AFL-CIO is a little worked up over the U.S. Labor Department's latest cost-of-living figures.

"They're God-awful!" says Alfred Kahn, chairman of the Council on Wage and Price Stability."  He is dismayed because the consumer price index hit 200.90 - which means a dollar today buys only half what it did 11 years ago when the purchasing power base was set at 100 cents.

This lit Meany's notoriously short fuse.  "It is obvious that speeches and threats not based on legislative authority will not cure inflation," he fumed.  "The need for a statutory, across-the-board controls program becomes daily more apparent."

Thus, the most powerful union leader in America renewed his call for mandatory wage-price controls.  Privately he uses less polite language to put down President Jimmy Carter's program of voluntary restraint.

Meany is not alone in his view.  It is favored by 49 percent of Americans according to an ABC News-Harris survey last month.  Significantly, however, the poll was down from the 58 percent favoring mandatory wage-price controls just before Carter announced his anti-inflation program.

The president adamantly refuses mandatory controls, saying they have not, and will not, work.  He is absolutely right, but he has not explained why.

The reason is not difficult to understand.  It must be appreciated soon lest we blunder into economic catastrophe through ignorance.

Money is not as complicated as the economists, bankers and politicians make it out.  It is a simple invention, as fundamental as the wheel.  A three-year-old child comprehends its purpose - to spend.  We commonly say, "Money burns a hole in our pocket."

It is only when we save money, or the government takes it away from us that money gets complicated.  Instinctively we avoid complications and resist confiscation.

Wage-price control is practiced, in theory, by several nations - most notably the communist countries.  Americans have tried it during wars, and finally in peacetime during the 1974-75 recession.

In all cases, here and abroad, controls have been thwarted by the pressure of money to be spent.  Money is spent first up to the legal limit for necessities, then in the black market for luxuries.  If there is any left over it is spent for trivialities - anything to get the money spent.

With inflation eating up the purchasing power of money, and the government discouraging saving, the pressure to get rid of money before it evaporates is compelling.

In Brazil, Argentina and other South American countries where inflation ranges from 50 to 150 percent a year, nearly all money is spent for food, clothing and shelter.  There is little else to buy.  Any money left over at the end of the month is spent for dining out.  Rigidly controlled Cubans are the world's most avid eater-outers.

American experience with wage-price controls has been temporary and under compulsion of grave national emergencies.  Even so, citizens were unable to resist spending pressure.  A black market in sugar, gasoline, and red meat sprang up within 30 days of World War II rationing, and continued until war's end.

President Nixon's short-lived whirl with wage-price controls started a race for advantage that doubled inflation in one year.

Obviously it is impossible to put a ceiling on wages and prices to control inflation unless every wage and every price in all the world is affected.

It does no good to hold the line on Chevrolets so long as Datsuns are unlimited.  When cheap Fords are gone, expensive Mercedes will be sought by holders of shrinking dollars.

Russia has put an official price tag on everything brought and sold in its sphere of influence.  Yet its black market is the most active in Europe, and it pays a high sum for the goods it must buy abroad.

Even in a totalitarian world - so dear to the hearts of pure Marxists - money would find a way to fulfill its destiny.

Which brings us back to the problem of inflation here and now.

Arthur Okun, an economist in the Johnston administration, said recently that he agrees a recession is likely.  "It's a tragedy of the political situation that the only way to stop inflation is to put people out of work, stop building houses, stop production."

This is, of course the specter that haunts Meany.  Unemployment currently stands at 5.8 percent; and government analysts predict it will get worse.

People out of work cause two problems for labor unions - idle workers pay no dues, and also drive down pay rates as competition for jobs increases.

President Carter's voluntary guidelines for wage and price levels leave money to function naturally.  Inevitably this will diminish the influence of unions.  In fact, that decrease is already well along, which suggests Meany's proposal for mandatory controls is motivated by some panic.

Under these circumstances - given the still considerable political clout of Meany - we can expect the Carter administration to carve out a few guideline loopholes for labor.

The only alternative to unrestrained money is a drastic cut in government spending, and no one in Washington is yet ready to resist that pressure.

Author: Lindsey Williams