The chief economist for the National Association of Manufacturers said yesterday a recession in the only cure for inflation.
"There's no other way to do it," said George Hagedorn, vice president and chief economist for the powerful business lobbying group that represents 12,000 firms accounting for three-fourth of the nation's manufactured goods production.
Dismissing both the Carter administration's voluntary wage-price guidelines and outright economic controls as virtually certain to be ineffective, Hagedorn said only recessions have a "track record" as effective curbs to inflation.
A recession, which many economists predict will start later this year, should be allowed to run its course until inflation is brought under control, said Hagedorn during an NAM-sponsored discussion with reporters on the inflation outlook.
"We'll have to go through a painful period if we're going to... control inflation," he said, adding that it will take tight monetary and fiscal policies, along with "a lot of blood, sweat and tears," to do the job. Halfway measures designed to forestall a recession while keeping prices from rising are doomed to failure, he said.
Hagedorn's assessment was unusually blunt. Economists normally shy away from prescribing recession as a cure for inflation, although many say it may be the only alternative if the administration's voluntary program fails and nothing stronger is put in its place.
But Hagedorn was also bearish on stronger measures, such as wage-price controls as recommended by the AFL-CIO.
He said imposition of controls is normally followed by ceuphoria" that inexorably gives way to disillusionment and then adandonment, followed by more inflation.
He speculatd that the Carter administration, following the pattern of the Nixon administration in the early 1970s, might impose controls this summer in hopes the "euphoria" would extend through the 1980 campaign but questioned whether this would work. Inflation is so deeply entrenched now, he said, that controls would fail more quickly, perhaps before the election.
Hagedorn said he foresees a period of "stagflation, during which the economy slows donw while prices continue to rise, starting as early as the second quarter of this year. He said, however, it may not be apparent until months later. In this context, the administration's program may survive although it is unlikely to get inflation much below 8 or 9 percent, he said.
Asked about the AFL-CIO's planned suit to challenge the government's power to deny federal contracts to guildeline violators, Hagedorn said the NAM also has questions about statutory authority for shch action but is unlikely to join the labor federation in the suit.