The worldwide outlook for peace and prosperity at the start of the 1980s is not very good, according to leading experts in economics, energy and defense at the Brookings Institution.
The gloomy assessment of the world was contained in the book "Setting National Priorities, Agenda for the 1980s," which was released yesterday by Brookings. The book contains the work of 19 Brookings experts in various fields.
The list of problems is growing, "and the consequences of inaction will become ever more serious," writes Joseph A. Pechman, director of Brookings' economic studies.
"Continued inflation distorts economic activity, undermines the values of the dollar and increases social tensions. Vacillation on energy conservation exposes the United States to the danger of economic paralysis at home and to blackmail from abroad," Pechman says. "Foreign policy cannot be conducted effectively when the economy is heavily dependent on foreign oil, and domestic economic policy options are greatly restricted by economic and political developments overseas."
In a chapter on the economy, Barry Bosworth, former director of President Carter's Council on Wage and Price Stability, spells out why inflation soared last year and why he believes wage and price controls are needed.
In late 1978, when Bosworth was still at the COWPS, the administration "adopted an anti-inflation program that focused on a tightening of fiscal policy to induce a pause in the economic expansion, a set of voluntary wage-price standards, and an effort to develop a microeconomic framework to evaluate and reduce the inflationary effect contributed by government actions," he says.
Last year, Bosworth continues, the administration's anti-inflation program "gradually fell apart. The slowdown in demand growth was delayed, and some pressures from shortages pushed up raw-material prices. Housing prices continued to rise at a rapid pace, and there were no contingency plans to deal with the unanticipated sharp increases first in farm and later in petroleum prices . . . In addition, support for the (voluntary wage-price) standards was further eroded by the perception that the standards were 'bent' in a few large union settlements.
"The government did not convince the public that it regarded inflation as serious or that it was taking the lead in exercising the restraint necessary to solve the problem," he says.
"There is no policy that can break the current momentum of the wage-price spiral without high costs; yet a continuation of recent trends is also costly," Bosworth writes. "A mild recession is too weak, and voluntary incomes programs have lost their credibility. Given a desire to slow the inflation, the choice is rapidly becoming reduced to one of severe recession versus wage-price controls."