THE APOCALYPTIC STYLE is flourishing this season, in the semi-serious literature of economics and finance. As you go through the bookstores, you see titles crying of coming scarcity, collapse and depression. Repent, for the end is at hand.
This stream of books is a response to continuous high inflation, and the high anxiety that it generates. There's an eerie quality to the present atmosphere. Most Americans haven't been seriously hurt by inflation, and yet most Americans believe that the methods by which they protect themselves are not going to hold up much longer.
The intellectual quality of these apocalypse books is low, but they deserve to be taken seriously as authentic reflections of a state of mind prevalent in this country as a new administration takes up its work. That state of mind had a good deal to do with the election of Ronald Reagan, and it will strongly influence the results of Reagan economic strategy.
Max Shapiro's The Penniless Billionaire, which belongs to this category of books, is a polemic written with more spirit than care. Its central argument is that the wealthy and powerful deliberately encourage and accelerate inflation to enrich themselves further at grievous cost to everyone else. Shapiro is a securities analyst, with the professional money man's visceral suspicion of manipulation. He offers several chapters on previous inflations -- in France during the Revolution, here during the Civil War, in Germany after World War I -- to attempt to show that hyperinflation is always carried out by and for the rich.
Neither history nor economics supports that charge. Shapiro is right in saying that people sometimes profit from inflation, and in the United States currently a lot of people are profiting handsomely. If there is not quite a constituency overtly in favor of inflation, there are certainly strong constituencies opposed to any of the real remedies to inflation -- as Reagan will shortly discover.
But the beneficiaries aren't limited to wealthy and predatory speculators.
Over the past decade's inflation, Social Security benefits have gained in real value while the typical portfolios of stocks and bonds have declined. Most families buying houses on mortgage loans have done extremely well. Most investors have done much less well by putting money into industry. There's no evidence whatever that the current inflation is favoring one income class over another.
Oddly, that point is made by the income distribution figures that Shapiro himself provides. The rich are richer, but so is everybody else in just about the same proportion.
If the present inflation isn't a plot by the rich, then where is it coming from? In a zero-inflation economy, the price of oil might go up, but some other price would have to go down. Inflation is a rise in the average of all prices. The auto workers' wages might go up, as they have done, rapidly, in recent years. But somebody else's wages would have to go down. In this highly organized economy, with its strong rules of social equity and an aversion to unemployment, Americans have no way to make anybody swallow that kind of loss. Inflation has become this country's way of spreading around and postponing certain costs -- like the higher prices of oil and food -- that nobody wants to pay. If it's a conspiracy, it's a highly participatory one in which all of us are, to one degree or another, actively engaged.
Shapiro believes that the government, through the Federal Reserve System, can -- whenever it wishes -- "quickly turn inflation on or off by opening wide of closing the spigot of money and banking credit."
Anyone who tries to track even the conventional money supply figures will shortly discover that the Federal Reserve's control over them is, at best, indirect and imprecise. Beyond that, there's a lot of money that the conventional figures don't count. In this society nearly everyone has access to credit. When Sears Roebuck or Hecht's lets me open a charge account and carry a balance from month to month, they are creating money in precisely the same way that a bank does -- with the interesting difference that they are not regulated by the Federal Reserve or any other banking authority.
But ideas like Shapiro's are held by many people in this country, and his book is now being disseminated by a large and reputable publisher. That's a measure of the difficulty that the Reagan administration will face in organizing any serious attempt to bring down the inflation rate.Reagan's economic strategy will have to begin with a rational and credible explanation of the way inflation really works. Otherwise, six months from now when the rate is still rolling at 10 percent a year, he will come under vehement attack from people who think that he could turn it off whenever he pleases -- and doesn't do it only because he must be serving hidden interests.
The political costs of this kind of confusion and hostility come high. If Reagan doubts it, he has only to ask Jimmy Carter.