An economic ill wind like a force of nature has been battering the White House. Prices are caught in an updraft, the dollar in a downdraft. Yet President Carter appears to the world to be pathetically powerless to abate the storm. Here are the disturbing details:
The inexorable price rise took a sudden jolt upward in January, hitting the dangerous, double-digit 10 percent rate of increase. This means the buying power of American shoppers is rapidly shrinking. The embattled Carter blames the coal strike, which caused production curtailment, and the January snows, which snarled trucks and trains. The resulting shortages kicked prices up. But prices seem to be soaring beyong the gravitational pull of the government. World leaders are beginning to attribute this to weak leadership according to diplomatic dispatches.
Unless the coal miners return to the pits, Energy Secretary James Schlesingers has warned the president, a 10-state area in the industrial heartland of America will face a "catastrophe." Schlesinger told the president bluntly, according to confidential White House minutes, that the strike could precipitate "a political as well as an economic disaster." A continuing work stoppage will cripple production, causing shortages that will push up prices. But return to work will aslo be inflationary, with the pay boost jacking up coal prices. The president's handling of the strike, meanwhile, has left a negative impression abroad.
Americans burn energy and consume other resources at a greater rate than any other people. Their gluttony offends the rest of the world and sucks up imports. This created a massive U.S. trade deficit last year of $26.7 billion. The economic repercussions have stimulated talk of erecting trade barriers.
Trade ambassador Robert Strauss has warned the president gravely that "numerous groups are lobbying Congress for increased protectionism" and that "similar pressures are being felt on the international scene." Strauss described the situation as "deteriorating."
The dollar has taken a dangerous dive on the foreign exchange markets. It takes more dollars, thereforce, to buy German cars, Swiss watches and Japanese cameras. The higher price tag on imported goods reduces the competition and encourages American manufacturers to raise their prices. The dollars has also been the mainstay of world economic stability. Its weakening, warn financial experts, could lead to international panic and worldwide recession. There are already signs of an economic slowdown later this year. Yet there is a gnawing feeling that the problem is getting out of control.
The oil sheikdoms are threatening to increase oil prices. President Carter, in his confidential report to the Cabinet on his last overseas trip, emphasized "the repeated concern with the shakiness of the dollar, which foreign leaders blamed on our failure to enact energy legislation and thereby reduce our dependence on foreign oil." He gave Treasury Secretary Michael Blumenthal and White House economic adviser Charles Schultze a secret, one-page memorandum from the Saudi Arabians, warning that they may be forced to diversify their dollar holdings unless the value is stablized. The president is eagerto get a crude-oil tax out of Congress. This would raise petroleum prices, which theoretically would force Americans to get along on less oil.
The United States has been badgering West Germany to pump up its economy. This would open the German market to more American goods and reduce the economic pressure on the United States. But the Germans have no wish to disrupt their own economy in order to stabilize the U.S. economy. The nagging differences have produced a strain in U.S.-German relations. Carter's national security adviser, Zbigniew Brzezinski, reported back to him after a secret discussion with German Economic Minister Otto Graf Lambsdorff that the minister at least "expressed his sense of concern about the drift of U.S.-German relations."
Brzezinski is worried that U.S. power and prestige will be weakened if the dollar continue to plummet. The president is even more worried that his political fortunes will plummet if the voters continue having to pay more for the goods they buy.
This has led to nervous talks in the backrooms of the White House about wage, price and trade controls. According to the confidential minutes, Labor Secretary Ray Marshall stressed "the need for an effective anti-inflation policy." He argued that the federal government "should set an example for the private sector" by battling inflation.
Otherwise, he warned, "there will be escalating demands for wage and price controls or for a tighter monetary policy, both of which proposals are fraught with severe practical and political difficulties." He suggested that the federal government needs "a better inflation forecasting system." He proposed that each department should keep a watch on inflationary pressures in its area.
The president strongly agreed. He asked each Cabinet member "to assess anything he or she can accomplish in this area." He asked them "to make recommendations by phone or in writing to Schultze." Carter would like to keep the heavy hand of the bureaucracy off the economy.
Housing and Urban Development Secretary Patricia Harris complained that the Labor Department sets standards under the Davis-Bacon Act, which "often inflates labor costs." Marshall responded that "the issues is an extremely complicated one." But the president picking up Harris's point, agreed that "it is important not to let constituency groups dominate an agency's handling of issues that have inflationary impact".
The president's economic aides, meanwhile, contend that the jump in prices and the decline of the dollar have been caused by the coal strike, freezing weather, panicky speculators and other extraneous factors. But Carter sometimes seems to be whistling into the wind.