The Central Intelligence Agency has sent the White House an economic report that contains ominous news for all Americans. For the first time, the United States has overtaken the six leading industrial nations on the CIA's inflation charts.
This has brought an urgent warning from President Carter's chief economic adviser, Charles Schultze. "Additional federal action is essential," he told the Cabinet behind closed doors, "to avoid a recession."
The CIA has recorded the trend in weekly charts, comparing the economic indicators for Britain, Canada, France, Italy, Japan, West Germany and the United States. In November 1975, the U.S. inflation rate started to gain on the cost of living in the other industrial nations. President Gerald Ford began passing out "Whip Inflation Now" buttons and threatening to invoke wage and price controls.
Now Carter is trying to tighten the federal pursestrings as an example to the nation. He has named Robert Strauss as his special anti-inflation fighter. It is Strauss's heroic mission to persuade corporations, unions and families to tighten up.
A rueful Strauss was obliged to acknowledge the other day that "the soore is: Inflation 100 percent, Strauss zero." This has caused quiet despair in the backrooms of the White House, where Carter has questioned "whether the country has the will to combat inflation."
Without voluntary restraints, the president won't be able to keep the lid on the economy. His economists have found no government elixir that will ensure prosperity, without inflation. Schultze has reported to the Cabinet: "No substantially different approach has emerged that could satisfy the goals of holding down the deficit while also stimulating the economy, creating new jobs and containing inflation."
It will take sacrifices by everyone the president has told associates, to prevent the economy from going into a stall. But he made it emphatic that the sacrifices should begin with the government.
The best way for the government to fight inflation, he stressed, is to cut back spending. "It is sound political, as well as substantive, strategy to oppose excessive spending bills," he said.
According to the confidential minutes, he emphasized "the need to hold the line against increases in the budget" and announced his determination "to take a firm stance against any additions proposed by the Congress."
The confidential Cabinet minutes indicate that the Carter crowd didn't begin to wake up to the economic danger until last November. Commerce Secretary Juanita Kreps kept warning that the gross national product, the measure of how well the nation is doing economically, would be disappointing. She called for regular meetings with the president's chief economic counselor.
By the end of the month. Schultze had met with Kreps, Labor Secretary Ray Marshall, Treasury Secretary Michael Blumenthal and White House domestic adviser Stuart Eizenstat. In December, Schultze began attending regular Cabinet meetings.
It was Marshall who suggested on Dec. 5 that the federal government should set an example for the private sector. Otherwise, he warned, "there will be escalating demands for wage and price controls or for a tigher monetary policy, both of which proposals are fraught with severe practical and political difficulties.
The president, quickly agreeing asked each Cabinet memeber to reassess the spending habits of his or her agency and seek ways to hold down inflation. He urged the Cabinet "not to let constituency groups dominate an agency's handling of issues that have inflationary impact."
Schultze volunteered that his economic experts would review 15 to 20 key government regulations each year to determine how government activities and the regulatory process could be used to combat inflation. "Who" demanded Blumenthal, "would make the tough decisions when the regulatory analyses revealed large inflationary effects?" Schultze said he would call upon government officials to produces alternatives that would cost less.