THE AMERICAN ECONOMY is now expanding more strongly than most people, including the Carter administration, had expected. In the present peculiar climate, that's something to worry about. The economy is running very close to full capacity, and the administration's strategy is to slacken this rapid expansion for a time to reduce inflationary pressures. So far, the strategy isn't working. The economy is behaving like a car with a stuck accelerator, moving faster than is safe.
Employment is holding up nicely. The housing industry, that perennial weathervane, is doing almost too well. Business profits are booming. And the inflation rate this winter has been startlingly and ominously high.
It's possible to argue that the sudden surge of price increases since the first of the year has been only a temporary phase -- a mere blip on the chart. But inflation tends to be self-perpetuating as people try to raise wages to keep even with prices, and vice versa. These blips leave a severe impression on people who have been living amidst high inflation for six years, as Americans have, and are increasingly pessimistic about any early end to it. It will be harder than ever to persuade unions to settle for pay increases of 7 percent when all of the price statistice -- most recently the wholesale price index, which rose 1 percent from January to February -- imply an inflation rate that is higher than that by half again.
If things were following their customary course, the administration would now be wondering which brake to tighten. Should President Carter try to find cuts in the current budget? Or should the interest rates go up another half-notch?
But things aren't following the customary course. It seems likely that the present cycle of economic growth will be brought to an abrupt end by forces outside this country and beyond its control. Another drastic increase in oil prices lies directly ahead. It is not yet clear what the oil-exporting governments will do. They are still in the process of working toward decisions. But it is quite possible that the price of oil will go up this year by an amount only comparatively less bruising than in 1973-74.
In 1972, the last year before that crisis, this country spent $4.7 billion for imported oil. In 1974, it spent $26.6 billion. The economy then pitched into the most severe recession of the past generation. The unemployment rate reached nearly 9 percent or -- to put it another way -- from the spring of 1974 to the spring of 1975 the number of unemployed Americans rose by 3.6 million. It has never again gone back to prerecession levels. Over the succeeding years, both the volumes and prices of oil imports have risen, and last year the cost came to $42.3 billion. The Treasury Department suggested apprehensively the other day that this year the figure will be more than $50 billion. In fact, the country will be lucky if it is not a great deal more than that.
A rising price of oil may well rescue the American economy from overheating. But that cure would be even more inflationary than the disease. As the 1973-74 episode demonstrated, a sudden drastic rise in oil prices tends to raise both the inflation and unemployment rates simultaneously. You would have to concede that, over the past five years, Americans have not been very careful about protecting themselves from a repetition. Two months ago, the Carter administration's chief economic goal was to reduce the inflation rate substantially in 1979. Now it has been thrown on the defensive, and will have to struggle desperately in the months ahead merely to keep inflation from rising steadily higher.