AS AN INSTRUCTIVE exercise in political economy, you might lay out an econmic forecast on the political calendar. Do it in pencil, since no forecast is going to be entirely accurate. But the decisions taken over the past month or two by Congress, the White House and the Federal Reserve Board will have effects that can be at least roughly estimated. It is fair to require candidates to stick with their stated positions as long as the consequences fall within the ranges currently estimated -- people shouldn't take stands in the spring unless they are prepared to accept the results as they develop over the summer and fall.
The unemployment rate is going to respond to the recession a good deal faster than inflation will. By the time the Republican convention begins in mid-July, the Consumer Price Index will probably have declined from the present level of 18 percent a year. But it won't be down much. By that time, the unemployment rate probably will have climbed from 6.2 percent last month to something around 7 percent. That would mean some 800,000 more people unemployed than in March. Since the Republicans will be meeting in Detroit, they can expect the scale of the layoffs in the automobile industry to be brought forcefully to their attention.
When the Democrats go to New York in August, they will hear, at high volume, about the financial strains on the big cities. The unemployment statistics for July will have appeared a few days earlier; they may well show a brisk increase. By that time, both parties may be wishing, privately, that they had gone to Montreal.
Interest rates will have come down a little, but they will still be high over the summer. If the Federal Reserve Board were to relax monetary policy significantly, the result would certainly be another international dollar crisis. The international money markets are now a powerful check on domestic policy. If interest rates were to drop faster than inflation, foreign holders of dollars would immediately assume that another big American preelection inflation was under way -- and they would begin dumping dollars. Even today you can see signs of nervousness. The prime rate in this country recently declined from 20 percent to 19 percent -- not a very dramatic improvement -- and the dollar exchange rates have already sagged a little. By midsummer there will be fierce pressure within both parties for monetary relaxation, and the administration will not be able to respond.
By November, it is necessary to assume, unemployment may be around 8 percent. That will mean 5 million more people unemployed than a year earlier. By then the inflation rate should be dropping more rapidly, although, amidst the rising concern for jobs, the administration is not likely to get much credit for it.
That is not a happy prospect. Our purpose in outlining it is not to suggest that present policies are wrong. On the contrary, in the present circumstances there are no alternatives that are not even more dangerous. Presidents and Congresses, present and future, are going to have to keep balancing the social distress of inflation against that or unemployment. Neither party will be entilted to treat rising unemployment, in midsummer, as a surprise. Having embarked upon a course of action this spring, the county cannot depart very far from it over the summer and fall without increasing costs, to jobs and prosperity, that in any case will be unpleasantly high.