A former White House economic adviser said yesterday that President Carter is spending too much time trying to make the business community happy and not enough time halting inflation.
Dr. Arthur M. Okun, chairman of the President's Council of Economic Advisers under Lyndon B. Johnson and now a senior flow to the Brooke ings Institution, said the White House, has no anti-inflation program. He said he expects economic growth to continue in 1978 and a further reduction in unemployment, but he said the current 6 per cent inflation rate is more likely to go up than down, unless President Carter does something about it.
Okun, interviewed on "Meet the Press" (NBC, WRC), said price inflation won't go down unless wage inflation goes down, "and you can't solve either of these problems without solving both."
"What I would like to see." Okun said, "is some kind of an incentive system offering rewards through lower taxes specifically for those business firms and labor groups that volunteer to restrain prices and wages . . . Otherwise we are going to be stuck with the stagflation swamp that we have been in with a perpetual motion machine of 8 per cent wage increases and 6 per cent price increases."
Okun said he does not foresee any "dramatic change" in monetary policy, but hailed the nomination last week of G. William: Miller as chairman of the Federal Reserve Board.
He said Miller's succession to the post now held by Arthur F. Burns would produce a more coordinated and cooperative relationship between the Fed and the administration. He added that such cooperation can be consistent with the Fed's independence.
Under Burns' direction, Okun said, the Fed and the administration were pursuing different goals, "which could be the worst thing to happen in the nation."
Now, he said, "We have to talk about whether the Federal Reserve Board is willing to accept the administration's targets for economic performance and how it views its policies as pursuing those targets."
He said he would be "very surprised" if interest rates come down in 1978. The 1 1/2 percentage point increase in interest rates in 1977 didn't do any damage, he said, but added that the country cannot afford a similar increase in 1978. Were that to happen, he said, it would make a recession in 1979 "very likely."
Okun said he has not seen any "distinct evidence" that Carter will come up with a tough anti-inflation program. After two years of stabel 6 per cent inflation, "people haven't learned to live with it." What is needed, he said, is for the President to say the present policies are not working and to think of innovative alternatives.
As a Democratic President, Okun said, Carter cannot hope to win the love of the business community, which views any Democrat with suspicion. But he said that as sales improved and markets strengthened 1977, businesses expanded their hiring and capital budgets, a sign the President is moving in the right direction.
Carter should recognize that it is "very unlikely" he can balance the budget by fiscal 1981, as he said he intends, Okun said. To do so "would be bad medicine for the economy over the short-term horizon." He said Carter should postpone the date for balancing the budget into his second term, if he is re-elected.