SINCE THE COUNTRY cannot agree on any other remedy to inflation, it seems to be drifting toward a recession. It is not that recession is a notably efficient countermeasure. A general economic slowdown is likely to send the unemployment rate up somewhat faster than it brings the inflation rate down. Nor is a recession the only choice. But the other possibilities are complex and controversial.
Congress is now in the process of deciding what to do about the tax cut that President Carter proposed to keep the economy expanding. If there is no tax cut at all, according to the Congressional Budget Office, prices might be two-tenths of a percentage point lower by the end of 1980 than they would otherwise have been. But unemployment would be somewhat more than two-tenths of a point higher than it would have been, as Alice Rivlin, the CBO's director, told the House Budget Committee. Since two-tenths of a point means slightly over 200,000 jobs, that is hardly a neligible impact. But neither is it a massive or insupportable increase, compared with the normal monthly fluctuations of employment. In Congress the interest in a big tax cut this year has been tepid from the beginning, and now seems to be fading altogether.
Why has inflation picked up since early this year? Mrs. Rivlin cited several reasons: a surge in food prices, the slide in the international value of the dollar, last January's increases in payroll taxes and minimum wages. To that list we would add the hugely inflationary settlement of the coal strike last March and, not unrelated to it, rising prices of coal and steel. Mrs. Rivlin made an important point about the nature of the current inflation when she observed that, even setting aside the possibility of further new shocks to the economy, it is possible to foresee only a slight reduction in the inflation rate next year. The reason is that prices and wages throughout the country will be moved up by the prevailing inflation figure, whatever that might be, as companies and their employees struggle to maintain the real value of their earnings. Each year's inflation tends to become the base for the following year's rate.
The recent acceleration has revived talk of mandatory controls on wages and prices, in the style of the Nixon program of 1971-73. If there is one thoroughly discredited idea in economic policy, it is that one. Mr. Carter has been absolutely right to rule it out. But if it's out, what's left?
The choices, to be candid, are not brilliant. Experience argues in favor of using a great variety of narrow and specific attacks. Since, for example, raising payroll taxes and minimum wages has contributed to this year's increase in inflation, Congress might want to reconsider - after the election - the laws that would continue to raise payroll taxes and minimum wages in the future.
One interesting new idea is a device known as TIP - for Tax-Based Incomes Policy - that would raise the taxes of a company that gave inflationary wage increases to its employees. The concept and its drawbacks are explored at length, incidentally, in the current issue of the Brookings Papers. The gravest of these drawbacks is that, as a practical matter, it would be extremely difficult to administer. But the present stage of the debate over inflation was accurately described by one of TIP's authors, Henry C. Wallich of the Federal Reserve Board, when he said: "Of course, nobody likes TIP per se. It is really a question of the alternatives. We are running out of good options and have to look at choices among unattractive ones."