Part of Hobart Rowen's Economic Impact column was dropped from yesterday's Business & Finance section. The column should have said:
Most outside observers assume that the chances for a meaningful reduction in the rate of inflation during a mild downturn are almost nonexistent. So much of present-day price pressures (on energy, food, housing and medical costs) are resistant to the business cycle that a recession could result in the worst of all worlds - a stagflation composed of sluggish business activity, rising unemployment and a high price plateau.
Economist Robert R. Nathan said, "I would think that a slow-down and soft landing like Blumenthal keeps talking about wouldn't reduce inflation below where it otherwise would be." another skeptic is former federal reserve chairman Arthur F. Burns. He said in an interview that "an inflationary psychology is now roaring in our country. If a recession comes along, and the government reacts in a tradional manner, I doubt that the inflationary psychology will undergo any significant change."
Arthur M. Okun, who was chairman of Lyndon Johnson's Council of Economic Advisers, blames much of today's inflationary pace on most wages and prices no longer reflecting "the textbook model in which supply and demand call the tune promptly and reliably."
In most cases, sellers base prices on costs plus markups that don't reflect "free market" principles that businessmen use in their commencement addresses but not so often in their own operations.
The same goes for wages. During slack as well as good times, employers tend to raise wages to protect long-term relationships - even if unemployment is high and plenty of job applications are in the files, Okun said.