THE UNITED AUTO WORKERS' settlement with General Motors marks, predictably and inevitabley, the demise of the administration's wage guidelines. The White House is in the process of redrafting the guidelines, but it will hardly be useful simply to pick another number as a new limit to wage increases. Any numerical guideline rests on a guess about the future inflation rate. If the administration guesses high, the guideline is slack and useless. If it guesses low, the guildeline -- as in the present case -- is dismissed as unrealistic and is ignored.
President Carter last fall asked employers and unions to hold wage increases to 7 percent a year. That assumed an inflation rate of 7.5 percent for the year 1979. Unfortunately, inflation has been running around 13 percent since last winter. At the time of the Teamsters' settlement last spring, the administration went through endless arithmetical contortions to try to show that it fit within the guidelines. But by late summer and the auto workers' negotiations, nobody seemed much to care.
General Motors effectively removed the guidelines from consideration with an opening offer that clearly exceeded them. From that point on, it is reported, the question never arose in the bargaining. Meanwhile, the White House said nothing -- which, in the circumstances, was wise.
It is in the nature of guidelines to collapse rather quickly. They are inherently fragile and temporary. Their proper use is only as first aid, to keep things from deteriorating while more substantial remedies are put in place. There was nothing wrong with the guidelines themselves. They have proved beneficial at many points in the past months. The error lay in relying on them too long, and too heavily.
If guidelines won't cure inflation, what will? One remedy -- of sorts -- is a recession. In fact, the inflation rate is currently coming down, slightly, in response to a recession that has been, so far, mild. But if businesses and their employees -- including the most powerful of corporations and labor unions -- decline to cooperate in restraint, the only other recourse is the kind of tight money and tight budget policy that results in significantly higher unemployment.
The sophisticated and skillful people who negotiated this agreement for GM and the UAW would certainly reply that they did not invent the inflation, and are not responsible for the administration's severe miscalculation of its course. They are only trying to protect themselves, and the people dependent on them, from the worst of its effects. They might also point out that they have avoided a strike that would have been immensely disruptive and costly to the entire economy. That's all quite true, and to their credit. But it's necessary to add, unfortunately, that they have accomplished it in a way that will leave the inflation rate a little higher.