RECESSION, AGGRAVATED by high interest rates, lies ahead. The shock of the unprecedented rates has already reached the financial markets. But by last week the economy had arrived at a condition that left no alternative to higher rates and more unemployment. Having rejected all the other methods of controlling inflation, the country is now going to rely on the roughest, riskiest and most bruising of all.
It wasn't that President Carter deliberately chose it, or the Federal Reserve Board or Congress. The country as a whole refused all the other possibilites. They all seemed too foreign to Americans' accustomed ways of conducting their public and private business. But for the future, it's worth remembering that there are other strategies than this sole reliance on the wringer to stabilize prices.
There have been a number of ingenious proposals to enforce wage-price limits. One was the Carter administration's wage insurance plan, which offered promise of tax credits as incentives to hold wage demands down. Neither labor nor employers would touch the idea, and it quickly died in Congress.
Rising oil prices have imposed severe costs on the country. How are those costs to be shared? Because Americans still haven't worked out an answer, many of these costs are still being passed around through the economy. As the oil experience illustrates, most Americans have now organized themselves well for protection against those rising costs. Americans belong to trade associations, labor unions, interest groups and political lobbies, manifold and overlapping. The idea is to catch up with prices and keep even. To the extent that people succeed, those costs get passed along to other people and the inflation continues.
Currently the international champions in controlling inflation are the Germans and the Japanese. Both are highly disciplined populations where social consensus carries unusual force.
In the United States, in contrast, people take pride in mistrusting their government, and they consider adversary relationships to be normal. These traditions have served Americans well -- as the comparison with German and Japanese history makes plain -- and perhaps controlling inflation is not the most important test of a political philosophy. But the American style -- loose-jointed, competitive and litigious -- makes any social compact exceedingly difficult to achieve.
Ending inflation requires Americans to do without some of the things to which they are accustomed -- staring with cheap gasoline. It means accepting, for a time, slightly lower living standards and economic growth rates than in the recent past. If all Americans could agree to share these setbacks, they would not weigh heavily on anyone. The Germans and the Japanese have managed something of the sort. But in this country, it hasn't worked. That's why the United States is now being reduced to relying wholly on the wringer -- with the costs of economic contraction to be loaded disproportionately onto the most vulnerable people in American society.