The worst peacetime inflation in 35 years, a rise in the Consumer Price Index of 13.3 percent -- that's what the country experienced last year. Inflation this year, despite an expected recession, also looks very bad -- over 10 percent.
But you'd never know it from the tone and content of the president's 1981 budget. On the contrary, the new budget announces that this year the administration is copping out in the fight against inflation. The budget thus offers a perfect foil to Sen. Kennedy's call for serious address to fundamental economic problems.
The administration's tone -- as expressed by James McIntyre, the director of management and budget -- is positively chirpy. At the press briefing on the budget, he announced with pride that the "1981 deficit is less than half the 1980 deficit." It is -- $15.8 billion programmed as the deficit for 1981 as against a $40 billion deficit for 1980.
But a year ago the administration declared with great solemnity that it was holding the 1980 deficit under $30 billion. In fact, the 1980 budget deficit rose by more than one-third -- which is how the budget director can blithely claim that he is cutting next year's deficit by half.
As to content, even McIntyre acknowledges that "it is not what I would call an austerity budget." Outlays for defense and energy are up. Revenue sharing, though not a successful program, continues as before. Education, research and development and transportation outlays are all on the rise. a major new program in job training makes a debut. Outlays for housing go up by $1.2 billion.
Perhaps all the increases go to persons in dire straits. Still, the budget is not being used as an example of discipline and as an instrument for restricting demand and reducing inflationary expectations.
Wage and price decisions by the private sector, of course, are also important in determining the inflationary outlook. But what is the administration doing there?
Well, last year it asked for voluntary compliance with a set of guidelines that limited wage rises to 7 percent. Despite some dramatic exceptions (chiefly in autos), the guidelines helped keep wage bargains down.
This year the admidnistration has scrapped the 7 percent guideline as part of a deal with organized labor called the "national accord." A new payboard under Prof. John Dunlop of Harvard has indicated that wage increases should be within a range -- from 7.5 percent to 9.5 percent. Not only is the standard up, but the criteria for determining applicability have been made almost infinitely elastic. In effect, the pay standard is going to be what Dunlop says it ought to be.
That is not a tightening, but a loosening of the rules on wages and prices. It guarantees that the inflationary increases of last year will be embedded in the wage-price structure of the future. Thus the basic inflationary inertia, the upward tilt in the economy as a whole, is that much greater.
Higher energy costs imposed from the outside by oil-exporting countries were cited by both the president and Charles Schultze, chairman of the Council of Economic Advisers, as major villains of the continuing inflation. No one would contest that. But what has the administration done to arm this country and other oil-consuming nations against the price hikes that were predictable ever since the shah fell a year ago? Certainly it has not even begun to form the consumer cartel that would ensure oil supplies to countries running short, and thus curtail the frantic bidding up of prices that powered the recent surge.
Germany and Japan, moreover, pay the same price as the United States for oil, and are far more dependent on imports. So how come they're not reeling under inflationary hammer blows? Because some of the impact is absorbed by increasing output per worker, or higher productivity.
But in the United States, for the first time since the 1930s, productivity is actually falling. Despite much talk on the subject, the Carter administration has put off for another year the critical feature of any program to stimulate productivity -- a tax cut for investment.
So far, the cop-out on inflation has not hurt the president. Events have focused attention on foreign policy. But Kennedy has forced the realities to the surface. Right or wrong, his call for gas rationing and a wage-price freeze expresses the seriousness of the country's internal problems and confronts the president with a Democratic alternative.