The latest bad news on inflation goes way beyond mere economics. It brings front and center the most grievous strains in the American body politic.
For a comprehensive program of sweeping measures is required to undo the manifest conditions making for chronic inflation. But the Democrats are too divided for such measures, and the Republicans are hooked on simplistic ideological remedies almost sure to tear apart the fabric of national life.
The big new number is the advance of the Producer Price Index in January by 1.6 percent, or at an annual rate of over 19 percent. That strongly implies that the Consumer Price Index will rise during the first few months of this year by much more than it did last year. And last year's figure -- 13.3 percent -- was the worst in 35 years.
The inner contents of the January number carry worse news that the increase as a whole. During the past year the administration, and many, many people, have tended to impute rising prices to special factors -- notably food, energy and housing. But food costs actually declined by 0.8 percent last month -- a drop almost certain not to be repeated. The total rise in the index last month was exactly what it would have been without food, energy and housing. In other words, there is much more to the present round of inflation than special factors.
A change in expectation is the big new element. The prevailing feeling through most of last year was that inflation would tail off -- if only through a recession. But that viewpoint has been transformed by a sudden flurry of developments -- the rise in defense expenditures, the new budget with its big deficit, the mounting evidence that the coming recession will be mild and the onset of an election campaign that forces the administration to step up payments to various client groups.
The prevailing expectation now is that inflation will keep going up and up and up. Accordingly, labor pushes for wage rises to offset increases in living costs. Business, except in oil, sees profits dwindling. Investment stays low, which holds down output per manhour, or productivity. With productivity down, there is no surplus out of which to pay higher wage costs. So prices have to go up.
Speculation soars in that atmosphere. Notable rises have recently taken place in the prices of gold, silver, copper, sugar and practically everything else. In other words, inflationary expectations have now become the principal breeder of inflation.
Because so many enduring causes contribute to inflation, an anti-inflation program has to include a multiplicity of measures operating simultaneously over a long period of time. At the very least, an apapropriate package would include a tighter budget; interest rates higher than the new record decreed when the Federal Reserve raised the discount rate to 13 percent last Friday; severe constraints on wage and price rises; tax reforms to stimulate output of items in scarce supply; and an arrangement with the oil-exporting countries to ensure a steady flow at steady prices. To break the inflationary expectations, moreover, the whole package would have to be accompanied by shock treatment -- hence the talk of a freeze on wages and prices.
But at that point the political shoe begins to pinch. The Democratic Party draws most of its support from groups -- including labor and minorities -- committed to low interest rates, high wages and big federal spending. Controls on prices, profits and dividends might ease these commitments somewhat, and Sen. Edward Kennedy has advocated such controls. But his support of big spending makes it seem that he is stepping on both the brake and the accelerator simultaneously. President Carter has vigorously opposed controls, and it is all the harder for him to turn around now that Kennedy has espoused them.
A Republican president has never had to cope with the persistent inflation now imbedded in the economy. All the leading GOP candidates oppose controls, or even tough policies to restrain prices and wages. They talk as though a balanced budget would do most of the work on the inflationary front. In fact, without a host of complementary measures, cuts in federal spending would merely heap trouble on the persons who are already the most burdened -- the jobless poor in the ghettos of the big northern cities. The country would thus be exposed to a virulent dose of tension between regions, races and economic groups.
A benign unwinding of inflation in these conditions seems almost impossible.
No figure in the forefront of national politics can move seriously on inflation without massive and radical changes of declared policy. Thus the one clear thing is that, whatever may happen abroad, the presidential race will be run against the background of inflation and its awful rattle.