Less than a month after concluding that no changes were needed in his economic policies, President Carter is under rapidly increasing pressure to make some dramatic, even radical, new attempt to slow inflation -- even if it means wage and price controls.
So far the pressure is not really political, even though this is an election year. It is coming instead from economists and financial experts who are confounded week after week by fresh evidence that nothing seems to be working the way it is supposed to.
A tone of despair, in some cases even a note of panic, is creeping into the voices of some of these experts, whose views span a wide ideological spectrum.
"We are lurching towards a national economic emergency," Henry Kaufman, an influential Wall Street economist, declared in last week's direst warning. "There is nothing in income, fiscal or monetary policies to suggest a way out."
Brookings Institution economist Arthur Okun, a former chairman of the Council of Economic Advisers, less stridently told the House Budget Committee, "This is the most difficult time for formulating national economic policy that I have witnessed in my professional career. As the economic news worsens, the case for a more dramatic alternative (to the Carter strategy) is growing and will continue to grow stronger."
And the news is worsening. The latest inflation figures -- consumer prices up in January at an 18.2 percent annual rate, the biggest jump in more than six years -- and the drumfire of demands from the experts for some action caused administration officials to say Friday that economic policies are "under review."
The most likely outcome of that review, some administration officials said, will be an attempt to make added cuts in the budgeted government outlays proposed last month. Wage and price controls are not an option either politically or economically, the officials stressed.
Okun described the president's dilemma: "The nation is suffering from intense and accelerating inflation and yet has been bogged down in a noman's land between expansion and recession for nearly a year. Many of the possible policy actions that would ameliorate one of these problems would worsen the other . . . .
"Balancing these risks, the administration has forged a program that can be fairly characterized as a strategy to muddle through 1980. If muddling through is the counsel of realism, I can see a few distinct, but only limited, opportunities for improvements."
The administration, he said, is counting on mild recession to prevent any major acceleration of wages and industrial prices. "In my judgement, the strategy has a fair chance of avoiding disaster -- which is all it really promises to achieve."
Avoiding disaster, or trying to calm anxious financial markets with limited additional budget cuts, may not be enough, the growing chorus of economists is saying.
Late last month, for instance, financial markets took one look at the Carter budget, which by traditional standards is one of the tightest since World War II, and decided it was not stringent enough to head off an inflationary boom. More defense spending would set off such a boom, analysts decided.
But the budget situation is only one of many developments pushing economists to call for drastic remedies.
Take consumer buying, for example. Battered by inflation, consumers' real incomes have been plummeting -- with the worst yet to come, according to almost every forecast -- but people have kept right on spending, and the economy has kept on growing. Interest rates are far above previous historic highs, but borrowers have kept right on lining up for loans for everything from automobiles to homes.
Business has not trimmed investment plans, either, despite skyrocketing interest rates.
Ten days ago the Federal Reserve raised a key interest rate by a full percentage point and four days later announced new, more restrictive goals for the money-supply growth it intends to permit. Other interest rates shot upward, and by the end of last week many banks were lending to their most favored customers at 16 1/2 percent. Mortgage money was going for 14 percent. f
But none of the anxieties in the markets eased at all. Few of the experts are confident any longer that higher rate will cool off the economy.
And that is the cause of the incipient panic: by every past standard the combination of inflation, high interest rates and tight budgets ought to have the economy deeply mired in a recession, and it isn't. Meanwhile, inflation is getting worse.
An incredible Wall Street Journal headline last week summed up the paradox: Price, Production Data Raise Fears Slump May Be Averted.
For last month the inflation figures were even worse than appeared at first glance. Consumer prices went up at that 18.2 percent rate without the cost of food rising at all. As an administration economist put it, "It was damn near everything except food, and you know food prices will be going up again, too."
The prices of goods not yet being sold at retail rose even more than consumer prices.
In this world of lines-off-the-charts, quite sober-minded economists are thinking radical thoughts and urging President Carter to heed their advice.
On the surface, their radicalism takes the form of a call for wage and price controls. Actually, it goes much, much deeper. In fact, virtually every one of the extraordinarily diverse group of economists and financial experts suggesting controls has said a wage-price freeze and controls can merely buy time for making much more fundamental changes in economic policy.
Barry Bosworth, a Brookings Institution economist who until last year was director of the administration's Council on Wage and Price Stability, believes controls would be useful only as part of the most sweeping attack on inflation the country has ever seen short of full wartime mobilization.
Bosworth would break existing contracts that call for future wage and price increases, sever the link between inflation and automatic increases in federal benefits such as Social Security, make tax changes to spur business investment, serve notice on business and labor that they would no longer be protected from foreign competition at the cost of more inflation, and tell farmers that inflation, not their incomes, comes first.
Then Bosworth would scour federal laws and regulations to find all the cost-boosting provisions that increase some special group's income at the expense of more inflation for everybody.
Kaufman, the influential economist at the investment banking house of Salomon Brothers in New York who gave his dire warning in Los Angeles last week, joined the "radicals" with a call for direct controls on many sources of credit, cuts in the federal budget, possible restrictions on the amount of dollars foreigners could acquire and finally, wage and price controls.
While Kaufman was speaking, an underwriting syndicate of investment bankers and brokers was in the middle of trying to sell $50 million worth of utility bonds issued by Gulf Power Co. "We sold perhaps $9 million of the bonds before Mr. Kaufman's address appeared on news wires, and then we couldn't get another order," one underwriter was reported as saying.
In the fragile world of bond markets, in which many businesses must borrow to invest in new plants and equipment, the syndicate had to mark down the price of the bonds and took about a $2 million paper loss within four hours.
Okun has his own preferred medicine for the economy. He rejects some of the suggested drastic remedies, including large tax cuts not tied to expenditure cuts, and wage and price controls, which he opposes on "pragmatic grounds."
"The only chance of slowing inflation significantly rests on a major slowdown of wages," Okun told the Budget Committee. "I believe that a wage standard of 5 percent can be made feasible and acceptable, without mandatory controls, if it is accompanied by a large temporary tax cut channeled directly to American workers -- say, an income tax credit equivalent to a three-point reduction in the employe payroll tax.
"Such a tax measure -- lasting six or nine months -- would bolster take-home pay during the interval required for prices to reflect the slowdown in labor costs. Price guidelines should be used to ensure a prompt and full transmission of the wage slowdown -- again without controls," Okun argued.
But then Okun added a kicker: "Such a tax credit could be responsibly financed only if accompanied by an emergency program of cutting federal expenditures. And that, in turn, would require some very tough measures -- such as deciding not to buy the grain that has been embargoed from the Soviet Union, not bolstering homebuilding under present market conditions, instituting reforms and modifying the cost-of-living escalation of Social Security benefits, suspending some portion of general revenue-sharing and related fiscal assistance to the states, and the like."
That is the nature of the "radical" advice Carter is getting, gratis, these days.
As long as the president is being challenged by Sen. Edward Kennedy for the presidential nomination, even Carter's political advisers want no truck with controls, because the Massachusetts Democrat has endorsed them. Carter's economic advisers are adamantly opposed to them.
Still, it is becoming increasingly difficult for Carter just to "muddle through" in 1980. If the recession does not come and inflation cool down, the odds favor some kind of action from the White House.