The latest bad numbers work to generate a sense of urgency about inflation. The president met with his economic advisers late Sunday evening. The Republican leader of the Senate, Howard Baker, spoke of an "emergency." The Federal Reserve Board -- to avert a panic -- rushed the announcement of its latest hike in interest rates instead of waiting, as usual, until the close of the business day.
In this quickening climate, there are finally evolving big ideas for a long-term, comprehensive strategy to meet the inflationary problem. One program, widely discussed in government, business and academic circles, centers around three big bargins -- economic, international and political -- and includes a wage-price freeze. Here is the inner logic of that strategy.
Wages are rising at a clip of 9 percent annually. To maintain profits, businessmen have to push up prices by an equal amount. There lies the basic inertial force of inflation, the inner mechanism that keeps wages and prices rising and rising and sets all of us in furious pursuit of our talks.
High interest rates and tight federal budgets do not affect the wage-price mechanism directly. In theory, they slow down economic activity, create pockets of unemployment and reduce general demand in ways that arrest price increases. Even when the theory works, however, it takes a huge rise in unemployment over a long period of time to slow down inflation just a little.
This time, moreover, the theory has not worked. Rather than be clipped by inflation, consumers are dipping deep into savings. So despite high interest rates and some budgetary drag on spending, there is no recession, and inflation keeps spiraling upward.
The only effective way to break the wage-price spiral, accordingly, is by direct restraint. Thus the first element in a comprehensive anti-inflation strategy has to be a bargain between business and labor holding wage and price increases to a very low figure -- say, 5 percent over several years.
External shocks in the form of oil-price increases shattered hopes for wage-price restrain in 1974 and last year. So this time an international bargain has to be cut to ensure a steady supply of foreign oil at steady prices.
Saudi Arabia and the United States would be the chief partners in that bargain. The Saudis and their friends among the oil-exporting countries could assure price and quantity. The United States in return would have to indemnify the exporters against inflation, provide for their defense and relieve internal pressures somewhat by forcing the Israelis to make accommodation to Palestinian demands for self-rule.
The other industrialized countries -- especially Germany and Japan -- would, of course, have to join the United States in such a bargain. The Germans and Japanese would agree only if the United States began to restrict its own consumption. So as part of the international bargain, this country would have to take drastic conservation measures -- perhaps gas rationing or, far better, a tax on gasoline bringing the price here up to about $2 per gallon.
Repeated soundings have shown that Congress is loathe to approve either rationing or a gasoline tax, or any other strong measures. Which is where the third bargain comes in -- a bargain between the president and Congress.
The president has to wind even higher the sense of emergency. To that end he can paint in large letters the adverse consequences -- from national demoralization to diminution of this country's international influence with great prejudice to the chances for peace in the world. He can make concessions to conservative demands for a balanced budget and offer to cut, say, $10 billion from current expenditures.
To drive the sense of urgency home, however, the president has to call for shock action -- a move that breaks inflationary expectations and carries the whole issue beyond the plane of business as usual. In that spirit, he asks the Congress to enact, posthaste and retroactively to the date of the request, a six-month freeze on wages and prices.
During the six months, the administration would work out the economic bargain between business and labor and set in motion the deal with the oil-exporting countries. With those barriers against inflation coming into place, the president would then end the freeze and move to a second stage that had already been mapped out.
Nobody can guarantee that such a stratgegy would work. It requires big moves unlikely in the near furture. But as least it provides a coherent alternative to the gradualist approach that is clearly not working. It offers makers of economic policy a chance to take hold of things -- to substitute mastery for drift.