Gunter Schmolders, the West German economist who made an unusual economic study of the decade between 1963 and 1973, discovered that of 40 countries whose inflation reached 15 percent in that period, 38 "abolished their democratic institutions in one way or another."
Today, in the United States, the inflation rate is already over 18 percent, and still climbing. Nevertheless, the Carter administration continues to dwell in a dream world when it comes to inflation and how to cope with it.
Listening to Jimmy Carter on this subject is like hearing a replay of Herbert Hoover's reassurances during the Great Depression that "prosperity is just around the corner." This time a year ago, Carter told America that his anti-inflation program was "beginning to take hold." Last October, calling for "a little patience," he predicted that both interest and inflation rates would go down before the end of 1979.
Although both rates have since shot up to record highs, the administration keeps making soothing statements. Only a few days ago, the secretary of the Treasury, William Miller, sent a telegram to the top executives of the nation's 500 largest corporations. It said that the Council on Wage and Price Stability "will intensify its monitoring activities to make certain that both the price and wage standards continue to be effective."
The operative word is "continue," which must have convulsed the executives in view of the latest inflation headlines, such as: "Major Banks Raise Prime Rates to 17.25 Percent." "Administration Seeks $58 Billion Boost in Debt Ceiling." "Dollar Plunges Against Japanese Yen."
The White House talks about cutting expenditures by $15 billion and aiming at balancing the budget, not this year, of course, but in 1981. At most, that would reduce inflation by two-tenths of 1 percent. It's like combating a raging four-alarm blaze with proposals for long-range, minor improvements in the fire department.
Both Carter and Congress seem susceptible to panaceas that are more likely to inflame inflation than douse it. The president puts nearly all of the blame for inflation on the increase of oil prices, yet his decision to decontrol domestic oil is responsible for much of the recent runaway cost of gasoline. In fact, the price of decontrolled oil has been rising even faster than the price of imported oil.
Congress, like Carter, preaches but does not practice a balanced federal budget, one reason being that it knows the total government budget (federal, state, municipal) is already in balance. The federal budget appears to be in deficit not because of federal spending; but because Washington gives the states and cities over $80 billion a year in handouts of one kind or another, some of it called "revenue sharing." If it weren't for that, the federal budget would already be in surplus.
Despite this, the president and Congress condemn deficit financing as if it were the principal source of inflation. There is little recent evidence, however, to support this notion.
In Gerald Ford's last two years in the White House, the federal deficit was $45.2 billion in 1975 and $66.4 billion (the all-time record) in 1976, for a total of $111.6 billion. Yet when Ford left office, the inflation rate had dropped to around 4.8 percent. Under the Carter administration, the deficit was $30.3 billion in 1979 and is projected at $33.2 billion for 1980, for a total of $63.5 billion, or $48.1 billion less than under Ford. Nonetheless, the inflation rate under Carter has more than tripled.
Another way of assessing deficits, and their whimsical effect on inflation, is to compare them with the gross national product -- output of goods and services. On this basis, Carter's four-year deficit total is equal to 1.8 percent of the GNP, just half of Ford's 3.6 percent, but look at the respective inflation rates.
More and more conservative economists are coming to believe that, at this advanced stage of inflation, only wage and price controls will enable the government to zero in on the worst price offenders -- energy, food, housing and medical care. Higher inflation in the basic necessities is what cries for relief.
Not long ago, President Carter said, "Whatever it takes to control inflation, that's what I will do." Whatever it takes, that is, except embracing the kind of controls Ted Kennedy is now campaigning for.