Masonry Magazine June 1974 Page. 19
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INFLATION IS DOMINATING ECONOMIC POLICY-MAKING these days. There has been a big shift in the public's attitudes toward soaring prices. All politicians are finding people more worried about the surging price indexes than anything else, lagging purchasing power and the Watergate included. The shift will let policy-makers pursue a very tough anti-inflation stand. The Federal Reserve Board is able to hang in with a stern monetary policy. And the White House does not have to pump up spending to get things moving.
These days are very different from past periods of sluggish activity. The earlier emphasis was on stimulation-to make certain that a solid recovery got under way. Economists in government focused attention on keeping unemployment down.
High interest rates usually brought very sharp criticism of the "Fed," even during periods of economic boom when it was trying to slow things down. Congressmen would complain that consumers and small business were suffering. The housing sector was being severely crimped by high mortgage costs as thrift institutions lost funds to high-interest securities.
BUT THE POLITICS HAVE CHANGED DRASTICALLY in a time of high prices. America has never seen two-digit inflation (over 10%) as in recent months. To be sure, there was a slowing in the rise in the consumer index in April. But that's because food prices have declined, as record harvests shape up. Industrial commodity prices are still rising at a dangerously rapid pace. That will bring higher prices on a host of consumer goods in months ahead.
Economists don't expect two-digit inflation in the second half of 1974. But it may continue at an 8%-9% rate far too much for the economy's good. Even with all the breaks in the world, the analysts are not optimistic. The best the U.S. can hope for is a slowing of the indexes to 6%-7%.
SO INFLATION MAY WELL REMAIN THE PUBLIC'S NO. 1 CONCERN for a while, as real purchasing power suffers steady erosion from the surges in prices. Even some increase in the unemployment rate isn't likely to shift concern. Most Congressmen simply aren't feeling the usual political heat from voters about the high interest-rate policy being followed by the Federal Reserve. Even the powerful home-building and mortgage-lending lobby is silent now. Builders and lenders know that continuation of rapid inflation is dangerous.
THERE'S NO REASON TO EXPECT AN EARLY LET-UP by the Federal Reserve. Officials realize that the inflation cannot be brought to a halt this year. It takes considerable time to check, once the process really gets started. But they are grimly determined to make some measurable progress during 1974. They believe that the most effective way of slowing the indexes is to exert monetary restraint and hold to it, even if this means slack in the economy.
Interest rates seem sure to stay near record levels for some time. FRB Chairman Arthur Burns has made it clear that high rates must be tolerated for a while. In fact, they may even go a bit higher in coming months, if the inflation doesn't ease. It is very difficult to make a strong case that a sharp drop in interest rates is near.
DON'T COUNT ON CONGRESS TO VOTE A CUT in Federal income taxes in 1974. The drive for some tax relief is picking up steam, especially in the Senate. But the current betting is that in the end a tax reduction won't become law. The weak first-quarter behavior of the economy was the spur to tax action. Fear of an extended recession is bolstering arguments for some stimulation. Legislators are disturbed by the shrinkage in real spendable pay of workers. Most observers rate the chance of passage of a cut quite high in the Senate.
But there's doubt whether a tax reduction can win approval in the House. The House is very jealous of its prerogative of originating tax legislation-and usually doesn't care to recognize or approve tax proposals initiated by the Senate.
What's more, better business news may head off action. A second-half recovery would diminish the need to cut taxes. Most important, a tax cut would fuel dangerous inflation. Stimulation might kill chances of slowing the price surge.
A MAJOR SHIFT MAY BE OCCURRING in the Supreme Court's antitrust line. Antitrust lawyers see signs that the High Court may be turning pro-business. Until last year, the Justice Department rarely lost a trustbusting lawsuit. But now businessmen are beginning to win some very significant skirmishes. First, the Supreme Court threw out a government suit in a key banking case. Then, in April, the High Court dealt the Antitrust Division a major set-back by over-ruling the opposition to General Dynamic's purchase of a coal firm.
Antitrust lawyers view this decision as a decisive turn by the Court. It seemed skeptical of certain novel theories of competition advanced by the government in that case. But lawyers question how much the antitrust climate has changed. They would like to see more evidence that the shift is real.
masonry
June, 1974
19