The search for a new anti-inflation formula

Faced with the specter of inflation out of control, President Carter is under growing pressure to develop a bold new strategy to salvage the US economy. So far this year, prices both at wholesale and consumer levels, have risen at more than an 18 percent annual rate -- a quantum jump over the 13.3 percent recorded for all of 1979.

But beyond a White House statement that anti-inflation policy is "under review," no sign emerges as to what Mr. Carter, preoccupied by foreign crises, intends to do.

Behind the scenes, however, the President's top economic advisers are striving to map a policy that avoids mandatory wage and price controls and rationing of gasoline.

Historically, they claim, controls bottle up price and wage pressures, which burst forth in more virulent inflation when controls are removed.

Also, they say, mandatory controls and/or gasoline rationing would inject a heavy new dose of bureaucratic controls over the economy and foster social tensions.

Alternatives to controls, however, are punishing -- drastic cuts in government spending, coupled with an even tighter credit policy by the Federal Reserve Board, which would send interest rates soaring above their present record highs.

Because US-Soviet tension dictates heavier defense spending, any budgetary cuts would have to come in nondefense areas, with social programs bound to suffer.

The Carter team longs for a good old-fashioned recession, which -- though it would throw people out of work -- also might cool off the overheated economy.

But Americans in general, apparently convinced that inflation may grow worse, refuse to let recession come. They go on spending, plunging heavily into debt and trimming their savings accounts to do so.

Meanwhile, warns the Congressional Budget Office (CBO), inflation -- by boosting the cost of goods and services bought by government -- already has forced Congress to breach its spending ceiling for fiscal 1980.

Either Congress, under its budgetary system, must increase the amount of money government may spend -- along with the resulting deficit -- or kill fresh spending measures moving through the pipeline.

Mandatory wage and price controls, even if adopted, should be used to buy time, their advocates say, while fundamental economic changes for the future are worked out.

Barry P. Bosworth, former director of the Council on Wage and Price Stability (COWPS) and now a senior fellow at the Brookings Institution, defines the conflict between individual and society in times of high inflation.

"Inflation is the type of problem," he says, "where the answer for the individual -- to try to get his own wages and his own prices up -- is exactly the sort of thing that, if done by everybody, makes the whole economic system fall apart and intensifies the inflation process."

Dr. Bosworth would cut the indexing system that today links many wage contracts and federal benefit payments, including social security, to inflation.

Thirty-five million Americans, for example, will get about a 13-percent increase in their social security payments this July, because that is the amount inflation rose last year.

Millions of these people depend upon annual benefit increases to keep from slipping into poverty and hardship in old age.

Yet the indexing system, multiplied in other areas of the economy -- including escalator clauses in major union contracts -- has the effect of pushing prices higher.

To protect individuals, Dr. Bosworth would control wages and prices, while the government moved on other fronts to:

* Eliminate regulations (in the trucking industry, for example), that protect special interest at the cost of higher prices.

* Induce business, through tax changes, to pump more money into improving productivity, or output per manhour of work.

* Avoid protecting American industry from foreign competition, where such protection boosts US prices.

Painful as such measures might be, Dr. Bosworth -- and a range of other leading economists --- believe that only basic changes can begin to root inflation out of the Us economic system.

Recent talks with top Carter administration officials gave this reporter no evidence that the White House was moving toward such drastic measures.

Since then, however, the January performance of wholesale and consumer prices showed that inflation not only is worsening, but might be edging out of control.