A break in the economic clouds
There is much lamenting, and with reason, over the renewed rise in interest rates in the United States and over the understandable reluctance of President Reagan to predict economic recovery in the spring.
But it can and should be noted that for the first time in many years we are seeing the first signs of a revival of one factor which has always seemed at least to me to be essential to a real return to economic health in the US.
That one factor which has been so long missing is a little bit of price resistance on the part of the consuming public.
According to my calculations the current inflation was founded by Lyndon Johnson (by refusing to raise taxes to fund the Vietnam War) and was unleashed by Richard Nixon (by going in for deficit financing when the country had assumed that, being a Republican, he would, of course, go for a balanced budget and sound money).
Ever since then, inflation has been fueled by the assumption on the part of everyone that prices would be higher tomorrow than they are today. Occasionally along the road someone has launched a price boycott in the hope of holding down prices. And sometimes it worked a little, for a short time. We stopped buying beef and it did check the price of beef, for a few weeks.
But by and large, for 10 years, Americans have increasingly accepted inflation as an unavoidable and permanent condition of life. That being the case , they have been buying today things that could well have been put off until tomorrow. And they have been demanding rising wages to compensate for rising prices. And employers have gone along to the point where an annual round of ''cost of living'' increases had become a standard part of the ''American system.''
Had that sort of thing gone on much longer, would the US ever have regained economic stability? I doubt it.
What is happening today may or may not last. But President Reagan has given his countrymen at least a chance to regain economic stability. It may be a ''last best chance.'' We may throw it away. It has its negative as well as positive sides.
But - there is again some price resistance among American consumers. And it is having an effect on the marketplace.
It shows up most spectacularly in the automobile industry. The American ''big three'' companies -- Ford, Chrysler, and General Motors -- have all run into serious price resistance. All three have been forced by consumer reluctance to go in for ''rebates,'' which is just another word for price-cutting. They do not want to cut prices overtly. That admits that the product was overpriced. They prefer the euphemism of ''rebates.'' But by whatever name, it is a recognition of the fact that they cannot go on any longer expecting the consumer to pay for inflation wages and inflation prices.
And that in turn has forced them to look to their wage structure and to ask the United Automobile Workers union to join them in holding down prices by accepting reductions even in existing contracts. The union has agreed to go along, as the lesser evil. It was either that or face the flight of the automobile industry out of the United States.
The key feature of the pending agreement between Ford and the union is the promise of Ford to refrain from closing American plants and buying substitute items from overseas. Ford could have filled its showrooms with whole cars built in its overseas plants if the union had refused to cooperate.
Price resistance has not been limited to the automobile industry. Department stores have had to work harder and moderate their price rises to keep going. A new kind of no-frills food store has come into existence. Bring your own paper bags and bag your own purchases. There is a reward in the marketplace for keeping prices down, and working harder.
Generally this is called a recession. That is a bad word. But another description for the same thing is more selective and thoughtful buying by the public. This translates into harder work for fewer automatic wage rises. Employers are hardening along the wage line in order to keep their prices down. Workers are taking wage cuts, to keep their jobs. And the quality of the produce is certainly rising at least in some quarters.
There is a plus and minus side to every change in the terms of production and labor and merchandising. The headlines are full of high interest rates and slowing of production and sales. The return to a brisker economy may be off until late summer or fall, or even until next year. But the other side of the coin is the good news that the inflation is slowing down and America is working harder and producing a better product.
