Masonry Magazine March 1966 Page. 13
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THE ECONOMY IS MOVING CLOSER TO THE BRINK OF INFLATION. Even those officials of the Johnson Administration who have been insisting that price stability will be maintained are beginning to revise their opinions. Some are still hopeful. Others now think that a serious outburst-a price surge of 3% a year or more-could be in the making. Net, the probabilities have shifted in recent weeks toward greater danger-and toward strong remedies.
The change in climate reflects three disturbing trends:
-Price increases are spreading to many once-stable groupings.
-Business spending for new plant is exceeding all forecasts.
-Inventory building has begun to speed up in recent months.
THE ODDS IN FAVOR OF TAX HIKES ARE RISING in Washington these days. It is still Administration policy to wait and see if increases are needed. But the President did promise to ask for higher taxes if inflation looms. Secretary of the Treasury Fowler repeated the pledge on several occasions. Politics is no barrier to action. The voters would prefer it to inflation. Rather, the White House reluctance rests on fear that the impact of hikes will not peak for many months perhaps when stimulation is again required.
But government officials now concede that there's a smell of inflation in the air. It has put them on the alert. They are watching for the signs that will undisputably demand tax action. Specifically, they will keep checking the price indexes, business spending, and inventory accumulation. But they will also be studying wage increases and be looking for the kind of inflationary psychology that invites a spiral.
OFFICIALS HAVE BEGUN TO DRAFT THE KIND OF TAX INCREASES that would be imposed, if and when overheating of the economy finally demands action and the President gives the word. It is estimated that around $5 billion in additional taxes is what may be needed to reduce demand and cool things off. The White House hints that the green light could come around May 1.
Individuals would contribute about two-thirds of the total, under one of several formulas. A flat 5% might be added to each person's liability as now figured. Or each of today's bracket rates may be hiked by, say, two percentage points.
Corporations would face a two point increase, bringing the top rate to 50%. There is at this time no serious thought being given to reviving the war-time Excess Profits Tax.
ARE INVENTORIES NOW TOO HIGH as a result of the big surge of recent months? No-not yet, in the opinion of business analysts. There is some concern about that $10 billion-a-year rate of rise that has been occurring since October. As noted, it could be a sign of inflation of a speculative desire to pile up materials and components to hedge against price increases and scarcities. And too much inventory could slow business down, almost over-night if a Communist decision to talk should slow the arms build-up.
But the experts think that the danger point has not yet been reached. So far, the rise has done little more than match the gains in sales. But it could begin to run ahead soon.
THE PRESIDENT'S WAGE-PRICE GUIDELINES ARE LOSING their effectiveness as major weapons in the battle of inflation. Top Administration officials admit this privately. For one thing, they can only be used to control basic items in major industry-steel, aluminum, autos, etc.; they exert no real restraint on thousands of other little-noticed goods. For another thing, labor will not abide by the rules in construction and in other key fields.
It is clear now that the guideposts will only work in cases where psychology is the only real worry. But when supply lags behind demand for goods or for labor exhortation can not by itself stand against strong, basic, economic forces.
LABOR MAY BE IN FOR ADDITIONAL DISAPPOINTMENTS at the hands of this Democratic Congress. The unions have already lost in their efforts to get state right-to-work laws repealed and an immediate move to a $1.60 an hour minimum wage. Next they may find their aim of a more generous unemployment compensation program scaled down, while greater freedom to picket building sites is dead. Johnson won't push these, fearing their inflation effect.
THE BUSINESS IMPACT OF VIET NAM FOR THE REST OF 1966 is becoming clearer, now that Johnson's aims are jelling and the implications of his new Budget have been digested. He is trying to limit the build-up in Viet Nam despite the talk of victory in Washington. Total