Univ. Economists Calm About Record Inflation
Call Increase Small; Predict Drop in '54
Seven University economists went out on a limb yesterday and hazarded predictions as to the effects of the nation's current all-time inflationary high. Most of their colleagues declined to comment.
With some reservations, six of the seven professors agreed with Sumner H. Slichter, Lamont University Professor, who foresees continued business prosperity until late 1954, when a mild recession may set in. He says the present upward price trend will continue for another nine months, but thinks there is "no reason for alarm" right now.
According to the Bureau of Labor Statistics, the country's inflation is still spiralling. The consumer price index for August was a record 191.1, topping the previous high of 190.8 in July. Using 100 as a base, these indices compare present prices with those in the years 1935-39. The September figures will not be ready until about the twentieth of this month.
At present the price indices are climbing at the rate of only two and a half percent a year. During the initial burst of inflation due to the Korean war, the indices rose about one and a half percent a month--from 170.2 in June, 1950, to 184.5 in March, 1951. Then the rate of increase slowed to about two-tenths of a percent a month.
Disrupt Social Structure
Disagreeing with Slichter's optimistic outlook, Wassily W. Leontief, professor of Economics, says this inflation is serious because it affects income distribution, and sees no recession in the spiral. "I think it will creep and creep as long as our present military expenditures continue," he said. "We can stand it a very long time. An increase of five to ten percent is not disruptive to the day to day operation of the economy, but would be very disrupting to the social structure."
Slichter bases his forecast partly on the belief that government defense spending will not reach its peak until the 1954 Congressional elections.
After that he thinks that over-production of civilian goods may cause a recession. He pointed out that there is currently more output per man-hour ($35 billion) than is used for defense ($28 billion). This recession will be mild, he thinks, because a slide-off in government spending, the excess profits tax, income tax cuts, more consumer buying, larger budgets for state and local public works, and no decrease in residential building may help forestall any serious collapse.
Europe Worse Off
Agreeing with Slichter, Seymour E. Harris, professor of Economics, noted that some inflation always accompanied mobilization, and comforted Americans by pointing out that Western European countries have fared worse England has double and France three times our price spiral. He predicts falling prices by 1953-4.
Theoretical economist Edward H. Chamberlin, David A. Wells Professor of Political Economy, blamed the steal industry for the wage-increase cycle which "seems to be still in its early phases and . . . it seems likely to dominate in the near future and to indicate a slow but steady rise in the cost of living for the next few months."
James S. Duesenberry, assistant professor of Economics, predicted the possibility of a deflation if the defense program reaches a "platean" by 1958, while John D. Black, Henry Lee Professor of Economics, optimistically saw some easing on of prices within the next month.
Lacking faith in any possibility to appreciably cut the defense budget was Arthur M. Smithies, Chairman of the Department of Economics. "It is highly improbable that we will go back to the pre-Korean price levels," he said. "What impresses me is the amount of stability since March 1951."