Several Harvard and Massachusetts Institute of Technology (MIT) economists yesterday said that while wage and price controls, federal tax cuts, and a decrease in the money supply would slow the U.S. economy and ease inflation, each of these suggestions has drawbacks.
Richard E. Caves, Stone Professor of International Trade, said wage and price controls will ease U.S. inflation "a little," but "then price level increases speed up and you have a very small result for a lot of effort."
Such controls need to develop as part of a "permanent economic structure" before they can work effectively, William H. Lazonick, assistant professor of Economics, said. Wage and price controls tend to become a "bureaucratic and political mess," he added.
Big Mess, No Effect
Another federal government option such as changes in the money supply could also stop inflation, but would have other adverse effects. "If they printed less money, there would be less inflation," Caves said.
A recent proposal before Congress suggests balancing the budget for fiscal 1981 and awarding a $15 billion tax cut, a proposal economists said could eventually cause greater unemployment.
In the Temple
James S. Duesenberry, Maier Professor of Money and Banking, said the Federal Reserve Board, responsible for changing the money supply through interest rates, "is looking for a durable policy."
The Fed recently came under attack for raising interest rates in order to restrict the money supply, a move that could "lead to expectations that inflation will remain high," Oliver J. Blandhard, assistant professor of economics, said yesterday.
Otto Eckstein, Warburg Professor of Economics, said the current inflation rate is the result of rising energy costs and "driving the economy too hard for 15 years."
Robert M. Solow, professor of economics at MIT, said increasing uncertainty over price stability and interest rates have hurt long term investment causing excessive spending in the nation's economy.
Although many of the economists agree with forecasts of a lower inflation rate for the second half of the year, they agree the answer may be further away. "Anybody who says he has the answer is kidding vou." Duesenberry added