THE WASHINGTON POST, TUESDAY, SEPTEMBER 11, 1979
The latest economic news dashes hopes that a short and shallow recession can cure inflation. For the country is already in a recession, and inflation continues to mount. So the immediate - question is how to devise a tax cut that . will arrest recession in ways that do not aggravate inflation even further. A larger and more interesting question is ÐÊwhether the tax cut can be made the occasion for developing a comprehensive new economic strategy.</br></br>Tae evidence of recession comes with a new set of employment numbers. In August, the jobless rate rose from 5.7 percent to 6 percent. Total employment ÐÊwent down by over 300,000 jobs.</br></br>Behind those figures is a long cycle of connected events. First there was a drop in final sales. Next a rise in inventories. Then orders were cut back. In response, manufacturers reduced production. Only then did businesses begin laying off workers.</br></br>The drop in total jobs, in other words, is a lagging indicator. It tells enough of what has been happening in the second and third quarters to announce that the economy is very ,weak. Even Lyle Gram-ley, the super-cautious numbers man on the presidentÛªs Council of Economic Advisers, says, ÛÏI wouldnÛªt quibble about using the term recession now.Û</br></br>The onset of recession has not, however, curbed inflation. Thanks in large part to pinches in the supply of crude oil, food and housing, the Consumer Price Index is rising this year at an annual rate of over 13 percent. The underlying inflation rateÛÓa term that fences out erratic supply pinches and measures the price rises manufacturers need to keep profits constantÛÓis about 9 percent.