Unemployment: What to Do
T HE RAPID rise in the unemployment rate is an unambiguous warning that public policy now has to move, and forcefully, to push the economy toward growth. Relying on the possibility that a recovery will automatically arrive in due course next summer or fall, or sometime, is perilously inadequate. The recessionÛÓif that is still the word for itÛÓis deepening throughout the world.</br></br>The unemployment rate in this country last month was 10.8 percent. In Europe, the Common Market governments have been meeting gloomily ifi Copenhagen to take stock of their own deteriorating situation. Unemployment rates in Western Europe range as high as 12.8 percent in Britain and 14.8 percent in Belgium. In the past, expanding economies abroad have sometimes pulled the United States out of trouble. It wonÛªt happen this time. Only the United States has the strength to change the course on which events are moving.</br></br>The key to recovery is lower interest rates. The Federal Reserve Board has been nudging the rates down, but it is severely constrained by widespread fears in the financial markets of more inflation ahead. Those fears are fed by the size, and the growth, of the federal budget deficit.</br></br>The Federal ReserveÛªs only instrument to lower interest is to supply more money to the banking system. If the Fed goes too fast, in a time of rising deficits, lenders will conclude that higher inflation is a certainty, and the interest ratesÛÓcontrary to textbook theory and contrary to the FedÛªs purpose ÛÓwill rise instead of fall. ItÛªs happened a couple of times in the past two years and, in the present circumstances, it could very easily happen again.</br></br>To change those circumstances will require vigorous action by President Reagan and Congress. The presidentÛªs original program having collapsed, he is now talking as though he were losing interest in the whole unpleasant subject and saw nothing to be done about it. On the contrary, there are four things that need to be done promptly: made possible the substantial decline in interest rates over the past months, but they wonÛªt go much lower without another one.