Bosworth Cites Severe Unemployment, Recession as Costs of Lower Inflation

The problem of inflation has gotten so severe that all cures are beginning to look worse than the disease, Barry Bosworth, former director of the Council on Wage and Price Study told a large crowd at the Kennedy School of Government last night.

"Most of us imagine that inflation is getting better, but actually the undercurrent of inflationary momentum will soon drive the basic minimum rate of inflation above ten per cent per year," Bosworth said.

The inflationary spiral accelerates because people feel they must "catch up" with inflation by frequent increases in wages and prices, he added.

Bosworth said Americans must be willing to adopt an approach to fighting inflation which goes beyond considerations of fiscal and monetary policy.

However, Hendrik S. Houthakker, Lee Professor of Economics and one of three panelists responding to Bosworth, said that inflation was caused not by a "get even" mentality but instead by the "simple matter of too much money chasing too few goods."

Houthakker added that the cure for the problem was to be found in stricter monetary policy, which would produce some unemployment, but not at an unacceptable level.

Bosworth said that a recession, "would create a pool of unemployed at the rate of one million people for every percentage point of inflation reduced.

"This cost is clearly more than we are willing to pay," he said, adding that "the trauma of inflation has become too great and the attitude seems to be that we should adjourn the meeting and wait until things improve a bit."

Houthakker, however, said that while he disagrees with some of the monetary policies presently being pursued by the Carter administration, they "will lead to the desired results."

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Bosworth cited the relationships between the momentum of inflation, constant shocks to the system such as oil price increases, decreased production and high dependency on foreign oil as the major economic problems now confronting the U.S.

"The real problem is that almost any policy taken on one issue conflicts with those policies taken on others," Bosworth said, adding that the time has come for the Administration to start dealing with these problems as related issues.

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Bosworth stressed the need for a comprehensive policy, adding that "It doesn't make much difference what the policy is, but it must be comprehensive."

Bosworth said the absence of a national consensus concerning anti-inflationary policy hampers effective action. "U.S. citizens are bored and confused by economic debate," Bosworth said, adding that most people do not see the connection between their demand for wage increases and increased unemployment due to the cost of labor.