Word: okun
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Nonetheless, there are enough uncertainties to make any forecast subject to serious error. Democrat Arthur Okun, who was chairman of the Council of Economic Advisers under Lyndon Johnson, is concerned that the Federal Reserve may yet push interest rates high enough and squeeze hard enough on the U.S. money supply to bring about a recession. In the absence of any effective anti-inflation program from the Carter Administration, says Okun, "the Fed really has only two buttons in front of it. One says, 'Validate 7½% inflation' [by pouring out enough money to permit prices to go on rising at that...
...Stage Two recommendations drawn up by President Carter's advisers center on wage-price guidelines?7% for wages and 6% for prices are the most widely rumored figures?that would be technically "voluntary" but nonetheless backed by a threat of federal penalties against violators. Okun speculates that the Government might require the 100,000 or so firms doing business with it to sign binding pledges to observe the guidelines before they are allowed to bid on the $80 billion worth of federal contracts awarded each year. Such a proposal is in fact on Carter's desk...
...Okun concedes that a binding-pledge policy would be a "do-or-die, make-or-break" gamble. If so many businessmen refused to sign that the Government was forced to buy from non-pledgers?or, worse, if the Administration winked at violations as the price of avoiding crippling strikes?President Carter would lose all chance of winning wage-price restraint. In Okun's view, the risk in not adopting a tough guidelines policy is worse: negotiations next year in the construction, auto and trucking industries could result in a wage explosion that would push inflation firmly back to double-digit...
Even some sympathizers think labor will never buy his plan, and so last year Arthur Okun, a member of TIME'S Board of Economists, proposed a variant: cuts in income taxes for both companies and their workers if wage increases are held to 6% and price boosts to 4%. Proxmire's bill would authorize the Administration to try either type...
Both are denounced by conservatives who oppose any interference in the free market. Government officials' main fear is that a monstrous bureaucracy would be needed to monitor hundreds of thousands of wage and price boosts. For that reason, the Administration favors Wallich's TIP over Okun's: watching just wages would be easier than keeping tabs on prices too. Weintraub suggests that policing could be simplified by confining TIP penalties to the 2,000 or so biggest U.S. companies...