THE IMPLEMENTATION of the economic policies labeled "gradualism"
may be said to date from the enactment of the income tax surcharge
in June 1968. But the original expectations, in retrospect called "hopes,"
that the gradualist policies would have "worked" by the summer of 1970
have not been fulfilled. It now appears that the real test of the gradualist
policies will be economic performance over the next several years. Unfortunately,
therefore, a mid-course rather than a retrospective view is all
that can now be attempted.
This examination of gradualism will be limited to the aggregate output
and price level goals of policy; balance-of-payments and other goals are
completely neglected. The first section will be devoted to a general discussion
of the issues, with special emphasis on the distinction between goalgradualism
and instrument-gradualism. Goal-gradualism refers to policies
designed, in the present context, to achieve a gradual reduction in inflation
and thereby to avoid the high level of unemployment that a rapid reduction
of inflation would require. Instrument-gradualism refers to policies involving
gradual adjustment of the instruments of fiscal and monetary policy,
that is, of government expenditures and tax rates, and of the money stock
and other financial variables.