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THE MISSING ISSUES // Inflation's reputation begins to improve

A new theme is gradually inserting itself into the debate over inflation. The traditional stance _ beat down inflation _ still draws plenty of applause. But after a long spell of mild inflation, economists, politicians and corporate executives are migrating toward the view that the present inflation rate should be preserved, perhaps nourished.

The hammerlock that the anti-inflation battle has had on economic policy is easing up. There is more talk of economic growth and job security as issues that should be higher on the national agenda than fighting inflation.

And there is more talk now, even at a conference a month ago sponsored by the Federal Reserve _ the premier inflation fighter _ of the damage that could result from pushing the inflation rate to too low a level.

"What people seem to be recognizing is that we no longer seem to be threatened with accelerating inflation as we were in the '70s and '80s," said Paul M. Romer, an economist at the University of California at Berkeley. "There is still a group arguing for an inflation rate of 2 percent or less, but most economists, without saying so explicitly, now favor an annual inflation rate that ranges between 2 and 4 percent."

Various business organizations, including the Chamber of Commerce and the National Association of Manufacturers, argue increasingly that fighting inflation, when it is already mild, is incompatible with their goal of increasing demand for what corporate America sells.

Similarly, the layoffs and wage stagnation that have plagued the nation in recent years are widely viewed by unions and by many workers as a by-product of the Federal Reserve's effort to soften the economy and thus push down an inflation rate that is already low.

For the last four years, inflation has risen at an annual rate of 3 percent or less. It is 2.9 percent for the 12-month period through July, as measured by the Consumer Price Index. That is significantly lower than the rates _ generally, 4 percent or more _ that prevailed from the late 1960s until the early 1990s.

"Inflation is just not a cutting-edge public issue anymore," said Richard Nelsen, a Columbia University economist, "but there is obviously very widespread concern that incomes are rising very, very slowly."

Whatever the shift in priorities, the Federal Reserve, which has the power to fight inflation by keeping interest rates up, has not eased up on inflation fighting. Fed Chairman Alan Greenspan has expressed sympathy for the emerging view that times have changed. But the latest published minutes of the Fed's deliberations portray the central bank's policymakers as favoring, as usual, "some additional progress in reducing inflation."

So far, President Clinton and Bob Dole are not mentioning inflation in their election campaigns, preferring instead to stress their formulas for growth and prosperity, as if inflation weren't a factor.

Among other reasons, neither party wants to risk arousing the ire of the financial markets, which for years have wailed at any attempt to push for more economic growth or for full employment at the risk of increasing inflation.

That is still a red flag on Wall Street, but it is not quite as high as it was. "This is the first time in years that we have inflation low enough for a long enough period to have a debate over how much growth is possible," said David M. Jones, chief economist at Aubrey G. Lanston, a Wall Street bond house.

The debate is not a new one, of course. For generations, two camps have existed. One is composed mainly of people, usually wealthy people, whose main concern is to preserve the value of the wealth they have accumulated. Rising inflation can devalue these savings, which are held mainly in notes and bonds.

The other camp includes those who benefit from an economy that thrives at the cost of some inflation. Among them are wage earners counting on raises, retailers and manufacturers counting on a little inflation to help raise prices, homeowners who like to see their property values rise, and people in debt, who find that inflation can make their debts easier to repay.

Over the past 18 years, the anti-inflationists have been the big winners, beneficiaries of the nation's reaction to the 12 and 13 percent inflation rates in the late 1970s and early 1980s. For a while, the winners spoke of driving the inflation rate down to zero, and some in this camp still argue that a zero inflation rate would encourage more savings and investment.

Only now, after four years of persistently mild inflation, has the pro-inflation viewpoint begun to be heard again. Increasingly, its proponents note, for example, that government statistics probably overstate inflation, so that the already-low rate of 3 percent might really be 1.5 percent, or less. Zero inflation might have arrived. If so, further efforts to drive down inflation would result in deflation.

Other arguments are also surfacing. Three economists from the Brookings Institution, in a new study that was discussed at a Federal Reserve conference recently, argued that the costs of driving the inflation rate down to zero from 3 percent would outweigh any gain. The economy would slow, encouraging layoffs and driving up the unemployment rate by 2 percentage points from its current range of 5 percent to 6 percent.

And so the debate gathers steam. "There is a span of views on inflation," Romer of Berkeley said, "that until very recently were not very well articulated."

Louis Uchitelle writes about business and economic issues for the New York Times.