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∂AIL Professor Wassily Leontief↓Department of Economics↓New York University
↓New York, N.Y.∞

Dear Professor Leontief:

	This is a question about the possible applicability of
input-output analysis to the management of a discrete inflationary
shock like the sudden rise in oil prices.

	When the price went up, every individual and business knew
that it would be affected - not merely directly but indirectly as
well.  A business could calculate the direct effect of the increase
in oil price on its own costs in so far as it used oil, but it could
not compute the indirect effects through its other suppliers.  Therefore,
its price increases were guesses, often overestimates, and were
subject to later correction - usually increases.
It seems reasonable that this lack of information made the total
inflation greater than would otherwise have been the case.

	In principle, given a product-by-product input-output matrix,
the final effects of a price rise in a single quantity could be computed.
The idea is that a collection of compatible price rises might have
been announced, such that if they were all made, each industry and
class of individuals would have the income corresponding to
that of a number T of years previously, according to how
many years of economic progress are lost by the increase.
An allocation of the immediate shock to wealth might be made by delaying
some of the increases.

	My question is the following: %2Is the input-output data base
too aggregated for this application%1?  Thus if airplanes depending
heavily on fuel and electrified railroads in a region with water or
nuclear power were both called transportation, the allocated increase
in fares would be too much for the electrified railroad and insufficient
for the airline.  Some errors of this kind are inevitable; the question
is whether the data are adequate for a first approximation.

	The question is neutral as to whether a government could
properly impose such a price increase schedule or whether it might
have merely been published as a guideline to what might be expected
to occur.

.sgn