Overriding Issue

THE ECONOMY Overriding Issue If Richard Nixon's China initiative hastens the end to the war and removes Viet Nam as an issue in the 1972 campaign, the election could turn on the President's overriding domestic problem: the economy. The polls and the politicians say that the economy is the voters' No. 1 worry on the home front, and that people are displeased with the way the President is handling the twin troubles of unemployment and inflation. Labor unionists, feeling particularly victimized by rising prices, are using their ultimate weapon to force fat wage increases. Last week half a million telephone and railroad workers marched out on strike. Last week, too, labor chiefs and leading Democrats sharply stepped up their offensive against Nixon's economic policies and spelled out more explicitly than ever their programs for change.

Mills' Medicine. A.F.L.-C.I.O. President George Meany went on Meet the Press and called for immediate wage and price controls. Next day Meany stood before 600 cheering unionists at a Washington conference and thundered that Nixon "has piled recession on top of inflation, and he has dumped the double burden squarely on the shoulders of the American people." With equal passion, the charges were echoed by a succession of speakers at the meeting, including Speaker of the House Carl Albert, Washington Senator Henry Jackson, Public Employees Union Chief Jerry Wurf and four other A.F.L.-C.I.O. vice presidents.

House Ways and Means Chairman Wilbur Mills was more severely critical than ever before. "The economic policies of this Administration are failing," he told an audience in Ogden, Utah. "I agree with neither the conclusions reached by the economic spokesmen of the Administration nor the medicine that they are proposing." Then, in general form, Mills prescribed his own remedy: some controls on wages and prices, plus a ceiling on federal spending. Mills would also reduce income taxes primarily for people in low-income brackets and restore investment tax credits (of an undisclosed amount) to stimulate businessmen's sluggish spending on plants and equipment.

Critical Point. Some of Nixon's closest advisers also had words for the President. Federal Reserve Chairman Arthur Burns, Nixon's former counselor and economic mentor, has long been urging him to take a more activist stand against inflation and set up a wage-price review board. Last week the Federal Reserve Board raised the discount rate from 4 3/4% to 5% and said that its money-tightening move "reflected the board's concern over the continuation of substantial cost-push inflation in the economy."

Republican politicos were deeply worried not only about inflation but also about the fact that 5,500,000 able-bodied Americans are out of work. William Rentschler, who directed the Nixon campaign in Illinois in 1968, wrote the President last week that Republican politicians in his state are in "serious jeopardy" because of the economy. Unemployment and inflation are not only hurting the blacks and blue-collar workers, but cutting dangerously into Nixon's prime constituency. Rentschler cited farmers who are crying about a cost-price squeeze and middle-income executives who are being thrown out of jobs.

In public, the President's lieutenants radiated cheer as usual. Treasury Secretary John Connally proudly pointed to a host of newly released statistics as proof that the economy shows "great and broad strength." In the second quarter, the gross national product rose by $19.7 billion, compared with $32.4 billion in the first quarter, a figure that was artificially heightened by the rebound from the General Motors strike. The overall rate of inflation was 4.2%, down from 5.3% in the first quarter. Personal income in June jumped at an annual rate of $20.2 billion. On closer inspection, however, the figures did not show a return to productive boom or price stability. The Administration had hoped for a G.N.P. rise of $30 billion in the second quarter, and after adjusting for price increases, the economy's real growth rate was a fairly modest 3.6%--not enough to put many people back to work.

As for personal income, almost all the gain was the result of a one-shot increase in Social Security benefits retroactive to Jan. 1. Consumers are still cautious about spending their money, and they are saving it at near record levels (see BUSINESS). The recovery from last year's recession remains the lowest and slowest of any since World War II.

The President moved on one front last week when he signed an emergency employment act authorizing $2.25 billion in federal funding for the states and local governments to provide 150,000 to 200,000 jobs in health, education and other public services. The measure was a compromise; Nixon had vetoed a more ambitious public service work bill last year.

Rejecting Pleas. Beyond that, the President seems determined to wait out his critics. Most leading economists and many profit-squeezed businessmen urge him to declare wage-price guidelines. Many labor leaders would welcome such guidelines as a means to keep unreasonable demands from the rank and file in check--provided that there would also be some limitation on profits, dividends and rents. But the President is unmoved. He has condemned guidelines as a first step leading inexorably to wage-price controls, which he deems unwieldy and unworkable. He has also rejected the pleas of Democrats for tax cuts and large increases in federal outlays, fearing that those would further fuel inflation.

Instead, Nixon seems willing to 1) accept high unemployment in hopes that it will ultimately curb inflation and 2) reject big spending in hopes that the money that the Federal Reserve Board pumped generously into the economy earlier this year will ultimately pep up the economy. That is the passive policy laid down by Nixon's most influential economic adviser. Budget Boss George Shultz. If he is right, the President may be able to turn the biggest issue of 1972 to his own advantage. But if he is wrong, Shultz will be remembered as the Walt Rostow of Nixon's economic policy.

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