Shooting at the Bluebirds of Happiness

THE President might go to Peking, but more pressing matters of the pocketbook clamored for his--and the nation's--attention last week. Rumors persisted that Nixon might fly to the Orient at almost any moment; that would rivet national and world attention back to the new East-West dialogue. Meanwhile, a rash of strikes and increasing anxieties about the Administration's economic policies dominated the U.S. mood at midsummer.

To be sure, the men whom A.F.L.-C.l.O. President George Meany sarcastically terms the Administration's "bluebirds of happiness" continued to chirp cheerily about a long-term economic resurgence. But the hard, immediate news was to the contrary. The White House itself became entangled in an unseemly attempt to stifle the properly independent view of Federal Reserve Board Chairman Arthur Burns, who insists that happy talk is no substitute for positive action to control an increasingly worrisome economy.

Fresh Inflation. The signs of trouble were all too plentiful. A selective railroad strike had spread from two companies to ten, threatening many citrus growers and other farmers with a disastrous season. West Coast ports were blocked by a dock strike that throttled shipping and diverted much-needed income to Canadian and Mexican seaboard cities. The Dow Jones industrial average had slipped from an April high of 950 to last week's 858. Make or break, the weekend talks aimed at averting a nationwide steel strike were certain to have an adverse economic effect. Most of the leading economic indicators, including consumer-spending plans for such key items as cars and new houses, were down. Unemployment remained high; St. Louis had become the 53rd city with a rate above 6%. Secretary of Commerce Maurice Stans told Congress that the U.S. this year may be facing its first trade deficit since 1893. Final figures showed that the Nixon Administration had run an inflationary budget deficit of $23.2 billion in the past fiscal year--a total exceeded since World War II only by the Johnson Administration's $25.2 billion deficit in 1968. Although the Administration does not agree, independent analysts predict a deficit almost as large for the current fiscal year.

Furious President. In one major instance the Administration made an exception to its general hands-off treatment: its attempt to rescue the Lockheed Aircraft Corp. from possible bankruptcy by offering a federally backed loan. The plan had been broadened to provide a $2 billion fund to help other large companies in similar trouble, thus marking it a matter of principle rather than of special help to a particular company. Yet it was the very principle of governmental aid to big business that some Democratic Senators particularly opposed--and at week's end the larger measure seemed dead. The House approved $250 million for Lockheed, but the Senate rejected moves to cut off debate and the fate of the bill remained in doubt until a deciding vote this week. (For accounts of the steel developments, the U.S. trade and money crises, and the Lockheed controversy, see BUSINESS.)

What stirred Washington most was a report that the Administration was considering a request for legislation to bring the quasi-judicial Federal Reserve Board into the Executive Branch of the Government--and to control it by doubling its membership, with the new appointees to be named by Nixon. The source, described as "a White House aide," explained that the President was "furious" at Burns for telling Congress that inflation had not been checked and urging creation of a wage-price review board to apply greater pressure. White House Press Secretary Ronald Ziegler denied that any such legislation was under consideration, but evaded all ques-tions about Nixon's current attitude toward Burns. The same White House source also claimed that Burns was seeking a $20,000 raise in his present $42,500 salary. Actually, other Administration officials had proposed raises for Burns' post and a few other high-level positions to put them more nearly on a par with the Cabinet.

Two-Phase Plan. Basic to the controversy was an argument over whether the Administration's economic policies were working. Its two-phase game plan was to first squeeze the economy, even if it meant high unemployment, until inflation subsided. Then it would increase the monetary supply and federal spending to stimulate business expansion and employment. The Government experts insist this has been done and, given enough time, will produce a full recovery. Chief among these experts is George Shultz, the cool, confident and combative Director of Management and Budget, and a principal architect of the Administration's policy.

Burns and most independent economists contend that neither phase has gone according to plan. The federal pressures did not substantially impede inflation and tended to diminish consumer confidence. Even as jobs became scarcer, unions demanded higher, rather than smaller wage increases. Burns argues that Government must act to discourage both wage and price increases; the Fed has recently moved against inflation by raising the discount rate.

A longtime social friend and personal adviser of Nixon, Burns fears that Nixon is being ill-advised on the economy by Shultz and Economic Adviser Paul McCracken, as well as by Treasury Secretary John Connally, who has emerged as the chief circuit rider and advocate for the Administration line. Burns also holds White House Assistants John Ehrlichman and H.R. Haldeman in contempt as low-caliber politicians. He contends that unrealistically optimistic statements only decrease the Administration's credibility with hardheaded business and labor leaders, who appreciate candor. When a friend told Burns that the Administration feels he is not cooperating on economic policy, Burns snapped: "I'll do my part when those guys at the White House do theirs."

Fast and Low. The source of the anti-Burns stories was almost certainly Charles Colson, a special presidential counsel described by other aides as eager to replace former Assistant Murray Chotiner as the toughest backstage White House operator. They portray Colson as acting on his own in floating the reports. "You expect this kind of thing as a political year comes on," explained one such aide. "But it's starting out awfully fast--and awfully low."

Yet it seemed highly unlikely that a presidential aide would risk his position by outlining Administration attitudes on such a sensitive matter if he did not believe that Nixon wanted it done. When Burns was sworn into office in 1970, Nixon noted the legal independence of his position, but added with a grin: "I hope that, independently, he will conclude that my views are the ones that should be followed." Burns' failure to do so--he is even less likely to change his course under fire--obviously must irritate Nixon. He seems to feel that Burns' attitude is psychologically damaging to the economy.

Repugnant. Far more is at stake, both for the nation and for Richard Nixon's re-election prospects, than a disagreement over the best psychological approach toward the economy. Nixon's insistence that the danger signs can be ignored, that no firmer action is needed to reduce unemployment and stop inflation, is at least partly based on principle. He considers the application of Government muscle or the imposition of wage and price controls philosophically repugnant to a free economy and impractical to administer as well. Yet the result is what amounts to tacit White House acceptance of yet another round of wage and price increases.

The rail strike is a case in point. Though already granted a 42% wage hike, the United Transportation Union was resisting changes in costly and long-obsolete work rules, fearing they would lead to a restricting of both income and jobs. Nixon did summon leaders of both sides to express his concern, and Mc-Cracken explained that if the walkout continues through August it would reduce the anticipated gross national product by $50 billion--three times the cost of the General Motors strike. Although the usual emergency legislation to stop a rail strike was prepared, by week's end Nixon had not yet asked Congress to act.

Even if a long rail strike is averted, the overall wage problem remains. Many labor leaders now feel that the absence of any presidential pressure makes it difficult for them to hold down unreasonable demands from the rank and file. The growing fear is that in the absence of an even relatively mild "incomes policy" (for example, nonmandatory wage and price guidelines and at least strong verbal attacks by the President against excessive increases), there will be pressure for harsher measures. These might include a temporary wage freeze or even outright controls.

Nixon's advisers failed to display any indications of deep concern. Connally said on TV last week that the President's plan "is working--there's no doubt about that." Another high Administration official briefed newsmen on the economy in the usual rosy way. Bar- raged by questions about rising interest rates, living costs and labor demands, he replied: "You don't expect us to walk across the street and tell you fellows that things are bad, do you?"

Show-Biz Aura. Some Washington economic specialists worry that the President may actually believe that a cosmetics of cheerfulness can remove the blemishes. Reports TIME Washington Bureau Chief Hugh Sidey: "Yes, he sees the economic indicators, he knows of complaints from businessmen, but he still is not aware of the depth of the fear in people, of the extent of the despair of the unemployed, of the dimensions of doubt among those in commerce. A while back, an important corporate executive went to the White House and was mildly amused at the aura of show biz. Then Nixon began a recital of joy. Things were moving up. Labor trouble was receding, profits climbing, inflation abating, production mounting. The man, somewhat stunned by this glowing vision, looked at the faces of the others there. He knew them. They faced tough times with costs, with labor contracts. Nobody challenged Nixon. They all listened politely. But when they left they were disillusioned men."

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