A Search for Equity

AFTER taking their immediate bearings in President Nixon's new economic world, most of its inhabitants last week concentrated on studying the future. Both in the U.S. and abroad, those most directly affected by Nixon's sweeping economic policy prepared for councils that will debate for months what he announced to the world in a few minutes. Out of their discussions may emerge more permanent prescriptions for the plight of the dollar abroad and the blight of inflation at home than anyone-even a Presiden-could impose by any kind of personal fiat.

Phase 2. In the U.S., debate continued to center on what will happen during Phase 2, which will start after the present wage-price freeze ends on Nov. 13. Administration spokesmen, including Labor Secretary James Hodgson and Commerce Secretary Maurice Stans, cautiously declined under questioning to rule out future controls on profits and dividends, which are not covered by the 90-day freeze. They had little choice but to do so, if only to avoid setting off another fit of temper by A.F.L.C.I.O. Boss George Meany, who adamantly insists that the Administration was unfair to working men and women by freezing wages but not profits. In his Labor Day message, Meany angrily declared that "the President's program does not meet the test of equity"which he defined as equal restraints ''on all costs and incomes."

The President, however, let it be known that he still opposes an excess-profits tax and then resumed campaigning in support of his measures. Returning from a 15-day stay at the Western White House, Nixon stopped off in Chicago to speak to the milk producers association and promised that his policy would usher in "a New Prosperity" -"without inflation and without war."

The search for equity preoccupied most of the experts who testified before Congress's Joint Economic Committee. Paul McCracken, chairman of Nixon's Council of Economic Advisers, hinted strongly at what has become a general assumption in Washington-that some form of wage and price restraint with "clout" and "punch" will be extended beyond the freeze. McCracken also predicted that the Nixon program would create some 500,000 new jobs -enough to reduce unemployment to about 5%. He said that the Administration expected Nixon's measures to add some $15 billion to the gross national product in 1972. More than half of that, McCracken said, would come from increased consumer spending.

In Detroit, John Z. DeLorean, head of G.M.'s Chevrolet Division, reflected the auto industry's exuberant belief that much of the added spending will be for new cars, which should be about $200 cheaper under Nixon's program. Chevrolet plans to have a record 200,000 new cars in showrooms when the 1972s go on sale Sept. 23.

A la Lockheed. Economist Gardner Ackley, who administered wage-price guidelines while they lasted in the Johnson Administration, argued that voluntary restraints might not be enough for the present economy-but he made a telling point against permanent controls. If big firms lose too much after the controls begin, he asked, "must not the Government, a la Lockheed, come to the rescue?" Arthur Okun, Lyndon Johnson's chief economic adviser and a member of TIME'S Board of Economists, suggested that Phase 2 should include guidelines that would tie wage increases to rises in worker productivity and include a cost-of-living differential. He proposed that the only price increases permitted should be those that directly reflect production-cost hikes. Over the past year, under Okun's formula, wage raises would have averaged 5% and price increases 2%.

Both Ackley and Okun were opposed to placing a tether on profits. Ackley acknowledged that corporate profits reached high watermarks as a result of John Kennedy's economic policies, but he said that Nixon's measures were unlikely to produce a similar result-if only because current profits are lower than at any time since 1946.

Advisory Panels. The Commerce Department issued the first economic indicator taken since the wage-price freeze went into effect. It showed that wholesale prices increased during August at the exceptionally high annual rate of 8.4%. Although Nixon's actions took effect at mid-month, most of the sample reflected prefreeze conditions. Unemployment also rose sharply-to 6.1%-but it, too, was measured before Aug. 15. Treasury Secretary John Connally's Cost of Living Council continued to clarify gray areas for the 90-day period. The COLC placed in question many of the salary increases for teachers that at first appeared immune to the freeze. Subject to congressional approval, the President broadened a Federal Government pay freeze by applying it to blue-collar employees as well as to the civil service and the military.

In the next few weeks, as Congress starts debate on the Nixon economic strategy, the Administration will appoint advisory panels to study problems of an administered incomes policy in five sectors of the economy: business, labor, state government, local government and the consumer. Those groups and the Cost of Living Council will offer advice to the President on precisely what restrictions are needed in Phase 2 and how they should be enforced.

Historic Beating. On the world monetary markets, the dollar continued to slip fractionally against the strong currencies floated against it. In the week since Tokyo reluctantly gave up trying to maintain the official rate of 360 yen to the dollar, U.S. currency has declined 6.4% in relation to Japan's, far less than the 12% to 15% revaluation that the Administration hopes will eventually occur. Tokyo's Finance Ministry announced that in the first eight months of 1971, Japan's dollar holdings increased from $4.4 billion to $12.5 billion -a staggering leap of nearly 200% that is likely to be remembered as a historic beating for the dollar. British officials, worried that the pound might gain too much against the dollar and thus make British exports too expensive, took measures atoned at keeping speculative money out of the country. After forbidding interest payments on new holdings by nonresidents, they cut the prime rate from 6% to 5%.

Officials of the major Western financial powers, plus Japan, prepared to meet next week in London to start considering new international monetary arrangements now that President Nixon has unilaterally upset the longstanding consensus by refusing to redeem dollars for gold. The participating nations make up the main trading partners of the International Monetary Fund, which meets in full session in Washington beginning Sept. 27. Participants will probably get some hint of an answer to the question that intrigues them most: How long will the "temporary" 10% U.S. import surtax remain in effect? Nathaniel Samuels, U.S. Deputy Under Secretary of State for Economic Affairs, is rumored to be suggesting that the surtax might not be removed until after the 1972 election. In that case, the job of monetary reform might be a long one. Few nations would be willing to fix their currencies permanently at high rates relative to the dollar while the tax remained in effect, because once it was taken off, the structure of exchange rates would be upset again.

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