Soldier Shultz's Reward

BEFORE Phases I and II, there was no more obdurate opponent of wage and price controls than George Pratt Shultz, the free-marketeering budget director. As one of the Administration's two or three most influential economic policymakers, he counseled President Nixon to pursue a hands-off approach. But when that policy demonstrably failed and the President froze wages and prices last Aug. 15, Shultz, the good soldier, helped set up the control mechanism and defended it against criticism. That kind of loyalty is rare among independent thinkers, and last week Shultz was rewarded. The President promoted him to Secretary of the Treasury, replacing John Connally, who can leave in good conscience because production and profits are rising fast.

When it comes to directing U.S. economic policy, the Secretary's job is as powerful or as puny as its holder makes it. Tough-yet-charming Connally, 55, crafted it into a position of unchallengeable preeminence. There is much speculation about how quiet, conciliatory Shultz, 51, will handle the job. As Shultz said of Connally last week: "Big John put on an extraordinary performance. I hope he puts a telephone at his ranch in Texas so we will be able to get hold of him there."

A cum laude graduate of Princeton, Shultz was a Marine major in the Pacific during World War II. He earned a Ph.D. in industrial economics at M.I.T., taught there for a decade and later became dean of the University of Chicago's Graduate School of Business. Nixon named Shultz Secretary of Labor in 1968. Since then, Shultz has become an Administration insider, taking on countless quiet missions for the President. He has negotiated compromises with Southern school officials over desegregation, and kept lines of communication open with AFL-CIO President George Meany.

Shultz has served the President loyally, but not always effectively. As Labor Secretary, he encouraged businessmen to fight inflationary wage increases by taking labor strikes, notably the General Electric strike of 1969. This contributed to slowing the economy but had no significant effect on braking wage increases after the 8% G.E. settlement. Later, as budget chief, Shultz advocated "benign neglect" of the U.S. balance of payments problem. Nixon repudiated that advice on Aug. 15 by ending the convertibility of the dollar.

As the architect of two budgets, Shultz guessed wrong on both. He maintained that the economy needed no big increase in fiscal stimulus last year because he forecast that the gross national product would jump smartly to $1,065 billion; in fact, that prediction was $ 18 billion too optimistic. This year he helped persuade the President to boost the economy with a tax cut, but he underestimated the dampening effect of new withholding schedules. Partly as a result of this, his planned $38 billion budget deficit will be about $10 billion smaller, and some Government spending intended for this fiscal year may slop over into the year beginning July 1. That shift could well raise the need for spending cuts later this year lest the economy become overheated.

Prosperity Route. Shultz has remained on top despite his policy slips partly because he is a decent, fair man and a smooth administrator. A "monetarist" economist, he believes that the surest route to noninflationary prosperity is through a steady increase in the money supply. In the past, he criticized Federal Reserve Board Chairman Arthur Burns for being too stingy in pumping out the money and too quick and eager to support wage and price controls. Shultz remains ideologically opposed to controls. But rather than undermine them, he will most likely try to increase their effectiveness in hopes that they can finish their job and be chucked. Right now the controls seem to be working. The consumer price index rose only .2% last month, the same as in March.

At Treasury, Shultz will try to sell the President's economic policies to Congress, and he may have some trouble. The two most important committee chairmen in Treasury matters, the House Ways and Means Committee's Wilbur Mills and the Senate Finance Committee's Russell Long, were not overly pleased about his appointment. "We would prefer Secretary Connally to anybody, including Mr. Shultz," Long said.

Yankee Traders. On the international front, Shultz may be every bit as effective as Connally, though in an entirely different way. In pursuit of more favorable exchange rates and trade terms for the U.S., Connally antagonized central bankers with his do-it-my-way bargaining tactics. Shultz, the polite, conciliatory bargainer, will probably be as determined as Connally in insisting that Europe and Japan trim back some of their dollar surpluses by making trade concessions to the U.S., but he should ruffle fewer foreign finance ministers. As he said once: "We are merely trying to refurbish and revitalize our tradition of being fair, hard-bargaining Yankee traders."

If Government spending has to be cut later this year, the man who will succeed Shultz as budget chief, Casper Weinberger, is well suited to the task. A former California Republican chairman, Weinberger served briefly and vigorously as head of the Federal Trade Commission before becoming Shultz's deputy at the Office of Management and Budget. Because of his passion for slashing departmental spending requests, particularly for social programs, he has earned the label "Cap the Knife."

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