That Championship Season

As he put the finishing touches on his annual budget and economic messages to Congress, which will be delivered next week, Richard Nixon must have felt something like a coach enjoying his championship season. Behind him lay a period of successful stimulation that produced ever more ebullient reports on the economy's boom. Last week alone the Government estimated that the gross national product bounded ahead in the last quarter of 1972-for a "real" gain of 8 1/2% at an annual rate, and Detroit automakers reported that they sold more new cars during the first ten days of January than during any similar period since 1966. Ahead lay Nixon's best opportunity yet to shape the economy-and through it, many of the nation's social priorities -along the laissez-faire lines that he has long supported. The President had already begun to move away from controls with a fairly relaxed Phase III. Now he could cut back on federal spending that he deems wasteful, and perhaps could even uproot Washington's New Deal-era farm policy.

The only discordant note was the possibility of a new round of inflation. Fearing just that, investors sent the Dow Jones industrial average down 25 points in the six trading sessions after Phase III was detailed; last week the Dow Jones closed at 1026. Many economists inched up their 1973 inflation forecasts from about 3 1/2% to perhaps 3 3/4%.

Yet the President's closest advisers warned businessmen and labor leaders not to regard the Nixonian step away from controls as the opportunity to make giant leaps in prices. For one thing, even the most recent decisions of the old Price Commission and Pay Board continue to be binding. Also, both Chairman Herbert Stein of the Council of Economic Advisers and Treasury Secretary George Shultz stressed that Phase III was made deliberately ambiguous-to keep wage and price decision makers in line by making them guess where the line is. Another White House adviser promised that surveillance of big corporations and unions will remain rigorous. The COLC, he said, will be looking for "the patsy"-some conspicuous Phase III violator to crack down on hard.

Coveting no such distinction, General Motors chiefs temporarily canceled a $107 per-car price increase that had been pending before the now-defunct Price Commission. On the other hand. Alcoa decided to risk raising its prices on some products. Aluminum price rises have been expected because of a jump in demand, and the company apparently relied on that fact to shield it against federal displeasure.

Big Test. A crucial proving ground for Phase III will be the lumber industry, which has lately been buzz-sawed into chaos by rising demand and falling supplies. Industry leaders complain that they have been prevented from keeping up with demand because, among other things, too many firms had hit their Phase II ceilings on profit margins and thus could not legally enjoy the higher profit rates that frequently come with expanded sales. Phase III regulations provide for price increases "necessary for efficient allocation of resources" but say nothing about letting companies increase their profit margins by using the same excuse. Lumbermen last week were still confused by the rules; how well their problems are resolved will tell a lot about whether the program is actually as flexible as it seems.

The first big labor test of Phase III will come this month and in February, when union contracts for some 87,000 New York and New Jersey garment workers expire. The results of labor negotiations early in the new controls period could set important precedents for the heavy bargaining calendar later in the year, when agreements covering rubber, electrical, trucking, auto and post office workers come up for renew al. AFL-CIO President George Meany, who stomped off the Phase II Pay Board in 1 972 but agreed to serve on the Phase III advisory committee, evidently believes that his unions should disregard remaining federal guidelines and bar gain for whatever they can reasonably get. Autoworkers Chief Leonard Wood cock demanded that new auto contracts contain "reopener clauses" that would allow the union to renegotiate its forth coming 1973 contract should any part of it be nullified in a subsequent change of rules.

Still another source of worry was the nation's money supply, which in December jumped at an annual rate of 15.8% -a pace that, if it continued, would certainly rekindle inflation. The effect on money growth for all of 1972 (8.2%) especially alarmed the monetarist economists, who forecast long-range trends largely on the basis of such cash and credit availability. Somewhat belatedly, the Federal Reserve has slowed the growth of money, striving for an annual pace of increase close to 6%. It also has raised the interest rate on money that it lends to banks. Fed officials realize that banks will respond by raising commercial lending rates, especially short-term ones. The prime rate is expected to go up to 6 1/4%.

The Administration is confident that it can help the inflation fight by throttling the spending power of the federal bureaucracy. Nixon has already imposed a freeze in federal housing subsidies for the poor and middle-income earners, has chopped federal aid to education and is expected to scale down grants for the manpower training and Model Cities.

One hitherto sacrosanct spending item being eyed by budget cutters is the farm subsidy program, which this fiscal year will cost taxpayers about $3.5 billion. Above and beyond the important Phase III farm measures, which were designed to hold down retail grain and meat prices by freeing more land for wheat planting and cattle grazing, the Administration's farm-policy makers may try to junk the ancient parity system. For reasons few living Congressmen can remember, parity ties the level of Government support prices to a scale based on farm prices back in 1910-14. No less a friend to farming than Agriculture Secretary Earl Butz has pledged that the "great challenge" in his second term will be "to get the Government out of Agriculture."

The President could not help being pleased with the results so far of the economic initiative that he began back in August of 1971. Yet in the best tradition of silver-cup coaches, he left some of the best matches for the end of the season and scheduled at least a few away from home in Congress, in the suddenly freer and perhaps more inflation-prone markets of the nation, and possibly even down on the farm.

* Preliminary figures for the entire year: 6.5% "real" growth and 3% inflation, raising the total G.N.P. to $1.152 billion.

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