Summing Up the Summit
It was, in a way, an extended town meeting of the nation on its economic ills. In the end, the Ford Administration's unprecedented experiment in inflation summitry sounded an expectably sobering note. After almost a month of separate meetings with economists, businessmen, labor leaders, farmers, financiers and other groups, the President and his top economic aides last week sat down with some 800 leaders of those interests, as well as key Senators and Congressmen, for a mammoth two-day debate on what to do about the U.S. economy. Though politically the Democrats warned Ford that he could not count on automatic bipartisan support for Administration policies, there emerged an overwhelming economic consensus that the battle against roaring inflation will be long and painful, and during its course the nation will suffer a protracted period of stagnant production and rising unemployment that by any name will amount to a recession. Said Democratic Economist Otto Eckstein: "The economy will suffer a recession, which seems to be the price we have to pay to bring the inflation under control."
That, of course, was not exactly news even before the town meetings began. So what did the summit and the twelve minisummits that preceded it accomplish? Substantively, not much. The Administration's economic policy probably will continue to be the "oldtime religion" of budget cutting and tight money. Ford had proclaimed himself to be in search of new ideas to combat inflation; in fairness to him, hardly any were offered. Instead, the delegates to the summit and the preliminary meetings mostly repeated well-worn themes and biases. Ford had to listen to some sharply worded attacks on his advisers and numerous warnings that his policies risked deepening a potential recession without bringing inflation under control.
Even so, the effort was worthwhile for at least three reasons, because the summits:
1) Defined more sharply the agreements and disagreements between the Administration and its critics, and afforded a rare opportunity for both sides to sound off publicly to the President himself, or to the Cabinet officers who chaired several of the mini-summits. Few disputed that budget and monetary policies will have to remain relatively tight. There are differences of degree--whether federal spending this fiscal year should be kept at its budgeted level of $305 billion or cut below $300 billion, as Ford proposes; whether the Federal Reserve should aim to expand the nation's money supply 5% or 7% a year--but the range of dispute is fairly narrow.
Even the economists, however, found things to disagree about--and the political and social figures who outnumbered them at the summit found many more. In particular, Ford knows more than ever that he did not dispose of the issue of economic controls by announcing at his first press conference that "wage and price controls are out, period." His critics, particularly Senate Majority Leader Mike Mansfield, zeroed in on some form of active Government intervention in wage-price decisions as the main thing missing in the President's approach to economics.
2) Provided the public with a valuable though grim education in economic reality. The proceedings made plain that the immediate outlook is bleak: almost all the experts agreed that prices will continue to rise at a double-digit rate, or close to it, well into next year, and that the unemployment rate will climb from the present 5.4% to 6% or perhaps considerably more.
3) Probably helped prompt modifications of Government policy that will make it something more than Nixonomics under new management. The Administration let it be known last week that it is seriously considering proposing some kind of tax relief for the poor, whose purchasing power has been savagely reduced by inflation --a proposal that drew impressive support at the summit. At all the conferences, speakers from every group protested vehemently that the Federal Reserve had been strangling the economy by holding the growth of the money supply to almost nothing during the summer. Indeed the Fed has been easing credit slightly in recent weeks, and Chairman Arthur Burns declared last week that it would keep the supply of money and credit moving "upward"--though still probably not as far as most businessmen and consumers would like.
What else the summit and its preliminaries produced can only be seen from the Administration's followup. Ford plans a major television speech on the economy this week or next in which he is expected to reaffirm his faith in the oldtime religion. He also will send a package of legislative proposals to Congress. Besides some kind of tax cut for the poor, the proposals probably will include an expanded public service employment program to take effect when the jobless rate hits 6% or so, and an increase in unemployment compensation. In addition, Ford probably will order more federal financial support for the credit-starved housing industry. All these proposals would reinforce a major them of the summit: that the Government must help the victims of the economic stringency that is necessary to fight inflation. But they will not silence the debate over national economic policy, to which the summit made a sometimes raucous, frequently confusing, but on the whole helpful contribution.
The Meeting
The Conference on Inflation, as the final summit was called, was a scene for the history books, played out in the bland modernity of the Washington Hilton's International Ballroom. For most of the two-day session, the President sat amid representatives of almost every major segment of American society listening to a ceaseless staccato of economic advice. Seats were scarce, overhead lights glared mercilessly, but the acoustics were excellent -- and that was one of the few comforts af forded the 2,000-odd participants, newsmen and onlookers who jammed into the cavernous room. Those seated on the outer edges could hear every word, but they quickly gave up squinting over the sea of heads toward the U-shaped main table and contented themselves with watching the speakers on TV monitors spaced around the room.
The atmosphere was an odd mixture of multiversity class room and political convention. The discussion abounded with technical economic terms, and like windy professors lectur ing to some impossibly huge class, many of the speakers ran past their allotted time, leaving little opportunity for ques tions or discussion. Delegates from each major economic grouping -- farm, labor, business, banking -- clustered under placards resembling the state-delegation standards at con ventions, leading one wit to observe: "You almost expect some body to get up and say 'Banking and finance casts 20 votes for fiscal stringency.'" Some of the speeches had the flavor of campaign oratory too. A sample from Senate Leader Mans field: "The talk has been of microeconomics, macroeconomics, econometrics and what not. Of these things of importance to economists, the public knows nothing. Of inflation, the public knows a great deal. Of recession, the public is learning more and more each day."
The proceedings turned some people off altogether. Ralph Nader, Betty Furness and other consumer advocates held a press conference to complain that the Government had conducted no pre-summit meeting with them. A group of professors, members of the Union of Radical Political Economists, announced plans for a series of teach-ins at their colleges on the "Economic Crisis of Monopoly Capitalism," in order to counter the publicity surrounding the summit, which they denounced as a "charade."
Perplexing the summit may have been for those unversed in economics; a charade it was not. If nothing else, the sessions demonstrated how deeply--and justifiably--Americans are frightened by the specters of inflation and recession, and how difficult it will be to exorcise the demons. Of all the thousands of participants in the summit and it's preliminary sessions, only Maverick Economist John Kenneth Galbraith claimed that he had a quick fix; he proclaimed that a program of wage-price controls, tax increases and tight money could bring inflation down from a compound annual rate of 16.8% in August to 3% to 4% within a year. Nearly everyone else said or implied that such an ambition was fantasy.
Taking Partisan Sides
Almost from the moment that summit delegates took their chairs after an opening prayer Friday morning, it became obvious that economic worries are swiftly becoming a partisan political issue. In an attempt to put some distance between the Democratically controlled Congress and the Administration's summit, House Speaker Carl Albert noted that the legislators had little opportunity to provide "input" to the proceedings. Most of the arrangements for various sessions were made by President Ford's longtime associate L. William Seidman, who was named last week as the Administration's economic coordinator.
Democratic Congressman Wright Patman, the Teaxas populist, asked Ford to fire all his economic advisers held over from the Nixon Administration. AFL-CIO President George Meany added; "Your advisers, Mr. President, seemingly want to use the same policies that for five years have been taking America downhill." Ford with deadpan irony, thanked Meany, who will be a princal labor figure on the President's new labor-managemnet committee, for his "subtle observations and comments, "but failed to chage the contentious tone. On a more upbeat note, Sylvia Porter, an economics writer, appealed to the President to answer the public's "unspoken cry' for direction and enlist consumers in the battle against inflation.
Through it all, the Administration and it's supporters clung to the position that budget balancing and tight money must be the mainstays of the nation's economic policy. Alan greenspan, chairman of the Council of Economic Advisers, explained the reasoning last week. In his view, inflation is primarily a"financialphenomenon"resultingfronhugebudget deficits and easy money in the past, which have spilled too much cash into the economy. Repairing this situation means a long-haul program whose reults will be slow in coming. Greenspan conceeded to TIME Economic Correspondent John Berry that the $5 billion cut in federal spending that the Administration plans for fiscal 1975, reducing the budget to $300 billion, is in itself "trivial." But he aruged that it would have great psychological importance, by changing the direction of policy ans acting as a "wedge" to hold down spending, thus bringing it into balance with revenues in future budgets. Another arguement is that budget deficits increase federal borrowing-- and, as Ford put it, every dollar that the Government borrows is a dollar unavailable to house buyers and businessmen.
Critics of this approach agree with Greenspan that the difference in economic impact between a $305 billion bud get and a $300 billion budget is not great -- and that is precisely their point. In their view, a $5 billion budget cut, or the $10 billion slash advocated by Arthur Burns, would require the country to give up important social benefits -- since social programs would be the ones most likely to be reduced --for little anti-inflationary gain. IBM Vice President David Grove, a member of TIME'S Board of Economists, presented at one of the minisummits a computer study indicating that a $10 billion spending reduction, coupled with moderate monetary growth, would lower the rate of price increases by only a puny .1% by 1976, but would cause unemployment to rise to 6.6%, rather than to the 6.1% it probably would under the present budget. "Is it really worth it?" Grove asks.
Controls Debate
Most of the critics insist that some form of Government power must be exerted to stop big wage-price increases. Mansfield advocated a drastic program that would clamp direct controls not only on wages, prices and rents but on corporate profits, as well as imposing regulations on down payments and loan terms for consumer credit purchases and rationing of oil and natural gas. (He also called for a resurrection of the Depression-era Reconstruction Finance Corp. "to deal with the credit needs of ailing businesses such as Perm Central, Lockheed and Grumman, Pan American, TWA and many more headed in the same direction.") Few economists would go that far: most of the liberals among them would settle for a wage-price board with the power to subpoena records of companies and unions posting big increases, suspend the boosts while investigating, and order the most flagrant ones rolled back.
Controls are philosophically repugnant to many members of the Administration, especially Greenspan. Others -- notably Treasury Secretary William Simon, who has just been named the Administration's chief economic spokesman -- think that controls only breed shortages. Ford has set up a group of top labor-management advisers (including, besides Meany and others, General Motors Chairman Richard Gerstenberg) and a Council on Wage and Price Stability, but neither has authority to order anybody to do anything. Still, the suspicion that the Administration will eventually feel itself forced to institute controls will not die; last week Economists Pierre Rinfret and Michael Evans advised their corporate clients to put through price increases now that they may feel are needed. Ford took note of this at the summit, denouncing "unfounded comments by some that it would be selfishly desirable" to raise prices in anticipation of controls.
Critics are also pressing the Administration to do more to help the victims of anti-inflation policy. For example, they advocate that the Government spend at least $4 billion to help states and cities hire the unemployed for public service jobs--as does, of a11 people, Arthur Burns. The Administration's yet-to-be-unveiled public service employment program almost surely will not be that large. It remains to be seen, too, whether any tax cut for the poor that the Administration proposes will be as big as the $6 billion to $8 billion that economists like Walter Heller have been advocating.
Otherwise, the summit and proceeding meetings turned up almost no ideas that have not already been thoroughly discussed. One was offered by Arthur Okun, who was chairman of the Council of Economic Advisers under Lyndon Johnson.
He would have the Government offer a tax credit to workers earning less than $12,000 a year, in return for labor's acceptance of guidelines that would hold wage demands to about 7%, v. the 10% or more that many unions are now demanding. The credit would be equal to the amount by which rises in the consumer price index exceed 5%; for example, if the index goes up 7%, workers would get a 2% credit. Thus a worker earning $10,000 would have $200 knocked off his income tax bill. The purpose of the plan, which Okun admits is "gimmicky," would be to help paychecks maintain their purchasing power without inflationary wage boosts.
For the most part, the twelve minisummits that the Goveminent held with representatives of special-interest groups generated a babble of parochial demands that offered few, if any, guideposts for improving the economy. Some were hope lessly contradictory; others, if acted upon, could send the fires of inflation flaring higher.
For example, labor leaders meeting in Washington railed against the way inflation is chewing into paychecks, and told the Government to keep out of wage settlements and devote it self to getting the economy moving again. Energy executives meeting in Dallas called for a lifting of all price controls on oil and natural gas, while transportation chiefs who gathered at a minisummit in Los Angeles were cheered by United Air Lines President Edward Carlson's demand that controls be clapped on all U.S. crude oil. (At present, "old" oil-- the amount of oil a company produces equal to its 1972 output --is price-controlled at $5.25 per bbl.; "new" oil is subject to no control.)
In Chicago, farm leaders argued against any move to reduce food prices in the U.S. by means of stiffening export regulations so that more farm goods would be kept at home. Business leaders at two minisummits in Pittsburgh and Detroit insisted on their right to raise prices and asked for greater depreciation allowances to increase production. Ford Motor Co. Chairman Henry Ford II proposed at least a five-year moratorium on most Government orders to install new safe ty and antipollution equipment in cars.
State and local government officials met in Washington to warn against budget cuts in public service programs, suggesting instead that the White House take the ax to spending for defense and space programs. "If you've seen one moon, you've seen them all," observed Minnesota Governor Wendell Anderson. And so it went, each group contending in ef fect that the burden of fighting inflation should be placed on somebody else. The self-interested pleading took up much time at the summit itself. Charles Luce, chairman of Consolidated Edison of New York, one of the nation's largest power companies, asked the Government to take some action to relieve the "desperate" credit crunch in the utilities industry. A coal company executive, Ian MacGregor of Amax, Inc. urged that the U.S. ease the energy crunch by doubling its use of -- what else? -- coal.
Attacking Sacred Cows
Almost alone in the cacophony, private economists at two minisummits of their own blew a very certain trumpet summoning the Government to attack the myriad federal laws and regulations that already benefit special interests -- including portions of the Government itself -- to the detriment of anti-inflationary policy. The economists denounced such contrivances as methods of restricting competition, propping wages at high levels and sustaining lofty prices for oil, ship ping, meat, even uranium for nuclear power plants. If the more invidious pieces of tailored legislation were repealed or amended, suggested Harvard Economist Hendrik S. Houthakker, the nation's entire price level eventually would be 5% to 10% lower than if no changes were made.
A list of 32 rigidities prepared by Thomas Moore of the Hoover Institution was presented last week to a final pre-summit meeting of economists. While there were quibbles, as well as a few major exceptions taken to Moore's list, the economists were overwhelmingly sympathetic to the general thrust.
Most, for example, favored repeal of the Jones Act, which specifies that only ships flying the U.S. flag can haul cargo be tween U.S. ports. That is a high-priced concession to maritime unions and American shipbuilders that hikes shipping costs. Most of the economists also favored abolition of numerous Agriculture Department "marketing orders." These, in the past, have sustained high prices on navel oranges and Florida tomatoes, as well as other foodstuffs, by limiting sales or blocking imports.
The economists would also: abolish laws that give the U.S. Postal Service a monopoly over delivery of first-class mail, freezing out potentially more efficient private competitors; gradually free airlines to experiment with lower fares for special classes of passengers; deregulate natural gas prices; move to eliminate antiquated Interstate Commerce Commission regulations that have fostered inflexible cartel-style rates and inflated truck and rail shipping charges by an esti mated 20%.
Most previous attempts to rid statute books of these sacred cows have got nowhere. The special interests, confesses a White House economic aide, "come at you with hammers and knives" -- as well as fat campaign contributions -- and it is hard to arouse the public's interest. Most of the economists favored a package approach, in effect putting all the bad eggs into one basket that Congress would be asked to throw out. Unfortunately, they did not altogether win their point. The Ford Administration is likely to recommend repeal of some of the special-interest legislation, but it is unlikely to say anything about the Jones Act or the Davis-Bacon Act, which has the effect of inflating construction wages.
A Calculated Risk
Trying to free the economy of even some of this built-in waste will surely touch off a clamorous debate and, given the partisanship turn taken by the summit, add to the Administration's already great difficulties in getting its program through Congress. Wrangling in Congress, in turn, could deep en public uncertainty and apprehension about the economy. Indeed, the summit and preliminary meetings might have had that effect. They represented, at least in part, a calcu lated risk by Ford that the public could stand being told over and over again how serious the nation's economic problems are, and how difficult to solve.
The risk is real. Sliding consumer confidence about the future is eroding already weak retail sales. Consumer Pollster Albert Sindlinger of Swarthmore, Pa., reports that during the three weeks of minisummits the public followed the news, was well aware of the Administration's position and was not heartened. Some Wall Streeters suspect that the stock mar ket's nosedive last week (see box page 40) was accelerated by some of the candid assessments of the depth of economic trouble that came out of the summit.
Yet the faith of a democratic society must be that the public has the maturity to face the truth, and to react intelligently after hearing a thorough discussion of all possible policies. That faith has kept the town-meeting idea alive through the nation's transition from a rural agricultural to an urban industrial society. For conducting a national town meeting on a subject normally regarded as too abstruse for public consumption, Ford deserves only praise.
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