Scouting Strategies at Home and Abroad

As President Gerald Ford packed his bags last week for a ten-day skiing holiday in Colorado, yet another blizzard of bad news about sales, prices, jobs and profits swept down on the U.S. It brought fresh evidence, if any were needed, that the President has some urgent and complex decisions to make next month about how--and how far --to shift his strategies for dealing with deepening recession, continuing inflation and energy problems.

Still resisting the increasing pressure for less emphasis on inflation fighting and much more on combatting the recession, the White House got some support when the Labor Department reported another big jump (almost 1%) in consumer prices last month. The increase brought the year-to-year rise in the cost of living to 12.1%, the steepest climb since 1947. Over the year, inflation has cut real incomes of wage earners by 5.6%. The price push, said White House Press Secretary Ron Nessen, was ample justification for the President's determination to dig in against anything like a "180-degree turn" in policy.

Yet the almost daily drumbeat of dismal news about falling production and growing unemployment made a turn toward more stimulus of the economy unavoidable. As car sales continued to skid, Detroit announced plans for more production cutbacks; that will add substantially to the 205,000 auto workers --about 25% of the auto-industry labor force--already idled and further bloat the nation's jobless rate, which is expected to swell to as much as 8% next year from its present 6.5%. According to a forecast issued by the Paris-based Organization of Economic Cooperation and Development last week, the U.S. will be the "most depressed" of the world's major industrialized nations next year (see following story).

After too long a period of drift and indecision, there are signs that the Ford Administration is beginning to move on with more authority. Last week the Administration was scouting new strategies in several interrelated areas: international oil diplomacy, domestic energy policy and a new--or at least revised --strategy for fighting stagflation.

COOPERATING ON OIL. During a meeting in Martinique, Ford and French President Valery Giscard d'Estaing reached an agreement that should end a debilitating, year-long sparring match between Washington and Paris over a vital matter: how to deal with the OPEC (Organization of Petroleum Exporting Countries) cartel responsible for the fourfold rise in oil prices that has so shaken the industrial economies. The U.S. has maintained that the consuming countries must form a united front to deal effectively with the OPEC cartel. Unhappy with this implied strategy of confrontation, the French have urged tripartite negotiations on mutual cooperation among major consuming countries, OPEC and developing nations.

At Martinique, the U.S. and the French reached a compromise that neatly bridges both positions in a plan for a three-stage series of negotiations. The first stage is a preliminary exchange of views next March between consumers and producers, which France favors. Then comes a series of "intensive consultations" to work out a common position among the industrialized nations, which the U.S. desires. The final phase is envisioned as a major producer-consumer conference later in the year.

That outline, of course, leaves considerable and substantial work to be done, but the spirit of Martinique was promising. In the languorous tropical setting, amid steel drums and rum punches, the two leaders swam together --Giscard in gleaming pink trunks, Ford in red--and, from all reports, got along famously. Following his host's lead, Ford discarded his business suit for open-necked sportswear, and the conversation was equally relaxed. Franco-American relations strained for a dozen years, did not turn 180 degrees in Martinique, but there was a noticeable amiable air. Said Secretary of State Henry Kissinger: 'Having attended many similar meetings between French and American leaders, I must say I found this atmosphere the most positive.'

ENERGY POLICY. Following two days of discussions at Camp David, the policy-review team headed by Federal Energy Administration Chief Frank Zarb wound up its study of how the U.S. should go about reducing its dependence on imported oil. One sobering conclusion: it will be extremely difficult for the Administration to achieve its goal of cutting imports by 1 million bbl. a day by 1976. One way to do it would be to impose a 50-c--per-gal. gas tax, but a side effect of such a hefty tax would be a drop in demand sharp enough to send the economy into a tailspin.

The thick summary of policy options that Ford took with him to Colorado embraced several long-range proposals for boosting supplies; they include accelerated offshore oil development, opening up naval petroleum reserves in Alaska, amending clean-air laws to allow greater use of coal, and a price floor for imported oil to protect investments in developing alternative energy sources such as shale oil. Politically and economically, Ford's most difficult job is to decide how hard to come down on reducing energy demand. The four basic options, in order of increasing severity:

> Do nothing at all and let the combination of recession, spreading joblessness and high prices for everything from home heating oil to electricity gradually squeeze down energy use.

> Lift all price controls on U.S.-produced oil and natural gas and let zooming prices stifle energy consumption. One must under such a program: a tariff or excise tax on crude oil to siphon off excess corporate profits. Part of the revenues would be passed back to those who would suffer most from soaring prices--low-and middle-income workers--either in the form of tax credits, reduced payroll levies, direct subsidies or negotiable energy stamps.

> Gradually increase federal gasoline taxes, boosting them by 10-c- in 1975, 20-c- in 1976 and 30-c- in 1977. Raising the tax in stages would cushion the disruptive impact on the economy and soften the political backlash. Again, such a program would include rebates for those consumers hardest hit.

> Guarantee a reduction in oil imports by clamping on prohibitively high tariffs or outright quotas. That would require a tightening up on the present petroleum-allocation system and could mean a return of long lines at the gas pumps. Another option would be to set up a gasoline-rationing system complete with coupons and bureaucracy.

Even tougher action is being urged by former Defense Secretary Melvin Laird, a close personal friend of the President's. Among other things, Laird wants oil imports chopped by 50% and a strict gasoline-rationing program much like the one in force during World War II (see box page 14). Though Energy Czar Rogers Morton, Federal Reserve Chairman Arthur Burns and some leading Democrats, including Senator Henry Jackson, have been ardent supporters of stringent conservation measures, none of them have gone so far as to call for all-out rationing.

THE RECESSION. The pressure on Ford to move forcefully to halt the worsening recession is growing. In fact, Ford's policymakers are in the process of charting a course toward more fiscal ease. Neither Treasury Secretary William Simon, Chief Economic Adviser Alan Greenspan nor Federal Reserve Chairman Burns wants to give up on vigorously fighting runaway prices. In their view, soaring costs are a key factor in the business downturn because they force consumers to put off purchases of everything from autos to airline tickets. Even so, Simon and Greenspan have said that a tax cut might be appropriate if the economy continues to weaken.

Ford may well be advised to ask Congress for tax cuts totaling between $10 billion and $15 billion. The measure would include increasing the investment tax credit for business and raising the personal exemption for individual taxpayers. In addition, the low-income allowance would be raised to enlarge the number of low-income workers freed from any tax liability at all.

Whether that much of a cut is sufficient is arguable. Otto Eckstein, a member of TIME'S Board of Economists, would favor a tax cut of up to $25 billion. Brookings Institution Economist Charles Schultze agrees. He estimates that in today's $1.4 trillion economy, a tax cut of $25 billion would have an impact comparable to an $11 billion reduction in 1964. Says Schultze: "Small measures will not do."

On the monetary side, the Federal Reserve has been easing its tight money policies lately, and borrowing costs are on the decline. Still, it is unlikely that the Fed will move to a genuinely expansive policy by increasing the money supply more than 6% or so. Yet many experts are convinced that the rate should be higher to get interest rates down quickly. From such options, Ford must soon make decisions that will set the course of the economy in the first full year of his Administration.

This file is automatically generated by a robot program, so viewer discretion is required.