Ford's Budget: Too Tight? Just Right?

Will President Ford's budget help the recovery? Or slow it? Or something in between? The nation's leading economists, who failed as a group to predict the nature of the recession or anticipate its depth, immediately--and predictably--differed on the answers.

There was a consensus among the economists, however, that whatever is done about the budget will have little effect on the recovery this year. There was also general agreement with Ford's estimate that real output will expand about 6.2% this year, compared to a 2% dip last year. But the economists are worried--and sharply at odds with one another--about the impact of the budget and its $43 billion deficit (down from $76 billion in fiscal 1976) in 1977 and beyond.

Joseph Pechman, a member of TIME's Board of Economists who is on leave from the Brookings Institution, accepts the need for some tightfistedness but thinks that Ford's budget goes much too far. Says he: "It's terrible. I don't think the economy can stand it. It's too drastic a change too early. I just don't think we should turn around so fast." Pechman also criticizes Ford's proposal to allow individuals to defer paying taxes on funds invested in certain stock plans. The economist argues that the idea--"an outrage"--would not increase investment and would do little for people making under $15,000.

Arthur Okun, also a member of TIME's Board and a senior fellow at Brookings, feels that the economy should be restrained somewhat, but not nearly as drastically as Ford recommends. Okun's prescription: either scrap the $394.2 billion ceiling, allow spending to rise to $407 billion or so and keep the proposed $10 billion tax cut; or drop the tax cut and let spending increase to around $417 billion.

In any event, Okun opposes Ford's proposal to raise Social Security taxes on the grounds that it is "regressive," meaning that proportionately the increase would hit low-income earners more severely than the well paid. The liberals also fault the President for wanting to eliminate the "earned income credit" that allowed low-income families with children to deduct as much as $400 from their income taxes.

Critical Point. The more conservative economists on TIME's Board feel Ford is just about on target. "I feel comfortable about the move," says Murray Weidenbaum of Washington University. Argues Beryl Sprinkel of Chicago's Harris Trust & Savings Bank: "We are devoting 40% of our national income to Government, and that's too high. High spending means high taxes, and that means less left for the private sector."

Helping the private sector is one of President Ford's primary aims. "We are at a critical point in our history," says the President, "a point where we can either allow federal spending and federal deficits to mushroom, or we can decide to restrain the growth of federal spending and restore the vitality of our private economy."

Ford believes that a tight budget is necessary this year chiefly for two reasons: its direct effects and as a kind of symbol to persuade Americans that Washington is willing to do what is necessary to wrestle spending under control. In three years' time, says Ford, his tough approach could produce the first balanced budget since fiscal 1969. Unless they take a tough stand now, Ford and his top aides fear the budget will grow with a runaway momentum in the next two years and will help spark a new burst of inflation.

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