Impact of Dozen-Digit Spending

Rather like building a new Saudi Arabia in the U.S.

Even if Congress rejects some parts of Jimmy Carter's ambitious new design, the rising price of petroleum seems destined to awaken the nation from its energy stupor. As the cost of crude climbs, more and more technologies--some of them new and exotic, others as familiar as moonshine stills and windjammer sailing ships--are beginning to come on stream to conserve fuel and produce energy for the 1980s from unconventional sources. Clever inventors and canny investors see prospects of becoming instant energy millionaires. Long stagnant industries such as coal and steel stand to recover and prosper. Resource-rich regions can expect to surge as new plants and mines start up and create jobs.

Most of these developments eventually would have occurred even if Carter had not introduced his new energy package. But his complex and costly program, provided it is ever enacted by Congress, will accelerate the trends by stimulating investment and spurring technological breakthroughs. Says Economist Arthur Okun: "If there is an Edwin [Polaroid] Land or a Hewlett or a Packard in the country with a bright idea for energy production, a big carrot is being held out for him."

The regions that stand to benefit most are coal-heavy Appalachia and the Rocky Mountain states, site of most of the nation's oil shale and some of its most promising new sources of coal and oil. The U.S. Gulf Coast may also be awash with dollars, as drilling companies search for hard-to-get methane gas in deep rock strata. In grain-growing Iowa, Kansas and other farm-belt states, some 1,000 service stations are selling gasohol, made from gasoline with a 10% lacing of grain alcohol, and Carter's program would enable production to jump. Says Robert Chambers of Iowa's A.C.R. Process Corp., an engineering firm for distilleries: "I've been dealing with a lot of people who have not yet given us the go-ahead to order equipment, but the President's program will make a great deal of difference." From California to New England, investment bankers are pulling together various backers for alcohol ventures.

Carter's program, which resembles the late Vice President Nelson Rockefeller's 1975 plan for a $100 billion Energy Independence Authority, would profit many companies, small and large alike. Any rush to build synfuel plants would bring new orders for makers of steel, drilling-equipment tools and construction machinery. Says Julian Ward, vice president at Houston's Brown & Root construction firm: "Any company with design-engineering and construction capability is going to have a part of this thing--it's so big. The spending would sop up the entire U.S. petrochemical-engineering know-how. No one should be disappointed if only half of the program comes to pass."

General Electric, Westinghouse and other manufacturers of boilers or electrical generating machinery would compete for many orders from utilities that have to switch from oil-fired operations to coal. Firms that make excavating and earth-moving equipment--Bucyrus-Erie, International Harvester, Allis-Chalmers and others--would encounter a burst of demand from mine operators for conveyors, cranes, bulldozers, loaders, power shovels and dragline equipment.

Heavy demand for coal would wipe out the present glut of the fuel and help lift production from its current level of only about 650 million tons last year to the 1.2 billion-ton 1985 goal that Carter set for the industry in his first energy address two years ago. In the semiarid reaches of the intermountain West, where treasure troves of coal lie almost on the surface just waiting to be scraped up and hauled away, whole new towns would have to be built to house the workers employed at mines and synfuel plants. Residents of the region regard such a boom as a mixed blessing at best.

Some railroad towns also would surge. For example, the population of Alliance, Neb., has jumped from 7,000 to 12,000 since 1976 because of increased traffic on the Burlington Northern. All across the country, railroads would need to upgrade their aging roadbeds, at a cost of as much as $10 billion, to handle the huge new volumes of coal and other freight. The entire construction effort, says Economist Alan Greenspan, would be rather like building a new Saudi Arabia in the middle of the U.S.

The vision of these projects is all the more appealing in light of the immediate economic gloom. The Commerce Department reported last week that the gross national output of goods and services dropped at a 3.3% annual rate during the second quarter, meaning that the recession has almost certainly begun. G. William Miller, the Treasury Secretary-designate, also warned that the energy aggravated slump would be deeper and longer than the mild slowdown of six to nine months that the Administration has so far forecast. Miller's projections: unemployment rising from last month's 5.6% to 8.3% of the labor force next year, inflation continuing to roar at a double-digit pace in excess of 10% at least through the end of 1979.

Yet Carter's program would have little direct, short-term impact on the economy. It will take time for the biggest construction contracts to be let out, for the huge rail and mining jobs to get under way. Actually building a synfuel plant could require five years or more, and environmental objections and court protests might drag out projects even longer. The size of the spending appears smaller when reckoned at an average $14 billion a year, spread out over ten years. That is a relatively small part of an economy that now produces $2.3 trillion worth of goods and services annually.

Financing all the Administration's ambitious goals hinges crucially on how much further world oil prices will rise, and how much windfall tax revenue the Government thus will collect. Carter has called for a tax of approximately 50-c- on every extra $1 that the energy companies collect as U.S. oil prices climb to world levels. The House has raised this to 60-c-, but what the Senate will do is uncertain. Thrashing out a compromise could take months, given Washington's temptation to use the oil industry as a scapegoat for the nation's energy woes.

Last week the Administration unexpectedly asked Congress to support legislation that would largely block the 18 biggest U.S. oil companies from merging with or taking over any companies that have assets of more than $100 million. The maneuver has come only a week or so before the companies announce their second-quarter profits, which are once again expected to show sharp rises because world oil prices have jumped. The antimerger measure stands to gain at least some support from Congressmen who want to be seen by the voters as "doing something" about the energy mess.

The President's proposal for $141 billion in spending between now and 1990 is based on the highly modest assumption that world oil prices, which average about $22 per bbl., will rise during the next ten years by no more than the U.S. inflation rate, which now is over 13%. If oil prices climb by that rate of inflation, plus about 2.5% annually--hardly an improbable amount--the windfall-profits tax would yield a staggering $270 billion in revenues, more than ten times the cost of the entire NASA space program to put a man on the moon.

Some economists fear that spending on that scale would be horrifyingly inflationary. Bottlenecks and shortages of such basic items as coal-hauling railroad cars and construction equipment could quickly develop, pushing up prices without increasing energy output very much.

In fact the program would not necessarily fuel inflation. Much of the price surge of the 1960s and '70s came from wave after wave of excessive spending by consumers. The Carter program would help dampen such spending by lifting energy prices even as tens of billions of dollars are channeled into productive new investments in plants and equipment for energy itself.

Reducing the nation's need for foreign oil would also strengthen the dollar, which once again was collapsing last week as currency traders sold greenbacks as a vote of no confidence in Carter's efforts to restructure his Administration. Most harmful of all, the crumbling dollar gives OPEC an excuse to raise its oil prices, making inflation worse than ever.

Some economists question the wisdom of spending $30 to $40 per bbl. for synfuel products when conventional oil can still be bought for less. But no matter how high the price, domestic oil ultimately will be cheaper to the economy than dependence on foreign oil. According to calculations by Otto Eckstein, president of Data Resources Inc., by 1990 the nation's oil import bill, which this year is expected to reach $55 billion, could easily top $230 billion. Says he: "There is just no way that we could have paid that." If the program is largely adopted and imports are cut in half by 1990, Eckstein figures, "the oil import bill will go down by more than one-half. That is because the price of OPEC oil will be less if we buy less."

By its emphasis on substantially boosting production, Carter's program is the first real step in leading the nation on the Long March to energy self-sufficiency. Support for the plan would seem far better than the endless wrangling that has stalled all previous drives toward energy independence and left the U.S. with no effective energy program at all.

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