The Gut Issue: Prices Running Amuck

Those words, in the President's TV speech last week, were part of an appeal to the nation to turn its attention from Watergate to other pressing problems. If anyone needed reminding that an all-pervasive mess in the economy is the most urgent trouble, it probably was the President himself. To millions of Americans, that mess is the issue, burrowing beneath politics to the gut-level question of what a family can afford to buy for its next meal.

No Confidence. In a Louis Harris poll released shortly before the President spoke last week, 73% of those questioned rated his handling of the economy as inept. They had reason. By all available measures, Nixon has thoroughly botched the job he said he was elected to do: rampant inflation is driving food prices up at the fastest pace in a generation. The cost and scarcity of red meat dominate household conversation, but they are far from the only economic woe. Phase IV opened last week with a burst of price-increase announcements on many other items --steel, tires, cars. Interest rates are soaring for both giant corporations and individuals, and many would-be house buyers simply cannot get mortgage loans. Among economists, there is a growing fear that the mess will end in a 1974 recession. In fact, Democratic Representative Wright Patman, chairman of the House Banking and Currency Committee, charged last week that "we are in a recession right now" and "the big banks and the Federal Reserve are making a depression."

Populist Patman was overstating.

The Commerce Department reported last week that, pre-tax earnings for corporations were going up at the record annual rate of $130 billion during the second quarter of 1973, 37% faster than a year earlier. U.S. production is still climbing and unemployment declining, a condition that can hardly be called recession--yet. All the same, soaring prices and scarcities, above all of food, are producing a series of hardship stories frighteningly reminiscent, in a supposedly affluent society, of tales of the Great Depression:

> In a Milwaukee supermarket, an aged shopper who found that her grocery bill totaled 180 more than the cash in her purse asked the check-out clerk to remove a can of cat food from her order. The clerk offered to pay for it because "I wouldn't want your cat to go hungry." The woman replied, with a weak smile: "I'm the cat." Her plight is shared by many of the elderly who live on fixed incomes. Says Robert Forest, editor of the Senior Citizens Sentinel: "Food prices are murdering the aged. The only two places they can cut costs are food and medicine -- and the less food they have the more medicine they need."

>-Mary Purdis, a welfare mother of four who resides in the sprawling Cabrini-Green housing project in Chicago, complains: "We haven't eaten meat for two months. Buying meat would take my entire budget."

Others of the poor are in equally bad shape, and some institutions that once succored them are unable to keep doing so. The Mother Waddles Perpetual Mission in Detroit, where a poor family once could stop in for a nourishing free meal, has exhausted its supplies of canned food, flour and even powdered milk.

> Across the country, parents are about to discover that the school lunches offered to their children this fall will be skimpier, costlier or both.

In a typical response to inflation, the Des Moines school system will more often serve peanut butter and beans as substitutes for expensive meat, and cut the number of items in a meal for young children from four to three; some prices may be raised too. People who get their meals in some other institutions are still less fortunate. The Michigan department of management and budget has announced that prisoners in state penitentiaries will be served only meatless meals at least until mid-September, because no vendors will now sell meat to the prisons at a price that the state can afford.

> Inflation and shortages are turning some people to crime. Supermarkets report rising thefts from meat counters: often a shopper will stuff a couple of steaks under his belt and try to walk out the door. The pilferers, says Cook County, Ill., Assistant State's Attorney Mariann Twist, are "for the most part people who are otherwise respectable.

They are probably just hungry." Professional thieves increasingly are hijacking meat trucks; a gang last week held up a van near Atlanta, blindfolded the driver and unloaded $4,000 worth of meat. Violence too has become common. California park rangers recently have stepped up patrols in an attempt to cut down illegal hunting of deer, bear and elk. Two weeks ago, Warden Kenneth Patrick, 40, was found dead, shot twice through the chest. Near the body were darts for a crossbow, a weapon favored by poachers because of its silence and rifle-like impact.

For most Americans such experiences are still only garish stories in newspapers. To the majority, the price and scarcity of meat is an inconvenience rather than a hardship, and some can even laugh about it--though the jokes are strictly from hunger. Examples: In Ellensburg, Wash., Cafe Owner Sam Webster posted a sign telling his patrons: NEXT WEEK, ALL MEAT DISHES BY SEALED BID ONLY; and in Detroit Tom Violante, manager of a specialty meat market, ran an ad advising customers:

DON'T EAT MEAT, MAKE LOVE.

Still, inflation is measurably reducing the standard of living of the ordinary citizen, Administration apologists to the contrary. Former Nixon Aide William Safire, in a New York Times column appropriately titled "Pollyanna Lives," wrote last week that the average family's real income--earnings ad justed for price boosts--has more than doubled since 1950. That is correct, but not very relevant to the immediate situation. In June, spendable earnings of the typical worker with three dependents, measured in dollars of 1967 purchasing power, totaled $96.06, down from $96.62 a year earlier, after two years of substantial increases. Since the early postwar period, the proportion of the average American's income spent for food has dropped from almost a third to less than a fourth, because earnings have risen faster than food prices, making more income available to buy other goods and services. Although no figures are yet in for 1973, some economists suspect that this generation-old trend is being reversed. The Agriculture Department officially estimates that food prices this year will jump a towering 20%--eight times the increase in 1972. Thus, the typical worker may have to spend a rising share of his income just to keep food on the table.

No Insight. That prospect has wrought a startling change in consumer psychology within a few months. The righteous anger against rising prices that sparked a nationwide meat boycott last spring has given way to a kind of numbed resignation typified by Chicago Housewife Jean Salmon. "I don't understand what's happening," she says.

"It seems like when one raises his prices, the other raises his in turn. It's a vicious cycle." When this mood is broken, it turns not to indignation but to panic that prompts waves of scare buying of a type not seen since the Korean War. Last week false rumors of an impending rice shortage caused many Californians to descend on stores and buy all of the grain that they could find; some loaded 50-lb. sacks into their cars.

The pattern is not universal. In Los Angeles, Mrs. Arline Mathews, one of the organizers of last spring's meat boycott, urged consumers to protest meat prices by refusing to eat it on Tuesdays, Thursdays and Fridays. Some signs of unorganized consumer resistance to rising food prices--or perhaps of simple inability to pay them--also began to appear. In Chicago commodities trading, wholesale prices of chicken dropped to 540 per Ib. from a former 750 because sales had fallen off once the price of chicken on meat counters passed $1 per Ib. Futures prices of grains fell on commodity exchanges too, though not until after they had topped the almost unbelievable levels of $5 per bu. for wheat and $4 for corn. At those points, both prices had about tripled in a year, with most of the rise coming in just the last few weeks; many speculators apparently figured that they had been bid up to levels unsustainable even during the current inflation, so that it was time to sell out and take profits.

But even if wholesale prices continue to level off or drop a bit further, prices in the supermarkets will keep rising rapidly for weeks and perhaps months to come. Not all of this summer's incredible leap in the prices of wheat and livestock feed has yet shown up in retail prices of bread and meat, but it will. Under Phase IV rules, food retailers now can pass along to consumers higher costs for the raw products; after Sept. 12 they will also be able to pass on other cost increases, such as transportation and wages.

On the same day, price ceilings come off beef. That should end the shortages that have been caused by ranchers holding cattle on feed lots to await higher prices. It may also put a stop to the beef black-marketeering that some retailers say has spread rapidly in recent weeks. But the increased supplies are unlikely to bring down prices. Cattlemen and meat-market managers agree that a combination of higher feed costs and pent-up consumer demand will send retail beef prices soaring at least temporarily.

No Relief. Nor can consumers find any relief from inflation in the nonfood sector of the economy. Last week prices of all sorts of goods and services that had been held down by the 60-day freeze on nonfood prices began going up, as the freeze expired and Phase IV officially began. Big steelmakers asked the Cost of Living Council to approve a 5% hike in prices on sheet, strip and pipe, and General Motors and Ford requested permission to boost auto prices by more than $100 per car. Goodyear Tire & Rubber Co. sought approval for a 5.9% hike on tire prices, while its competitor, B.F. Goodrich, asked for permission to go up 4.4%. Because these companies have sales of more than $ 100 million a year, they must give the COLC 30 days' advance notice of any increases. Only gasoline prices remained stable. The freeze on gas and other petroleum products was extended to Sept. 1, when new guidelines--which may result in price rollbacks at some service stations--go into effect.

Smaller companies and utilities, however, can now raise prices right away, subject to later rollback by Washington, and last week many did.

AT&T, for example, put into effect increases in the cost of intrastate phone calls that had already been approved by regulatory agencies in several states but had been held up by the freeze. Western Union doubled the charge for messenger delivery service to $3, and the Miami Seaquarium announced that the price of admission will go up from $2.75 to $3. Arthur Hertz, senior vice president of Wometco Enterprises, which owns the Seaquarium, blamed the high cost of eating--for fish. Said Hertz:

"Our fish eat an awful lot of other fish, and the price of fish is going up."

The cost of loan money, which has been rising at a pace that almost rivals food, climbed further. The Federal Reserve raised its discount rate on loans to member banks by a half-point to 7 1/2%, breaking a 52-year-old record. Mortgage loans now cost house buyers 8 3/4% in Georgia, as much as 9 1/2% in the Los Angeles area. Rates like these, a Detroit mortgage officer admits, are "pricing some people out of the market. We're asking people to wait until 1974."

No Surplus. Shortages appeared or worsened too on a wildly incongruous assortment of nonfood products: newsprint, baling wire, tallow, sawdust, blue jeans, even toilets. Some had specific, temporary causes, such as strikes. But others seemed only to reinforce indications that, in almost all sectors of the economy, the U.S. has simply got itself into a horrendous inflationary jam.

How did it all happen? The answer lies at least partly in a remarkable series of Administration blunders in economic management that began during the 1972 campaign. In the memorable words of Agriculture Secretary Earl Butz, the Administration then was "spending money like a drunken sailor" in an effort to win the farm vote. It prodded farmers to leave more of their acres unplanted and ended up paying the highest agricultural subsidies in history. The policies worked exactly as intended: farm income last year zoomed 19%, to a record $19.2 billion, but farm production dropped 2%.

The timing could not have been worse. In late 1972, just as supplies of food and fiber were getting a bit tight, the U.S. economy suddenly accelerated into a flat-out boom that vastly increased demand. At just about the same time, it became evident that inflationary booms in other industrial countries and bad weather in agricultural nations were producing a worldwide shortage of foods and other raw materials. That shortage has worsened the U.S. inflation; for example, much of the frantic bidding that drove wheat prices above $5 per bu. on American commodity exchanges has come from export buyers. The Administration cannot be blamed for those world conditions, but it did not help matters by authorizing the sale of $1.2 billion worth of U.S. grain to the Russians last year. Some of that food, it turned out, was sorely needed at home to hold prices down.

The Administration compounded its errors by suddenly lifting the fairly effective mandatory price controls of Phase II in January, and substituting the loose voluntaristic system of Phase III.

Then, when inflation got out of hand, Nixon imposed another price freeze in June, again in bumbling fashion.

Wholesale and retail prices of food were frozen, but prices of live animals and the grains they eat were allowed to rise unhindered. The aim was laudable--to hold down prices for consumers while encouraging farm production--but the results were disastrous. Uncontrolled prices for livestock feed climbed so high that raising animals to maturity cost more than buyers were offering in wholesale and retail markets. Farmers gassed baby chicks and slaughtered pregnant sows in the early days of the freeze. Cattlemen are still holding steers off the market in the belief that they can get higher prices once the price of beef in retail stores can be raised. That sellers' boycott--which now seems to be easing--has produced the odd spectacle of crowded feed lots and empty stockyard pens.

No Ideas. Given this mess, Nixon, his advisers and his Democratic opponents all seem unable or unwilling to suggest fresh ideas for bringing any quick improvement. In fact, Robert Nathan, a member of TIME'S Board of Economists and a vehement critic of the Administration, concedes that it is probably "90% too late now" for dramatic, fast-acting moves.

Many economists are urging export controls on wheat and other grains to head off domestic shortages and bring prices down. But Administration officials believe, with some reason, that controls might actually make things worse. They suspect, for example, that some of the 1.2 billion bu. of U.S. wheat reportedly bought by foreigners this crop year is not yet firmly committed to export. Instead, it is being held by foreign speculators who will sell it wherever they can get the highest price--which could be in the U.S.

If export controls were clamped on, international prices would rise above those prevailing in the U.S., and the wheat really would move abroad. A few officials are more sympathetic to the idea of calling a world commodity conference to work out international methods of controlling the speculative buying that has helped to rocket prices upward. That seems a good idea, but the Administration is opposed to outright allocation of scarce foods and raw materials between countries, and international panic buying may be unstoppable without that.

Economist Walter Heller sees some hope that strict enforcement of Phase IV rules will at least hold down price increases. Under those rules, sellers may raise prices only enough to pass on increased costs dollar for dollar; they cannot tack on an additional profit markup. Cost of Living Council Director John T. Dunlop complained to friends last week, however, that he is having difficulty recruiting people to check up on price boosters. Prospective employees apparently believe that the program will be dropped in a few months, leaving them without jobs. Treasury Secretary George Shultz did nothing to discourage such speculation by declaring last week that he will oppose any extension of the Economic Stabilization Act, which gives the Administration authority to control wages and prices, beyond its expiration date next April 30.

In the long run, the greatest hope stems from a belated but commendable reversal of Nixonian farm policy. Early this year, the Administration began removing restrictions on production of wheat and other feed grains, and now it has taken them all off. Agriculture Secretary Butz has announced that, at least through the end of next year, farmers are free to plant as much of these crops as they please. That will not prevent further painful inflation during the rest of 1973, but it should help slow food price rises next year.

But farm production could all too easily get into a race with wages So far, big unions have been remarkably restrained in their pay demands, hewing closely to the Administration's 6.2% guideline for salary and benefit boosts.

That could change in a hurry, though.

if the cost of living continues to take great leaps forward and rank-and-file members pressure their leaders to up the ante at the bargaining table The only two major unions still facing negotiations this year are the United Auto Workers--who will decide this week which of the Big Four car makers to single out as "target company"--and the airline mechanics, who seven years ago burst through wage-price guidelines set by the Johnson regime. Next year things will be even hotter as the Steelworkers and the nation's nine largest steelmakers attempt to reach agreement by Feb. 1. If larger food supplies have not begun to hold down prices by then, the union might well push for a hefty increase--the effect of which would spread through all the other industries that use steel to make their products National Tragedy. The most frightening prospect is that the inflationary spiral has become too strong to be broken except by a recession. Such a slump could occur if the Federal Reserve squeezes credit too hard in trying to slow the economy, a danger of which Chairman Arthur Burns is quite conscious. Or it could happen if prices finally fly out of sight and consumers simply stop buying. Alan Greenspan, a member of TIME'S Board of Economists who has close ties to Nixon, now predicts a "mild recession" in 1974 and considers it preferable to the alternatives: still faster inflation and/or a real bust later on. Few other economists will go that far, but their confidence that recession will be avoided is dwindling. Heller, for example, now rates the odds only slightly better than fifty-fifty that the U.S will avoid a slide into a recession.

A recession obviously would be a national tragedy. It would throw out of work people who only recently have begun to find jobs even in a boom economy--and at a time of sky-high prices.

But continued inflation at this year's pace would be almost as bad, as the troubles that the old and the poor now have in buying nourishing food starkly illustrate. In any event, as consumers wait for price increases to slow, struggle to stretch their food budgets and fear for their jobs, the economic story of the next several months is certain to be a tale of cliffhanging suspense.

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