The Economy: Trying to Turn It Around
For Gerald Ford, the presidency has been a learning process, and he is a slow and methodical study. It was not a goal and destiny he pursued and prepared for. The office was thrust upon him, and he has attempted, haltingly at times, manfully always, to cope. On Wednesday in his State of the Union message, Ford was to present in its entirety his most ambitious endeavor to date: a new, sweeping economic and energy program designed to combat the recession without igniting further inflation and to conserve fuel in the bargain. Though there might be some last-minute changes in detail, it combines a $15 billion tax cut to stimulate the economy with a series of tariffs and measures intended to boost the cost of using crude oil, thus discouraging imports and ultimately the use of petroleum.
Given the complexities and uncertainties of the U.S. condition, the program may go too far in some directions and not far enough in others. There are no proven remedies for the plight of the economy. Ford failed in his first efforts last fall, and has been forced to retreat from the positions and programs he espoused then; he could be wrong again, and, in any case, it is not yet clear that all of his measures will pull in the same direction.
Nonetheless, the new program bears the mark of concentrated study and serious intent--as well as divided opinion among advisers. It is a welcome effort to face the economic and energy crisis and try to turn it around. It may well be a sign that Jerry Ford is beginning to get the hang of leadership in a post that perpetually calls for it, seldom with such urgency as now.
Why Action Was Required In part, at least, events forced leadership upon him. The depressing eco nomic statistics continue to accumulate. According to the Department of Commerce, the nation's output of goods and services declined by an estimated 7 1/2% in the last quarter of 1974, the biggest annual drop since World War II. The battered auto industry disclosed that new car sales in December skidded 26% below a year ago; for 1974, they were down a punishing 23%. Unemployment has reached 7.1% and threatens to exceed 8% before the recession bottoms out -- the highest jobless rate since 1961. This week, for one week, the Ford Motor Co. will close 22 of its plants, idling 85,000 workers. In response to the worsening economic news, the Louis Harris Poll indicates that 86% of the public thinks the President is mishandling the economy.
No one could have sounded a bleaker note than Alan Greenspan, chairman of the Council of Economic Advisers, when he testified before the Joint Economic Committee last week. "The outlook for 1975 is neither pleasant nor reassuring to those who hope for a sudden correction of our problems," he said. He did not foresee an upturn until the third quarter, if then, unless there is a major change in policies. "Although we had expected some weakening, what we are now experiencing has come upon us much more suddenly than we generally realized."
The economic crisis galvanized the congressional Democrats, already heady with their success in last fall's election, in which they picked up 43 new seats in the House. Apparently more tightly organized than they have been in decades, they had prepared a program that was to be introduced this week, when the 94th Congress convenes. They are already acting much like a shadow government. Top Democratic leaders met last week with business and labor representatives in the office of Robert Strauss, chairman of the Democratic National Committee. Among those attending: Henry Ford II, Alcoa Director John D. Harper, Chrysler Chairman Lynn Townsend and U.A.W. President Leonard Woodcock. The group quickly reached a consensus that the economy should be immediately and massively stimulated.
Later in the week, House Speaker Carl Albert was invited to lunch at the White House with his old friend and onetime fellow Congressman. He discussed with the President the fact that the Democrats would propose their own solution to the nation's economic ills. With the Democrats threatening to seize the initiative on national policy, Ford advanced his own timetable to Jan. 15. He had originally planned his State of the Union message for Jan. 20.
The Economic Plan
By embracing a tax cut in his new program, Ford is doing something of an about-face; only last October he refused to label the economic downturn a recession and urged a 5% surcharge in additional taxes to fight inflation. Last month he denied that he would make a 180-degree turn in his policy. Last week White House Press Secretary Ron Nessen admitted, only half facetiously, that the turnabout could be 179 degrees. Still, Ford may not be going far enough--a case of too little too late.
Many economists now feel that it will take more than $15 billion in fast fiscal stimulus to bring the nation out of recession. Last week the prestigious, moderately conservative Committee for Economic Development weighed in with a ringing endorsement of a much larger tax cut. In a speech in New York City, Philip M. Klutznick, chairman of C.E.D.'s program committee, estimated that more than $25 billion is needed to stimulate recovery. The $11.5 billion tax cut of 1964, which serves as a yardstick because it produced a successful recovery, would be the equivalent of $26 billion in today's inflated economy.
Some top Administration officials have an opposite worry. Greenspan, Treasury Secretary William Simon and Arthur Burns, chairman of the Federal Reserve Board, are unhappy about the burgeoning federal deficit that will result from a tax cut: a projected $35 billion in fiscal 1975. If the Treasury is once again forced to borrow heavily to pay Government bills, a credit crunch could develop when corporate financial needs cannot be met. Should the Federal Reserve significantly add to the supply of money and credit, inflation would be gigged upward anew.
The Administration plans to make the most of its tax reductions for individuals by putting money into consumers' pockets almost immediately in the form of rebates of 10% on 1974 personal income tax payments--in effect, a retroactive tax cut. The hope is that consumers would treat this as a windfall and go on a shopping spree for cars, color-TV sets and other durable goods. It would also, as the President pointed out in an interview with TIME (see page 20), provide money for those unemployed this year who last year had jobs and paid taxes.
The Administration was also considering a lower corporate income tax rate as well as a boost in the investment tax credit from 7% to as much as 12%--an increase that is favored even by the leaders of organized labor, who are becoming concerned over the growing capital squeeze. Also under study is a modest rise in the $750 personal exemption, the minimum standard deduction, and the low-income allowance. Ford discussed the personal income tax refund last week with Al Ullman, chairman of the House Ways and Means Committee. At the end of the session, Ullman was not necessarily buying the exact form of the President's proposal, but he pledged to cooperate on some kind of quick tax relief.
Taking a more alarmist view of the recession, the Democrats are offering a much broader program than Ford's, and seem confident of passing it, even over a presidential veto. Disparaging "halfway measures, timid initiatives or public appeals to voluntarism," they have set up a ten-man task force in the House, directed by Speaker Albert, that will propose at least a $20 billion tax cut for lower-and middle-income families. They are also recommending a larger minimum tax, with no loopholes to escape paying it, on corporations and wealthy individuals and a variety of ex cess profits taxes. They urge an expanded public works program and public service jobs; they want a system of allocating credits and subsidies to such needy and productive areas as housing, small business and food production. The Democratic program will doubtless be heartily endorsed when the national union chiefs meet at a summit in Washington on Jan. 23 to hammer out their own economic program.
The Energy Plan
The Energy Plan The new White House energy program seemed to be a more exact expression of the presidential viewpoint and leadership than Ford's economic proposals. Stung by charges of being too weak in facing up to a longstanding crisis, the White House, if anything, overreacted. Administration spokesmen variously described the forthcoming program as "hard-nosed" or "hawkish," though some might argue whether rationing would not be the more hawkish of policies. Said one White House aide: "Philosophically, it is cast in terms of crisis." Ford was ready to take an uncompromising market approach, preferring to cut consumption by prodding up prices than by using restrictive import quotas or rationing allocations.
The boost proposed by the Administration was twofold: tariffs and new taxes on oil and natural gas, on the one hand, and removal of price controls on the other. In $1 stages over three quarters beginning March 1, Ford planned to put a $3-per-bbl. tariff on imported oil--a move he can make on his own initiative under a provision of the Trade Expansion Act of 1962. He would also ask Congress to impose a $3-per-bbl. excise tax on domestic crude oil and a tax of 40-c- per 1,000 cu. ft. on natural gas. These actions are expected to reduce consumption by as much as 1.5 million bbl. per day and encourage development of domestic sources. To take the windfall out of oil company profits and return money to consumers who are paying higher prices, Ford was set to ask for an excess profits tax on decontrolled oil and natural gas and possibly the removal of the oil depletion allowance. Also planned: a request for standby authority to ration gasoline.
Hints of this prospective energy package caused dismay in Congress. Under intense pressure from constituents to do something about inflation, legislators are hardly in a mood to send the price of oil skyrocketing, with a consequent leap in the consumer price index. A Senate staffer involved in energy policy claims that Ford is submitting "an unworkable program that can't be enacted." The Administration; he feels, is "out of touch with reality on the Hill."
New Englanders are angriest of all, since their region is most dependent on imported oil and would be hardest hit by the Ford tariff. Last week the New England caucus released a letter challenging Ford's right to act under the 1962 trade act without public hearings. "No matter what the Congress does," says a New England lobbyist on Capitol Hill, "the tariff makes it Ford's program. He'll be blamed for the consequences. It'll be like Lyndon Johnson's war."
What the Democrats Want
In their energy program, the Democrats offer more dramatic alternatives: mandatory petroleum allocations, higher gasoline taxes with rebates in hard ship cases, steeper excise taxes on pleasure crafts and high-horsepower auto mobiles, gasoline and home-fuel rationing. The Democrats also propose establishing a new, independent agency to replace the Council on Wage and Price Stability. The agency would be empowered to issue subpoenas, hold extensive hearings, delay price increases and in selective cases impose controls.
The other longer-range provisions that may be included in Ford's energy package are less controversial and not likely to run into too much opposition in Congress. Some of the proposals:
> A national thermal efficiency standard will be set for all new residential and commercial structures. If builders or home buyers seek any kind of federal financing, they will have to install standard insulation, weather stripping, storm windows and doors and caulking. Potential savings in oil consumption by 1977: about 120,000 bbl. a day. By 1985: 2.3 million bbl. a day.
> Conservation in existing structures will be encouraged by a probable 15% tax credit on home investments in insulation up to $1,000, meaning a maximum homeowner receipt of $150. Savings by 1977: 77,000 bbl. a day. By 1985: 200,000 bbl.
> Mileage standards for new auto mobiles will be gradually increased until they reach the required minimum of an average 20 m.p.g. on the range of autos that a manufacturer offers the public in 1980. The Administration will not ask for mandatory legislation, since automotive executives agreed to meet the goal at a recent meeting in Washington. If they fail to comply, however, the White House is expected to ask Congress to enact a law requiring the minimum mileage. In return for their cooperation, the Administration will ask Congress to grant the auto companies an extension of the deadline, from 1977 to 1981, for further purification of exhaust emissions--perhaps an overgenerous amendment to the Clean Air Act. But the companies argue that they cannot improve mileage without a relaxation of emission standards. Savings by 1977: 114,000 bbl. a day. By 1985: 1.2 million bbl.
> Efficiency standards for appliances will be encouraged by the National Bureau of Standards. 1977 savings: 22,000 bbl. a day. 1985: 286,000 bbl.
> Federal oil reserves will be tapped to increase the U.S. strategic reserve. Elk Hills, one of seven naval petroleum reserves, will be brought up to full production now that the opposition of the House Armed Services Committee has been overcome. As much as 360,000 bbl. a day will eventually be pumped to create reserves against another oil emergency.
> An easing of restrictions on utilities' coal burning will be sought--another modification of the Clean Air Act. The White House wants to postpone installation of scrubbers--smoke-filtering devices--on stacks. The Environmental Protection Agency and the Council on Environmental Quality have accepted a delay in the scrubber deadlines, set unrealistically for 1977 any way.
The False Start
Ford is given considerable credit by economists for sharpening his skills during the months he has been in office, even though circumstances have forced an abrupt shift in his policies. He declared inflation public enemy No. 1, as indeed it was at the time he became President. But willing to listen and anxious to build a consensus behind any policy, he turned to others for advice. In retrospect, his celebrated summit conferences probably inspired more fear among consumers than new policies among experts. Though some economists warned that the recession was going to bite harder than Ford thought, none of them predicted the precipitous decline the economy would take before the year was out. In the fall, the President was tilting too far in his fight against inflation, but there was scant solid guidance to set him straight.
The economic summit produced a policy mouse. What Ford offered in his economic message in October was pretty much more of the same from the Nixon years: a federal budget with spending held at $300 billion and a tight-fisted monetary policy that would keep the economy producing goods and services far below its potential until some time late in 1976 and perhaps longer. It was a threadbare standard with which to rally a people to change the habits of a lifetime. The only sacrifice requested was as quickly rejected. Ford asked for a 5% surcharge on corporate income taxes and upper-level personal income taxes. Neither Democrats nor Republicans showed any interest. Representative Herman Schneebeli, ranking Republican on the House Ways and Means Committee, informed Treasury Secretary William Simon: "The fate of this surcharge rests on what the American people tell us while we are home" during the election recess. The answer was plainly no.
Ford's gimmicky WIN (Whip Inflation Now) voluntary program was a stillborn loser. A lot of WIN buttons were flashed around the White House, inspiring ribald imitations elsewhere, but in fact, from a President it was singularly inappropriate advice to stop spending just when sales were dropping in a stalled economy. Henry Ford II, for one, informed Ford of his error.
One of the reasons the President's first energy program was so lackluster is that a comprehensive study--Project Independence--had not been completed prior to the message. In contrast to Richard Nixon, who liked to rush up instant cures for maximum effect, Ford prefers to analyze a problem systematically, however deliberate his pace. As the recession deepened, he continued to listen and prepare for more expansionist policies, as some of his advisers urged. To his credit, he continued to take sometimes uncongenial action against inflation. He pocket-vetoed the cargo preference bill, which would have vastly increased the price of oil by requiring that 30% of imports be carried in U.S. vessels. He permitted--perhaps encouraged--vigorous antitrust action by his Justice Department, notably against AT&T. By taking blunt exception to a General Motors price hike, he forced a modest rollback. U.S. Steel, too, reconsidered a price increase when Ford grumbled.
Up from Anarchy
Stubborn enough to stick to his principles yet sufficiently flexible to change course when events dictate, the President is praised by one Administration official for not "allowing himself to be stampeded. In terms of coming to grips with what is going on right now, I would not give him high marks. In terms of keeping the longer-range problems in mind, I would give him high marks. Where I would fault him most is in the political end. That may sound strange, since he is a political man. But he has not seized opportunities that he has had to exert leadership. On occasion he has had too little imagination."
Ford has also shown progress in White House management and leadership, though he has still not made a total transition from Capitol Hill to the White House. In the beginning there was virtual anarchy. Ford did not rule, and neither did anybody else. White House staffers wandered into the Oval Office pretty much as they pleased and so did innumerable outsiders paying courtesy calls. The President was determined not to repeat the mistake of his predecessor and isolate himself from the outside world. He gave a warm welcome to practically anybody and ushered in a short-lived era of good feelings.
But his appealing permissiveness took a fearful toll of orderly decisionmaking. Out of a sense of continuity or perhaps a misplaced compassion, Ford was very tardy in ejecting the Nixon holdovers, some of whom had nothing to add to the White House except mischief. His closest aide, Robert Hartmann, openly quarreled with Nixon's lingering Chief of Staff Alexander Haig. The dust did not settle until Haig was shipped off to Europe as commander of NATO forces.
The chaotic staff conditions may have seriously damaged the President when he made his first major decision. For all his openness, he failed to consult his intimates in Congress, much less prepare the public, before he issued his pardon to Nixon. With that one stroke of the pen, he lost most of the good will his amiable Administration had purchased him, although history may ultimately judge his pardon more kindly. In any event, Ford's honeymoon was short-lived. When a prominent Republican returned to his native state of Indiana, he discovered a surprising amount of unhappiness with Ford among his "natural and visceral supporters." Noted the Republican: "When the small businessmen of Indiana question his ability, he's got a real problem." Complained a friend of Ford's: "The whole world is watching, but he is not yet acting like the Chief Executive of the most powerful country in the world."
The New Team
More recently, Ford has been trying to straighten out the jumble at the White House. Pieces have begun to fall into their proper places; aides have stopped shifting uncertainly from office to office. "He's coming along," says a former presidential adviser. "There's been a significant improvement in his perception of the job. I assume the experience of sitting at that desk and seeing the things you have to deal with daily accounts for the change in presidential chemistry."
Before taking office, Gerald Ford described the kind of staff he would like if he were to become President: "I want them to have a good public image because what they do reflects on me, good or bad. I want them to conduct themselves as I try to conduct myself--in a friendly, personable way. I want them to be loyal to me. I want them to be frank with me. I want them to be a working unit, not individuals. I want them to reflect my personality, and I think my personality is open and candid."
Ford seems to have nearly completed the carpentry of just such a staff. The majority of the men Ford has chosen are, by common consent, much like the President himself. Most are not endowed with formidable intellectual gifts, and nearly all are unaccustomed to dealing with problems of national scope. Yet they bring some of Ford's own candor, ease and plainspoken personal drive to their work. The one man close to Ford who may possess an innovative sense of the art of government is White House Chief of Staff Donald Rumsfeld. With the unique exception of holdover Kissinger, Ford's staff seems to make up in earnestness what it may lack in sophisticated political awareness.
Few of its members can call upon long years of Government experience to guide them, but they all seem to possess unquestioning trust in Ford's leadership and a bracing, personal loyalty to him. In some cases, this is born of longstanding close friendship. Philip Buchen, 58, Ford's courtly, scholarly legal counsel, and L. William Seidman, 53, the millionaire accountant who consults with Ford on economic affairs, both come from Ford's hometown, Grand Rapids.
The chief feature of the Ford White House is the face-to-face access to the President each of Ford's top aides enjoys. In an effort to avoid the palace-guard remoteness that characterized the Nixon White House, Ford has authorized nine senior aides to walk in on him virtually whenever he is free. Ford has also insisted on having frequent dealings with each man's deputy, so a steady stream of official faces continues to flow in and out of the Oval Office, all of them growing increasingly familiar to the President.
Among the newest faces is Housing and Urban Development Secretary James T. Lynn, 47, the witty, personable former Ohio attorney Ford has named Director of the Office of Management and Budget, a post Lynn will take over from the departing Roy Ash next month. John O. Marsh Jr., 48, a genial, hardworking former Democratic Congressman from Virginia, is now the President's chief congressional liaison, as well as public liaison with non-Government organizations. With his staff in place, Ford now guards his time more carefully. Aides have finally persuaded him not to read every letter from somebody on the Hill and then dictate a personal reply. Now staffers respond to routine communications with form letters, though the President still insists on signing them personally. He also has cut back on the number of his callers, and those who drop by are ushered out faster. He sets aside more time for study and reflection.
How Decisions Are Made
The decision-making process has speeded up. To compensate for President Ford's deliberate, not to say ponderous pace, Rumsfeld has begun demanding earlier deadlines for position papers from presidential advisers. "Ford is making more decisions himself," says an aide. When he does, he cuts down on dissension and internal crossfire. He is no less concerned with administration than with policy. Last week, for example, he decreed that Vice President Nelson Rockefeller's top staffers should join the President's chief advisers in the regular round of White House meetings--a merging of two usually warring camps. Says Kenneth Cole, the director of the Domestic Council, who is due to leave the White House in March: "Ford asks good questions, which show that he knows what is going on in those areas. I have watched him stand up against extremely difficult decisions, and I'll tell you that he does it as well as any of them--if not better."
Sometimes decisions are a little too decisive. Once Ford makes up his mind, it clamps shut and cannot be pried open by the most eloquent appeal of his advisers. He once publicly reprimanded Secretary of the Interior Rogers Morton for advocating a higher gasoline tax after it had been rejected by the Oval Office. "One thing that irritates him is when somebody comes back again to try to make him change his decision," says Cole. But then he is equally stubborn on matters of principle where lesser men might cave in. He vetoed the inflationary veterans education bill even though he knew that Congress would override it. "He suicide," was recalls advised Cole. that it "But he was said: Tm political going to make my decision on what I the think is basis of right what for the Congress country, will not do.' So on he stuck to his principles over politics. I think that is leadership."
Facing the World
Ford has made some strides in foreign affairs, an area in which he had little expertise in Congress. But then he has had an exceptional teacher in Kissinger. "The President finds foreign policy exciting," says a longtime associate, "partly because of the way Henry presents it to him." Ford tends to accept his lessons without much argument. Kissinger confers with him in the Oval Office between 9 and 9:30 every morning, and the Secretary of State does most of the talking. The President does not have the worldly confidence or foreign acumen of Richard Nixon, and he knows it. His staff is equally in awe of Kissinger, who was the constant butt of gibes from Nixon's palace guard.
But if Ford lacks an overview and a firm, conceptual grasp of foreign policy, he has proved to be adept at person-to-person negotiations. Foreign leaders who have met him have instinctively liked him. The President, in fact, gets along with Soviet Ambassador Anatoly Dobrynin better than Kissinger sometimes would recommend. Yet Ford personally and successfully negotiated with Soviet Party Chief Leonid Brezhnev by cable for the release of Simas Kudirka, the Lithuanian seaman who jumped ship in 1970 and was then turned over to the Russians by the obliging U.S. Coast Guard.
Ford has not yet fully mastered the precision of the language of diplomacy. Occasionally, Kissinger has to cover for a Ford misstep. At a press conference last November, the President seemed to suggest that Israel would negotiate with the Palestine Liberation Organization--a thing the Israelis have sworn never to do. Then Ron Nessen compounded the error by declaring that the President stood by his statement. Kissinger finally managed to make the remark ap pear to be ambiguous, as if the President had some remote Machiavellian purpose in saying it. That is diplomatically acceptable.
The Aroused Democrats
Ford faces a stern test when the 94th Congress convenes. The Capitol halls are filled with a new sense of urgency as Democrats, enjoying an overwhelming majority, prepare to set their own goals and priorities. "They are a national, operational group," says Russell Hemenway, director of the National Committee for an Effective Congress. "The power of oversight will be used more broadly than ever before." Among the host of programs to bring tax relief, spur the economy and cushion unemployment that congressional Democrats have considered, they have discarded practically nothing, with the exception of a revival of the Reconstruction Finance Corporation. They discovered that the Depression-born agency's function of lending money to foundering businesses had been assumed by other federal agencies. The Democrats' program issues a clear challenge to the President: "The nation at this juncture could ill afford a passive Congress that did no more than await and then react in leisurely, piecemeal fashion to Executive recommendations."
This is no idle threat, since the Democrats command the troops to enforce their program. The 75 freshmen Democrats in Congress have assumed an importance on the Hill that newcomers never dared seek before. Since Albert and the leadership have made caucus king once again, the freshmen are aware of the weight their numbers carry. As long as they agree among themselves, what they say goes. They have even summoned the once imperious committee chairmen to appear before them one by one to state their position on the party program. If the chairmen try to behave with their traditional independence and ignore party instructions, they risk being removed. Such a strengthening of the opposition party means a rougher scrap for Ford on the Hill.
No less thorny will be the Democrats' stand on foreign policy; both chambers virtually bristle with hostility toward the diplomatic-military establishment, an attitude that Kissinger is at pains to combat. One of the first items on the Administration's agenda may be increased military aid for embattled South Viet Nam, a request that will be met in Congress with hot resistance or icy indifference. But Ford's persuasive powers with the legislative branch may prove useful. By buttonholing senior Senators last month, he was able to persuade them to extend the cutoff date for military aid to Turkey.
The ultimate test, of course, will be world stability. Detente is in some jeopardy because the Soviets may refuse to permit sufficient Jewish emigration, thus losing their recently granted most-favored-nation status. Crises could flare up in Viet Nam, Cambodia, the Middle East--testing the mettle of the President as many of his predecessors have been challenged.
The Inescapable Risks
For now, the challenge is at home, in the economic and energy problems that can no longer be ignored. They are complex and interconnected, and in moving to confront them, Ford and his advisers run dangerous and inescapable risks. The key to the present economic malaise is consumer uncertainty. Consumers are not buying, for fear of the future, and in particular, they are not buying cars. A very large portion of the U.S. economic decline is concentrated in the auto industry. Ford is gambling that giving Americans $15 billion back from their last year's taxes will produce a buying binge that will halt the recession. But some economists fear that too many worried consumers will simply sock their windfall away in savings accounts. That would make more money available for mortgages and help the housing industry but still not get vital auto sales up to normal and necessary levels.
Even more difficult to predict with any assurance is the net effect on economic activity of the huge changes in oil prices and taxes being proposed by Ford to help solve the energy problem. The increase in energy taxes could amount to $28 billion and over an 18-month period could raise the consumer price index by as much as five percentage points over what it otherwise would have been. If the general inflation rate does not abate, that could prove an exceedingly high--and probably politically intolerable--price to pay to achieve a negotiable measure of independence from imported oil.
And on the recession side of the ledger, no matter how promptly the Government moves to return to consumers and industry the tax and tariff moneys collected on oil, there is bound to be a lag between tax and return that in the short run will slow economic activity in the U.S. Some parts of Ford's package must work at cross-purposes, but if the effect of any one element goes seriously awry, the whole enterprise could come apart like some Chaplinesque machine of wheels within wheels that has slipped a gear. As Ford Adviser Buchen puts it: "The interrelatedness of our domestic problems is so great that there's very little room for miscalculations."
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