Simon: Lonely Voice, Less Influence

"History is littered with the wreckage of governments that could not deal adequately with inflation--and I will also suggest that history is littered with the wreckage of finance ministers who spoke the way lam speaking right now. "

--Secretary of the Treasury

William Simon

The Cassandra tone typifies Simon's current role--and his questionable future in Government. Once supremely confident of his ability to deal with what he called the nation's "infinitely solvable" economic problems, he now sees himself as the sound-money "conscience" of the Government, repeating dire warnings that he knows few politicians want to hear. To a nation frightened by the deepest recession and highest unemployment since before Pearl Harbor, Simon insists that inflation is the greater long-run peril. To a Congress bent on cutting taxes and raising spending far more than the Administration wants, Simon endlessly preaches the dangers of overstimulation. His gloom seems excessive, but he is making some points worth heeding.

Advocating Slack. Last week, for example, Simon told Congress that its tax and spending policies will lead to a budget deficit of $80 billion in the fiscal year that begins in July, v. the $55.5 billion projected by the Office of Management and Budget. That is a real and worrisome possibility, but Simon's warning would carry more force if he had shown a keener and earlier appreciation of the need for vigorous action to pull the nation out of recession. Instead, Simon has insisted that "some margin of economic slack must remain for a period of years to ensure that inflation can be squeezed out gradually."

This line is seriously eroding Simon's influence in Congress. A year ago, when he was the nation's energy czar, even liberal Democrats viewed him as a pragmatic problem solver. Now many consider him a rigid conservative ideologue.

Within the Administration, Simon's hard-driving ways and disregard of bureaucratic protocol have always made him more enemies than friends. In recent policy debates he has pushed his views too stridently, and his clout is visibly diminishing.

On economic and energy policy, President Ford listens more these days to other counselors: Economic Adviser Alan Greenspan, Secretary of State Henry Kissinger and Energy Administrator Frank Zarb. Simon's role can only be further reduced by the arrival in Washington of Harvard Professor John T. Dunlop, who took over last week as Secretary of Labor.

Dunlop, who will have a major voice in policy, leans far more to Government intervention in the economy than does Simon.

A few weeks ago, President Ford pointedly contradicted Simon on a significant issue. Simon had declared that Kissinger's proposal to put a floor under oil prices, so that developers of alternate energy sources could be sure that their prices would not be undercut, was not Administration policy. Ford then had Press Secretary Ron Nessen declare that it was indeed his policy. Since then, Simon's confidence, in his influence if not his beliefs, has seemed shaken. Once fiercely independent, he now takes care to go over proposed congressional testimony with White House aides. Many in the Administration doubt that Simon will still be around next January.

He had come in with a towering reputation that he acquired almost overnight. A millionaire Wall Street bond trader for the firm of Salomon Bros., Simon entered Government in December 1972 as Treasury's No. 2 man. At the height of the Arab oil embargo in December 1973, President Nixon named him to create the Federal Energy Office. Simon snapped out quick and crisp decisions on allocations, conservation measures and prices. There were some foulups, but Simon by sheer force of personality convinced Washington that someone had taken charge of what had been a confused energy policy.

As Secretary of the Treasury for the past eleven months, though, Simon has lacked the measured approach that the job demands. He is a quick thinker with an impressive grasp of numbers, but some associates believe that he skims too lightly over issues. Says one colleague:

"He tends to be emotional, a fighter. In debate he won't give an inch."

Simon's difficulties have been increased by some faulty predictions and policy misjudgments. He returned from a Middle East trip last summer predicting that an oil auction by Saudi Arabia would break petroleum prices; high Saudi officials had told Simon that those events would take place and he believed them. At home Simon preached "the oldtime religion" of tight money and budget cutting to fight inflation. Last summer he opposed any substantial easing of the Federal Reserve's strangling credit squeeze and listed for President Ford possible spending cuts totaling $20 billion or more (Simon said they were intended for "illustrative purposes").

Simon's influence was obvious in Ford's October WIN program, which called for more than $5 billion in spending cuts and a 5% tax increase for middle-and upper-income individuals. Even then the economy was sliding into deep recession, but Simon clung to the program. Shortly before the November elections he vowed that "we've just begun to fight" for the tax boost.

Love-Hate Affair. In retrospect, that was exactly the wrong program. An easing in monetary policy, a moderate tax cut and some loosening of spending last year might have prevented the recessionary tailspin from gathering momentum. Those measures might have averted the pressure for massive stimulus now and could have held down the budget deficit, which is ballooning largely because of falling tax revenues and rising spending for unemployment compensation and other income-support programs. When Ford reversed policy and advocated a $16.5 billion net tax cut, Simon grudgingly went along, and he is now concentrating his efforts on containing the budgetary damage.

He deeply believes that Government should reduce its role in the economy But to bring that about he advocates "a massive tax cut and a massive budget cut"--a foredoomed combination. "I think the direction our country is heading in is a very dangerous one, as regards our traditional system of Government, our economic system," he told TIME Economic Correspondent John Berry. "Neither man nor Government can continue for a sustained period of time to spend more than he receives."

Simon's great fear is that recession fighters will yield to inflationary seduction. Says he: "We have a love-hate relationship with inflation. We hate inflation, but we love everything that causes it. We have always erred on the side of overstimulation." Reigniting inflation by pumping too much money into the economy, Simon warns, is not even sound antirecession strategy: "It was the high rates of inflation that were a major factor in our recession today. It was the double-digit inflation that created the instability that drove our housing into the worst tailspin since the second World War. It was double-digit inflation that frightened and confused the consumer, that caused the erosion of real wages, that caused the sharp drop in consumer spending."

Though Simon's argument seems overstated, his warnings cannot be lightly dismissed. The economy probably both needs and can afford more stimulus than he wants, especially since inflation seems to be subsiding. But there really is a danger that Congress will take a "too much too late" approach to the recession and legislate permanent spending programs that will prove inflationary when recovery begins. In addition, Simon is undoubtedly correct in maintaining that runaway inflation eventually causes recession. If Congress ignores Cassandra Simon, it runs a risk of proving him at least partially right.

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