Next: Challenges at Home

A peace pact at hand, but the inflation and energy wars rage on

There is something about the serenity of the place that inspires a spirit of new beginnings. It was at Camp David, in the far reaches of Maryland's Catoctin Mountains, that Jimmy Carter initiated his most stimulating success as President six months ago: his summitry that broke 30 years of bloodshed and stalemate to make possible a peace treaty between Egypt and Israel. Last week Carter returned to the mount to seek a new start on the two persistent and interlaced domestic problems that most endanger his presidency: inflation and energy.

For eight hours, the President and a dozen advisers explored all the troublesome options they might choose to deal with both threats. They came to no sweeping decision. But by the time they emerged from the woods to face the harsh political realities of the capital, Carter had decided to lay out a new energy policy for the nation this Thursday. Late last week Carter also announced that his Administration would step up monitoring of prices and he would use "all his legal authority" to ride hard on future price increases.

Both the economy and Carter's fragile political position demand quick action. Indeed, at week's end the Administration reported that the Consumer Price Index for February had risen an alarming 1.2%, the largest monthly jump in the cost of living since 1974. If that rate were to continue, inflation would leap 15.4% in twelve months. Carter had predicted an increase of 7.4% for 1979.

An Associated Press-NBC News poll taken last week showed that the President's peacemaking role, while widely applauded, had not transformed his presidency. True, 44% of those questioned gave high approval to Carter's conduct of foreign policy, a rise of 9 points in one month. But 47% rated his handling of energy problems as poor--the most negative rating ever accorded Carter by the poll--and 41% had the same low estimate of his management of the economy. His overall approval was a lowly 29%, up only 1 point from last month.

For a few days, however, Carter could bask in the well-deserved glory of his Middle East breakthrough. Back to Washington once more went Israel's Menachem Begin and Egypt's Anwar Sadat, this time to sign the historic treaty in a ceremony set for prime-time TV viewing, via satellite, in their home nations.

Before the public festivities, Carter expected to meet singly with both Sadat and Begin in hopes of reviving the good will marred by some harsh pre-signing words last week (see WORLD). Said one Carter aide: "We need a cease-fire on rhetoric right now." The actual signing would be in the early afternoon before 1,500 guests, including the entire Congress, who would assemble on the front lawn of the Executive Mansion. The evening was to include an ecumenical religious service at the Lincoln Memorial and a lavish state dinner on the South Lawn of the White House. On Tuesday, Sadat and Begin were scheduled to address members of the two chambers of Congress.

Coincidentally, on the very day planned for the treaty signing, members of the Organization of Petroleum Exporting Countries were to meet in Geneva. And not at all coincidentally, the Arab nations were expected to exact a penalty for a treaty they abhor by once again raising the price of oil. Even Saudi Arabia, which has long been a moderating influence in OPEC, disapproves of the Israeli-Egyptian pact enough to agree that oil should be used as a retaliatory political weapon against the U.S. But more than ideology and power politics would be at work in Geneva. There was also the simple desire to make fatter profits. Since the curtailment of oil from Iran, all OPEC nations have already hiked oil prices. At the very least, the U.S. can expect that the Geneva meeting of OPEC will speed up the 14.5% price increases previously scheduled for 1979.

At hearings of the Senate Committee on Energy and Natural Resources, the subject was world oil supplies, but Democratic Senator Frank Church was so peeved by the economic failures of his own Administration that he swept the horizon: "We are running up the largest balance of payments deficit in our history and watching the dollar fade on the international markets. I just think it's an absolutely inexcusable failure of performance."

Testifying at the same hearings, Assistant Energy Secretary Harry E. Bergold Jr. warned that the OPEC nations were also considering reducing oil production, a move that could increase the shortages that are already occurring at scattered U.S. gasoline stations. Some stations faced with limited supplies have been closing earlier or on weekends. There was even a sign at Billy Carter's station in Plains last week reading: OUT OF GAS.

Fearing a long shortage, American buyers of new cars are making such a run on diesel-fueled Volkswagen Rabbits and Mercedes-Benz models that in some cases delivery takes up to six months. Customers have been willing to pay $2,000 above list price to get a Rabbit.

Any rise in the price of imported oil coming out of the OPEC meeting in Geneva is also going to hurt Carter's struggling anti-inflation program. The President invited Democratic congressional leaders to a White House breakfast last week and talked worriedly about the economy. Carter confessed to the Congressmen that he was not very hopeful about slowing inflation. The reason: the U.S. economy is showing such unexpected strength that the recession predicted for this year by many economists may not occur until later. Presidential aides cited figures indicating that the economy grew at a robust annual rate of 6.9% in the final quarter of last year, pretax corporate earnings soared at an annual rate of 26.4% over the year before, and unemployment dropped to 5.7%, its lowest level in 4 1/2 years. All that normally good news suggested an economy growing too fast to thwart inflation.

One reason the Camp David meeting produced divided counsel was that other economic indicators reflected weaknesses. Acknowledged one Carter economist: "We're having more trouble with diagnosis than prognosis at this point." Housing starts fell from 2 million in December to 1.4 million in February, and retail sales showed little or no growth in January and February. The presence of Federal Reserve Chairman G. William Miller at the conference suggested that the Administration might be considering ways to further restrain consumer credit. The President was granted authority in 1969 to ask the Fed to apply such restrictions during periods of high inflation. Yet these would primarily affect the buying of homes, cars and other expensive items, sales that are already beginning to slow.

Administration experts fear that they may not be sure for another two months whether the economy is heading up or down. But well before then, Carter's voluntary wage and price guidelines will have faced some crucial tests. Foremost is the trucking industry's bargaining now under way with the Teamsters union, which is seeking pay raises as high as 38% over three years, far beyond those permitted under the guidelines. Unions generally cite rising corporate profits (see ECONOMY & BUSINESS) as one reason to demand bigger raises. Alfred Kahn, the Administration's top inflation fighter, concedes some merit in labor's claim and protests that "the business community has not been assuming their full responsibility in the anti-inflation fight." However, the acerbic economist contends that any settlement that goes beyond the guidelines would be "an act of aggression against the American people."

What can the Administration do beyond tightening the guidelines? Kahn has ordered the Council on Wage and Price Stability to increase its monitoring of medium and small companies, which he considers the biggest violators of the price limits. The council would like to make an example of some of the offending firms. Admits one of the council officials: "We're really anxious to find somebody who's not complying." Carter and Kahn are trying to pressure Congress to approve the Administration's real wage insurance plan, under which union members who settle for a contract within the guidelines would be compensated by tax credits for any rise in inflation above 7%. But that proposal seems hopelessly buried in the House Ways and Means Committee.

At his breakfast with the Democratic leaders, Carter was warned again by House Speaker Tip O'Neill and Senate Majority Leader Robert Byrd to hold back on social legislation. Said Byrd: "We're not going to be trying to pass a lot of new programs." But Carter had long ago received that message, loud and clear. As evidence, HEW Secretary Joseph Califano last week revealed that the Administration intends to introduce only a modest national health plan this year. Carter had campaigned on a pledge to fight for a comprehensive medical insurance program, but his proposal would simply improve existing coverage, protect against catastrophic medical bills and cost $10 billion to $15 billion a year after it is fully implemented. It would not start until 1983, and then only if the Administration's hospital cost-containment bill was passed. "A serious disappointment," said Senator Ted Kennedy, the champion of comprehensive insurance on the Hill.

Carter's fight to check price rises runs directly counter to his second main challenge: making the U.S. less dependent on foreign oil. A rise in oil prices would probably cut consumption, but also would certainly increase inflation. "Good energy policy is not good economic policy," summed up White House Aide Hamilton Jordan. Added another adviser: "We've got to do what is in the best interests of the country--but it's damn hard to see how anything we do will be in the best interests of Jimmy Carter."

What can Carter do? The 94th Congress gave the President authority to lift all controls on the price of most domestic crude oil effective June 1, a step that would make a trip to the gas station more expensive. At Camp David, Treasury Secretary Michael Blumenthal and Energy Secretary James Schlesinger urged the President to take such action. But Vice President Walter Mondale and Presidential Counsel Stuart Eizenstat complained that this would be a blow to low-income families. At the very least, they argued, decontrol should be phased in. Nevertheless, a consensus did develop at Camp David that domestic oil must be permitted to climb closer to world market prices in an effort both to discourage U.S. consumption and inspire American companies to produce more domestic oil. "The decision," agreed one participant, "is not if we will decontrol, but when."

White House aides insist that Carter has not yet made up his mind. He could take the dramatic step of immediate decontrol, or he could choose the more modest, but politically safer option of gradually lifting controls on specified types of U.S. oil over two years. Carter is likely to ask Congress to include an excess profits tax that would prevent the oil companies from reaping a sudden bonanza. But whether he will urge that this tax be rebated to low-income families, be set aside for oil exploration or used to reduce his budget deficit apparently was undecided last week.

While decontrolling domestic oil prices in some way seems certain to form the core of Carter's new energy policy, he may also urge Congress again to give him authority to apply mandatory controls on the temperatures in public buildings, order weekend closing of gas stations and restrict outdoor lighting. Carter presumably will make another pitch for voluntary conservation, asking Americans to cut out frivolous auto travel, observe the 55-m.p.h. speed limit, turn off unneeded lights and appliances and set home heating thermostats no higher than 65DEG.

The President will probably continue to pressure industry to convert from the use of oil to plentiful natural gas or, where feasible, to coal. The latter will require a relaxation of some clean-air standards, a compromise Carter apparently is ready to make. He will again urge the passage of legislation to speed up licensing of nuclear power plants. It now takes ten to twelve years for most of the new facilities to be built and to meet all of the regulatory requirements.

Speaking for the Governors of the 50 states, Colorado's Richard Lamm told the Senate Energy Committee, headed by Washington Democrat Henry Jackson, that if the Federal Government did not act decisively on energy, the states were prepared to do so. Lamm said that various states were considering several measures to conserve gas and oil. They include new state taxes that would increase the cost of fuel, clamping limits on gasoline purchases to discourage hoarding, encouraging mass transportation instead of private driving by making school buses available for commuting, and limiting the energy consumed by business firms.

As they consider the scope of the problem and the Administration's response, some officials in the Energy Department are frank enough to say that not nearly enough is being done. They argue that Carter should act as boldly at home as he has abroad. They urge him to use the power he holds under current law to allocate crude oil and petroleum products, a step that would reduce the overall amount of those products for sale. But the White House views such a move as a last-resort option. Another is gas rationing, though Carter is seeking stand-by authority to impose it.

The President launched his "comprehensive" energy program with much fanfare in 1977. It languished for 18 months in Congress, partly because it was ill conceived, partly because of Carter's weak leadership and partly because a consensus has never developed in the country on how to tackle such a politically divisive problem. Congress finally mangled the Carter proposals into a package that was woefully inadequate to handle the problem. Some leaders on Capitol Hill claim that this time they are ready to act decisively--if the President does. The Iranian oil cutoff, says one key House Committee strategist, "gives Carter what he lacked before, a good crisis. He's finally got his Mayaguez. That's the way to get action up here. He has the votes now for a tough policy."

Certainly the nation would be well served if both President and Congress accept the political risks involved in establishing a strong energy policy. But there are huge sums of money at stake, the lobbying will be fierce and the will of Americans to forgo some of their energy-consuming comforts has yet to be demonstrated. On the other hand, if the leaders of Egypt and Israel, with Jimmy Carter's help, can try to put all those years of warfare behind them, perhaps the country, with the President's help, can reach agreement on how to overcome a crippling dependency on foreign fuel.

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