A Vehement Policy of No Change

WHAT more should Richard Nixon do to speed up the lethargic business recovery and slow inflation? The President chewed over that question with his economic advisers during a weekend at Camp David and with the Cabinet at the start of last week. He came out with a clear answer: nothing.

The answer was not unexpected; more surprising was the vehemence with which Nixon threw away his options. He designated Treasury Secretary John Connally, a nominal Democrat, as "chief economic spokesman," a new title in the Administration. The tall, smooth Texan promptly became Nixon's no man. In the most unyielding language, Connally announced that the President would not set up a wage-price review board, would not declare wage-price controls, would not ask Congress for a stimulative tax cut and would not countenance any further increase in federal spending unless it was "directly related to reducing unemployment."

"Myth" on Jobs. Connally reported that Nixon is confident that present budget and Federal Reserve monetary policies will quicken the pace of business and cut unemployment--eventually. In June, the seasonally adjusted unemployment rate dropped from 6.2% to 5.6%. But that was largely a statistical quirk, because more than the usual number of students had not yet left school to start looking for summer work. Actually, the number of unemployed Americans jumped during the month from 4,400,000 to 5,500,000.

The Treasury Secretary, however, went out of his way to indicate that the Administration has given up hope of returning any time soon to full employment, which most economists define as a 4% unemployment rate. He derided as a "myth" the idea that a 4% jobless rate should be considered the norm for the economy, accurately noting that in the past 25 years the nation has reached that level for a full year only in wartime. This position represented retreat for the Administration, which in 1970 suggested that it was aiming for a 3.8% rate in early 1972.

After a brief period of worrying more about unemployment, the Administration has reverted to considering inflation Economic Danger No. 1. Officially, it continues to insist that inflation is lessening, even though consumer prices in May rose at an annual rate of about 7%. The men at the Camp David conference, however, were scared stiff when they got their first look at new budget estimates. They were calculated on the assumption that the gross national product will reach only $1,050 billion this year, rather than Nixon's unrealistic January forecast of $1,065 billion.

The forecast now is that revenues will drop enough below projections to produce deficits of about $22 billion both for fiscal 1971, just ended, and for fiscal 1972. The 1972 figure is almost double the $11.6 billion deficit that Nixon predicted in his January budget message. Democratic economists believe that at a time when business is operating with considerable slack, the nation could stand even larger deficits without much risk of accelerating inflation. But many of Nixon's advisers deeply fear that greater deficits would be violently inflationary.

Selling a Non-Program. Democrats and some Republicans (including Federal Reserve Chairman Arthur Burns, who has become increasingly disenchanted with Nixon's drifting economic policy) believe that the inflationary effects of bigger deficits could be contained by stronger presidential pressure against wage and price boosts, notably by declaring guidelines. But Nixon and his economic architect, the soft-spoken and tough-minded budget boss. George Shultz, are ideologically opposed to anything that looks like federal interference in a free market. Shultz prevailed. The President made only one small gesture toward an "incomes policy." He summoned steel management and labor negotiators to the White House this week, but probably only to urge them to avoid a strike rather than press them on settlement terms. The Administration already assumes that the steel settlement will follow the expensive pattern of the can and aluminum contracts, which call for wage-and-benefit raises of 31% or more over three years.

Otherwise, Nixon opted for a policy of no change, declared the decision immediately in order to squelch any public dissent within the Administration, and chose Connally, the most forceful speaker on his economic team, to sell the nonprogram. Connally may have severe political trouble doing so. Some Administration economists fear that without a change in policy, unemployment all through 1972 will stay around 5% --a total that Nixon himself once identified as the "critical point" politically. Even if he belatedly shifts his policy, the President has little time left to influence the economy before the 1972 elections. Considering how long it takes for a policy change to be pushed through Congress and then to have an impact, a new "game plan" would have to be adopted now in order to score points before the election.

If things work out wrong, Nixon will be giving the Democrats a made-to-order issue. They will be able to picture him as a President unwilling to fight inflation by any method other than the ineffective one of accepting continuing high unemployment. Commenting on the President's hold-tight decision, Arthur Okun, former chairman of Lyndon Johnson's Council of Economic Advisers, said: "As an American I am disappointed. As a professional economist I am very disappointed. But as a Democrat I have to be delighted."

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