The Administration: Catching the Rabbit

Between sessions with visiting states men, Lyndon Johnson spent hours last week frowning over a thick green looseleaf notebook. Its neat rows of figures, summarizing every Government department's current and requested spending, persuaded the President that some hefty cutting remains to be done before his budget is completed around Jan. 1. Then, and not until then, will he decide whether or not to run the political risk of a tax increase in a congressional election year.

An even greater danger—for the nation as well as the Democrats—is inflation. As it whirls into its fifth expansionary year, the economy is showing clear signs of strain. Prices are inching up. The rate of increase in productivity has slipped from 3.4% to 2.5% this year because some industries have reached capacity production. There are shortages of skilled workers in key sectors such as the aircraft industry. Federal expenditures, growing by leaps and bounds with the rising cost of the Viet Nam war, may go as high as $107 billion—$7.3 billion more than anticipated—by the end of this fiscal year. Now the experts must decide just how much more federal and private spending the economy can take without boiling into serious inflation. Their most searching problem will be how to finance the war, achieve the essential goals of the Great Society, and sustain prosperity without inflation. As Arthur Okun, a member of the President's Council of Economic Advisers, says of full employment: "We've been chasing this rabbit for five years. Now we've got to learn what to do with it."

Some Now, More Later. One clue came last week from the National Aeronautics and Space Administration, which announced that it was scrapping its advanced orbiting solar observatory project. NASA may have to cut back other research work. There will probably also be curtailments in welfare-state planning by such agencies as Health, Education and Welfare and the Office of Economic Opportunity.

Last of the great big spenders, of course, will be the Pentagon. The esti mated defense budget for the current fiscal year is now $53 billion, and may well go over $60 billion next year. However, the Administration could deliberately underestimate defense spending when the whole administrative budget goes to Congress next month. Having avoided tying a tax increase to his domestic programs for the time being, the President could come back later with a supplementary request and blame the war for any tax boost that might be needed.

Hard Options. The final verdict on the economy will come from the Council of Economic Advisers when the budget is completed and the Treasury has estimated tax revenues. The gross national product, some $672 billion in 1965, is expected to be about $45 billion higher next year, so that the economy could comfortably absorb a few billions in extra federal spending—particularly in view of higher social security deductions that will take $5.5 billion out of immediate circulation.