The Economy: The Rattles in the Engine

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Quality control is an old and chronic industry headache. Ford, which works at quality control more conscientiously than any other automaker, has 11,000 people directly concerned with it. There are up to 15,000 parts per car, and some of them have as many as 100 "critical" characteristics. Human error is as inevitable as sin. Ford had to recall 3,218 cars to correct "brake-fluid contamination" because one worker confused a brown barrel of windshield-washer fluid with a yellow barrel of brake fluid. The company thought it had ironed out bugs in the electrical system by teaching workers to marry red wires with red wires and black with black and then had to repair many cars because an assembler was colorblind. It is a fact widely recognized in the industry that cars made on Mondays are prone to defects. Reason: plant absenteeism runs high on that day, and managers are obliged to put second-string men on the line.

Evidence of Ease. While Washington commiserates with Detroit's woes, the auto slump may well give President Johnson a new argument for avoiding a tax hike. In the logic that permeates high economic councils today, bad news is good news because it can be cited as evidence that inflationary pressures are easing.

Johnson's economists now offer some persuasive reasons for delaying the tax decision: in April, nonfarm employment failed to gain for the first time in 14 months; wholesale prices have risen only one-tenth of 1% in the past two months; retail sales declined 1% in April, mostly because of the auto dropoff; business loans, which rose 20% in the past year, have held steady for the last six weeks; industrial production in April rose only .4%, its slowest advance in seven months. Moreover, the Administration has already sped up the collection of withholding taxes, thereby costing consumers an extra $2 billion this year, and next month the Treasury will begin collecting corporation taxes biweekly instead of monthly, which will force major corporations to make earlier commitment of another $1 billion.

Next year's problem will be that more wage contracts are due for negotiation in the first half of 1967 than in all of 1966, and unions will press harder than usual for large increases to make up for rises in the cost of living. The White House is worried that businessmen's labor costs will rise so high that they will be forced to boost prices even if demand is tapering off, with the result that President Johnson could find himself wrestling with both inflation and mild recession.