THE RECESSION: Ford's Risky Plan Against Slumpflation

It was anything but the standard State of the Union speech. Instead of congratulating himself on the achievements of his young and troubled Administration, Gerald Ford adopted the somber tone of a wartime leader calling for an all-out effort to repel the enemy. Instead of skipping lightly over a broad spectrum of national and foreign policies, the President concentrated almost exclusively on specific means to counter the worst economic slump since the Great Depression, the nation's almost 14% rate of inflation and the U.S.'s dangerous dependence on cartel-controlled foreign oil. Displaying the blunt candor that is his most politically attractive quality, the President proclaimed himself the bearer of "bad news," declared flatly that "the State of the Union is not good," and announced that he did not expect "much if any applause."* Then he unfurled an economic and energy program of considerable scope, great complexity and huge risk.

Essentially, Ford plans a three-stage operation on the severely sick economy:

Stage 1: A quick infusion of $16 billion of new buying power—$12 billion to consumers in rebates on 1974 taxes, $4 billion to corporations in higher tax credits on purchases of new machinery.

Stage 2: Imposition of $30 billion in new energy taxes that will force every citizen to pay more to drive a car, heat a house or turn on a light switch.

Stage 3: Recycling of that $30 billion back into the spending stream, chiefly by permanent cuts in corporate and individual income taxes.

If the policy works as Ford hopes, sales would revive, unemployment would moderate and the nation would be much better able to withstand another cutoff of foreign oil, since Americans would be compelled by higher prices to reduce their prodigious waste of energy. But if the program fails, the consequences could be dire indeed. The $16 billion in rebates and tax credits might be too weak to jolt the economy out of its alarming slumpflation; in that case, the nation could suffer a prolonged agony of unemployment rates higher than any since before World War II. In addition, the higher prices for oil and natural gas that Ford plans could restore the raging inflation that is only now beginning to relax its debilitating grip on the U.S.

Critical Crew. And Ford must sell his ideas to a highly critical crew of consulting physicians: the Democrats, who hold overwhelming control of Congress. The Democrats slapped together their own program for doctoring the economy, but it was an imprecise series of compromises that even party leaders concede will be tough to enact (see box page 19). Still, in announcing the program, House Speaker Carl Albert of Oklahoma said: "We mean business. We intend to act."

The Democrats enthusiastically agreed on the need for a big and fast tax cut. Indeed, within a couple of months they may well enact a deeper slash than Ford has asked. But they fear that the President's energy proposals would push prices .so high as to destroy the purchasing power that the tax reductions would create. Democratic Senator Adlai Stevenson III of Illinois estimates the chances of Ford's energy program getting through Congress as "zero."

When Ford was being escorted from the House by congressional leaders after his speech, his sometime golfing