THE RECESSION: Ford's Risky Plan Against Slumpflation

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The increases on gasoline, heating oil and natural gas would be only the start. Innumerable products made partly from oil would also go up: plastics, chemicals, fertilizers. Higher fuel bills could force up airline fares and freight rates. The greater bills for heating and lighting factories and buying electricity to run machinery could drive up the cost of almost every product. Even wage costs could be raised; many union contracts tie wages partly to the consumer price index, which will be kicked up by the fuel increases.

How great this "ripple effect" might be is anybody's guess; sluggish demand will certainly restrain some price increases. But some of the guesses are frightening. Senator Stevenson figures that the energy program could eventually raise living costs for the average family by $1,000 a year, or four times the $250 in direct fuel increases that the Administration estimates. A. Gary Shilling, chief economist at the Wall Street firm of White, Weld, fears that price increases forced by energy costs could total not $30 billion but $60 billion. That may be overblown, but if the increases go as high as $46 billion, they would take away all the money that consumers would get from Ford's tax rebates and reductions; if they went any higher, purchasing power would actually be slashed. Then the U.S. might get the most painful of all economic combinations: roaring inflation and a deepening recession besides. It is not even certain that Ford's program would cut oil imports as much as he desires; consumers might choose to pay the high prices rather than curtail their driving and turn down thermostats.

An alternative way to cut imports without raising prices so much might be to put a flat quota on foreign oil, accompanied by some form of allocation or modified rationing to share out the reduced supplies. In order to minimize racketeering, any rationing ought to be coupled with what has been called the "white market"—a kind of legal black market in which people who had more ration coupons than they needed could sell them, with Government approval, to others who needed and were willing to pay for extra coupons. On the other hand, if Congress buys the argument of the White House and many outside experts that rationing would be inequitable, it ought to consider enacting a 200-per-gal. tax on gasoline augmented by import restrictions—an idea that some of Ford's advisers would have liked more than the program that they finally produced. A gasoline tax would concentrate price increases in the area where the most energy is wasted, rather than spreading inflation throughout the economy by raising the cost of every form of energy.

Unfortunately, the Democrats do not yet have any coherent energy strategy except opposition to Ford's ideas. Congress is likely to vote down Ford's taxes on domestic oil and his plan to decontrol prices. Several Democrats, including Tip O'Neill and Senators Henry Jackson of Washington and Edward Kennedy of Massachusetts, also are opening a drive to suspend the President's authority to raise oil tariffs.

Mishmash Threat. The Democrats' alternative, though, is not at all clear. Their formal program mentions both rationing and a gasoline tax as options to be considered, but the Democrats seem to be thinking only of a 100-per-gal. tax, and that would be too small to force