THE RECESSION: Ford's Risky Plan Against Slumpflation

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Housing starts last month fell to an annual rate of 868,000, an eight-year low. Auto sales in the first ten days of January plunged 32% below the levels of a year earlier; last week, joining Chrysler in a cash-rebate plan, Ford Motor Co. offered $200 to $500 refunds to buyers of small cars and some other vehicles from now through February.

Layoffs are swelling throughout the economy and could push the unemployment rate some time this year beyond 8%, the steepest since 1941. Last week, for example, W.T. Grant, the retail chain, detailed a retrenchment program under which it will close 126 stores and complete laying off or retiring 12,600 employees. It expects a loss of $175 million in the year ending Jan. 30, one of the biggest deficits in retailing history (see BUSINESS). Rush ing desperately to apply for 225 public service jobs on one drizzly morning in Atlanta, 2,000 unemployed people broke the plate glass when they jammed through a door of the city's civic center. Similar crowds of the unemployed gathered to try for public service jobs in Los Angeles and Chicago.

Most economists expect at least another three to six months of decline, whatever the President and Congress do. But federal policy can make a critical difference in the timing and strength of the eventual upturn. That is especially true now, because the recession reflects a sharp drop in consumer confidence, caused in no small part by confusion over Government policies that seem vacillating and indecisive.

Since 1971, federal economic management has resembled a maze of tortuous twists and turns. Ford's new program is the ninth distinct policy in the last four years. In early 1971, Richard Nixon was still following his original "game plan" of gradually reducing inflation by holding down federal spending and the growth of the nation's money supply. Then came the Phase I wage-price freeze of August 1971, followed by Phase II of tight controls, followed by Phase III of loose controls. A new freeze in June 1973 was chased by Phase IV, which consisted of controls that were removed piece by piece until they expired last April 30. Then the Government converted to "the oldtime religion" of budget cutting and tight money, followed by Ford's WIN program, followed last week by a policy to which the President has not yet given a name. The closest he came was to say in his fireside chat that the time had come to "turn America in a new direction."

Simon's Horror. To chart that new direction, Ford since November has presided over scores of meetings of his advisers—Budget Boss Roy Ash, Chief Economist Alan Greenspan, Treasury Secretary William Simon, Federal Reserve Chairman Arthur Burns and Presidential Assistant L. William Seidman.

Ford would open each meeting with some remarks that steered the discussion to the subjects that he wanted aired, then sit back puffing on his pipe, listening while advisers weighed the options. When he sensed that the talk was becoming repetitious, he would lean forward and say: "Well, I think we ought to do this."

Very early, the need for a tax cut became obvious, particularly to Ash and Greenspan. One reason: the Democrats made it plain that they would press for lower taxes, and they have the votes in Congress. The President's men had differences about the size of the slash. Burns and Simon