THE RECESSION: Ford's Risky Plan Against Slumpflation

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be slackening a bit. Wholesale prices fell .5% in December, the first drop in 14 months. The recession is likely to cause even more price reductions.

Double Digits. Economists nearly unanimously assume that the inflation rate will continue to simmer down gradually this year—or they did until Ford announced his program. Now they are not so sure. Eckstein predicts that the energy package would make 1975 a second straight year of double-digit inflation, meaning that prices would rise 10% or more. Many of the businessmen and bankers who normally constitute the backbone of a Republican President's support are also seriously worried. "The biggest fear to me is inflation, not recession," says William H. Spoor, chairman of Pillsbury Co. Richard H. Vaughan, president of Northwest Bancorporation in Minneapolis, adds: "We ought to be concerned about the reinstitution of inflation in '75 or '76."

Though businessmen are primarily nervous about the prospective budget deficits, the real danger is the cost-boosting impact of the energy program. In fact, the quibbles over the size and distribution of tax cuts are popgun shots in comparison with the cannonade of criticism that Ford's energy proposals have provoked. The tax on oil will be particularly inflationary in the chilly Northeast, which burns a considerable amount of oil, much of it imported. Massachusetts Governor Michael Dukakis calls the tax "disastrous." Adds James Howell, the chief economist of the First National Bank of Boston: "We in New England are being screwed by the President's program."

On the face of it, the program seems illogical. The OPEC cartel has disrupted Western economies and fanned inflation round the world by quintupling the price of oil since October 1973. So in what sense is the U.S. fighting back by raising its own prices higher still?

There are answers. Price is not the only problem; the huge flow of money from industrialized countries to the oil exporters is another. Ford's program, if it really does hold down imports, would at least divert to the U.S. Government, and back into the pockets of taxpayers, some money that Americans otherwise would pour into the treasuries of Venezuela, Iran, Nigeria, Canada and the Arab nations. Moreover, the U.S. must hold down imports to free itself of the threat of political blackmail from foreign suppliers who could shut off the tap at any time.

Also, in theory at least, higher prices now could lead to lower prices later. If their hold on Western economies was broken, the OPEC nations might cut prices in order to maintain sales. Unfortunately, they also could do just the opposite: they could take Ford's program as vindication of their past price increases and raise prices higher yet. Some Arab governments are willing to cut production in order to maintain prices; Kuwait last week reportedly decided to reduce output by 500,000 bbl. per day, or 20%.

In any case, Ford's program would raise prices quite enough to cause severe pain—and danger for the economy —no matter what OPEC does. The White House itself estimates that the price boosts caused by its energy taxes would raise the overall consumer price index by two percentage points this year. And that estimate appears to assume that the increases will total only $30 billion. In fact, they could go much higher.