TIME's Economists: Mixed Reviews

Though no one predicted precisely the swift onset of today's business downturn, TIME'S Board of Economists was far ahead of most forecasters. As long ago as last February, a majority of the nine board members were warning that the Administration's restrictive anti-inflation strategy would bring on at least a mild recession, and their projections grew ever more dire as the year wore on. Last week most board members agreed that the Administration's switch to a more stimulative policy was a move in the right direction. But, with few exceptions, they are far from elated by the specifics of President Ford's programs.

The main criticism comes from the liberal economists, who worry that Ford's economic program is not expansive enough to counter the recession. They contend that boosting tariffs and taxes on crude oil would not only hinder a business recovery but also keep prices rising at double-digit rates. Says Board Member Otto Eckstein: "The goals of the two packages are quite different and to an extent contradictory."

In the view of Board Member Arthur Okun, Ford's proposal for a two part rebate on 1974 taxes is by itself inadequate. "The Administration's idea, I suppose, is that what the economy needs is a little pump priming or a quick charge. But there's evidence that it is a bigger problem than just getting the economy started." In addition to calling for a total rebate in May, Okun insists that "we need a stimulative net tax cut for 1975 and 1976 that would begin to show up in withholding in July, August or September." The permanent tax reduction proposed by Ford is designed to help consumers pay for higher energy bills and would do nothing to boost purchasing power.

Economist Walter Heller asserts that "a $16 billion stimulus is a shot in the arm, but if we really want to reverse things, let's mainline it." Heller urges a net tax cut of $20 billion to $25 billion. He notes that "even if recovery started next fall and proceeded at a sustained 6% annual growth rate in real gross national product, it would not bring us back even to 6% unemployment before late 1978."

According to Joseph Pechman of the Brookings Institution, the rebate plan would not induce consumers to spend enough. The public would be inclined to buy more, he says, if personal exemptions were swiftly increased, standard deductions raised, and people were given a tax credit equal to 2% of their earnings up to $14,100 a year. Moreover, David Grove of IBM believes, the Administration's plan to divide the rebate into two payments would further weaken its stimulative impact.

The board member most satisfied with Ford's rebate idea is Murray Weidenbaum. Says he: "There seems to be an upturn in the cards, and the rebate will make it that much more likely." His main worry is that Congress will expand the program too much. Beryl Sprinkel is wary of using tax cuts to boost the economy, because they enlarge the federal deficit. But, adds Sprinkel: "Faced with the alternative of an increase in Government spending, I would certainly favor the President's program."

In general, however, board members reject the conservative argument that bigger federal deficits would force the Treasury to borrow heavily and thus hinder recovery by draining money away from business. According to Heller, Okun and others, the recession will so greatly hold down corporate credit needs for at least the rest of this year that Government borrowing will have little, if any, effect on business loans. Indeed, corporate borrowing at major New York City banks has declined by almost $1 billion since the start of the year.

Big Bite. Some members of TIME'S board fear that the Federal Reserve will not open the money tap fast enough to accommodate even a modest upturn. Eckstein forecasts that if the money supply is not soon expanded well above an annual rate of 6%, housing starts will tumble and unemployment will scoot up and stay exceptionally high. Says Heller: "The Fed still thinks inflation is public enemy No. 1."

Practically every board member finds serious flaws in the Administration's energy tax program. Generally, the Democrats in the group are opposed to relying exclusively on price rises, especially at present, to restrain energy use. Some would prefer a quota on imported oil, along with mandatory allocation of petroleum products and outright rationing of gasoline. Sprinkel worries that the tax increase would set back the nation's living standards. He asks: "Is it worth these costs to protect ourselves against the possibility that at some future time we might be subjected to another oil embargo?"

More grimly, Eckstein argues that "the energy tax and price package is simply too big a bite for the economy to swallow during a year of deep recession and high inflation. It would impose a shock on the economy as large as last winter's quadrupling of oil prices. A quick implementation of the energy package could well keep the economy on the road to depression."

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