Restraint for Now

In the past, Congress has always passed its spending proposals willy-nilly, without bothering to add up the budgetary totals. This year for the first time, Congress is voting on its own budget proposals as a whole, in obedience to the Congressional Budget Act of 1974. Last week, after months of study and debate, the Senate voted a $365 billion ceiling on spending and a $70 billion deficit for fiscal 1976, which begins July 1. The House proposal was only slightly different: $368 billion in spending but also $70 billion in red ink (the House guessed more in revenues than the Senate).

The intent of the Budget Act, which actually will not go into full force until 1976, was to make Congress more responsible in money matters. So far, it seems to be working. Though the congressional deficit figures are higher than the $60 billion that President Ford regards as a tolerable limit, they are within the range that most economists think can be handled without touching off a ruinous competition between the Treasury and private corporations for borrowed funds. Despite strong pressures for additional spending on anti-recessionary proposals, the Senate finally accepted the recommendations of its Budget Committee for such programs as the $9 billion recovery-program amendment sponsored by Minnesota's Democratic Senator Walter Mondale. By a squeaker vote of 200 to 196, the House also accepted its Budget Committee's recommendation with one major change--a $3 billion reduction in the deficit, to $70 billion.

Key Guide. Whether that restraint will continue is uncertain. The House and Senate budget proposals will now go to a joint conference committee, which will reconcile the difference. The eventual joint recommendation will be a key guideline. Congress can later add new spending programs, but Ford would probably veto them. Last week the President did veto a bill that would have raised price supports and income guarantees to farmers (TIME, April 28).

The threat of excessive federal spending still concerns many economists more than the prospect of an overly slow recovery. Testifying before the Senate Banking Committee last week, Arthur Burns, chairman of the Federal Reserve Board, conceded that unemployment, which rose last month to 8.9%, is now the nation's No. 1 economic problem. To assist the economy's recovery and ease unemployment, Burns pledged that the Fed would increase the nation's money supply by 5% to 7.5% until next March. It was the first time that the Fed had ever specified monetary targets in advance; Burns had to do so to comply with new legislation. But Burns insisted that inflation remains the No. 1 long-term problem. Excessive congressional spending on stimulative programs and high federal borrowing, he warned, could lead to a budget deficit of $100 billion for fiscal '76. That, in turn, could reignite ruinous double-digit inflation.

Even so, until the public is confident that an upturn has definitely begun, Congress is bound to come under increasing pressure to do more. Unfortunately, last week's economic news indicated that it will be some time before the pressure lifts. The index of leading indicators in March continued its downward trend. New orders to manufacturers fell 3% in March after a February rally, the sixth decline in seven months. Farm prices rose 4% in April, meaning that the present low inflation rate of 3.7% is likely to edge upward a bit.

Paced by the nation's low-flying airlines, which lost a grand total of $151 million, many U.S. corporations experienced their worst quarter since the end of World War II. Ford dipped $11 million into the red--the loss would have been $106 million except for an accounting change--and Chrysler reported a $117 million deficit before taxes. Even General Motors had its lowest first-quarter earnings ($59 million) since 1946. Worse still, the long-awaited spring revival of auto sales has so far failed to materialize. As stocks of unsold autos began rising again last week, Chrysler reinstated price-rebate plans and Ford is stripping down some models to sell them at a lower price.

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