Ford's Robust Legacy

The dismal growth statistics released in Washington last week suggested that Jimmy Carter had inherited a still wobbly economy. After all, the nation's output of goods and services had risen at an annual rate of only 3% in the last three months of 1976, the lowest increase since the recovery began in the spring of 1975. The growth rate was below both the 3.9% of the third quarter and the 4% plus needed to pull down unemployment, which stood at 7.8% at year's end.

Pretty terrible? No, just terribly misleading. Actually, the growth picture is bright. Although the overall figures do not reflect the fact, the U.S. economy was in a true slump only in September and October. There was a strong rebound in the gross national product in November and December, led by an upsurge in spending by individual consumers. The fourth-quarter G.N.P. would have appeared much healthier except for a statistical accident. The jump in consumer buying was not matched right away by more spending by businessmen because they were still selling goods they had on the shelf. Had it not been for the impact of the big, but temporary, drop in the pace at which business was building its inventories, the 3% growth figure for the fourth quarter would have been about 8%--the highest since the boomy 9.2% of early 1976.

Good Start. Alan Greenspan, chairman of Ford's Council of Economic Advisers, says that he expects 1977 to start out with "double or more" the 3% growth of the close of 1976. Greenspan's successor in the Carter Administration, Charles Schultze, agrees that the first quarter "will show a pretty good springback" from the recent economic pause.

Business investment, however, remains uncomfortably soft. Both Greenspan and Schultze believe that the key to a sustained recovery is getting companies to step up their spending on expansion; they disagree about how to do it. In the Ford Administration's final economic report, out last week, Ford's Council of Economic Advisers urged permanent tax reductions for individuals and companies to trigger more spending all around. Carter has instead proposed tax rebates for individuals this year and more Government spending next year--and no specific investment incentives.

Using the license available to a lame-duck Administration, the Ford CEA report acknowledged a politically touchy and therefore long-ignored reality: "full employment" no longer means a jobless rate of 4%, the level generally accepted in the '50s and early '60s. The Ford report pegs it at 4.9%. Many economists suggest that it should be even higher, perhaps as much as 5.5%.

In the mid-'50s, teen-agers and young adults made up about 15% of the labor force; now they constitute 26%. Partly because these younger workers enter and leave the job market much more often than older ones, their unemployment rates are always higher than average. With more of them around, the percentage of Americans still looking for jobs when all of the resources of the economy are fully in use --which is how full employment is defined--has to be higher than 4%.

In a conversation with TIME Correspondent John Berry last week, Schultze said that the Administration will immediately begin an intramural debate on exactly how it wants to approach an anti-inflation policy. Says he: "Part of an inflation policy is development of an incomes policy." Schultze, who favors an approach similar to the voluntary wage and price guidelines of the Kennedy-Johnson era, plans to begin extensive consultations on the matter with both business and labor within a month or so.

While accelerated inflation remains a danger, it fortunately does not seem as immediate as it might. The .4% rise in consumer prices in December-mainly the result of higher costs for used cars, fuel, electricity and various services --brought the inflation rate for all of 1976 to just 4.8%. While that is above the 3.4% of 1972, when wage-price controls were still in effect, it is also well below 1974's painful peak of 12.2% and far under the inflation rates prevailing in many other industrial countries.

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