Grading Carter's Energy Offensive

...The appropriate grade on prices and jobs is an F. For energy, a kindly judge might award a C; the student is trying and his work shows signs of improvement, but what he has shown us just isn't good enough...

...Americans who drive their cars fewer miles per year will presumably trade them in less frequently, and even if the automakers manage to maintain sales volume, the shift from large to small vehicles will hurt employment and reduce profits...

...Nothing will prevent the oil companies from blithely widening their margins at the refinery and retail levels...

...Faotories and power plants are to be prohibited from burning oil or natural gas in new boilers and required, if technically possible, to adapt existing facilities to the use of coal...

...The President has done no better on the critical issue of energy industry organization...

...Moreover, praiseworthy as the Schlesinger design is for seeking to diminish American reliance on Arab oil, its complex particulars are currently replete with puzzles, uncertainties and unresolved issues of principle...

...But it continues: "From information available at the present time, it does not appear that new laws mandating either vertical or horizontal divestiture are required in order to promote or maintain competition in the energy industries...

...Since Social Security benefit payments and many labor contracts are indexed to the cost of living, initial increases in consumer prices are certain to be magnified...

...Agreement appears to be general that full adoption of the package designed by energy adviser James R. Schlesin-ger will be both inflationary and depressive...

...No wonder Carter and Vice President Mondale resent the ex-President's gentle hints that GOP economic policies are still popular at the new Administration...

...Unlike politicians, who may be a sorry lot but can at least be turned out of office at stated intervals, self-selected corporate masters are virtually unregulated...

...In real terms, in fact, it was something less than half the response urged by John Kennedy in late 1962 to a downturn far less severe...

...Thus weeks before Carter's April 20 message to Congress, parts of the plan were under severe attack, with the major oil companies voicing some of the loudest displeasure...

...For as Business Week told us, corporations have two strong motivations for posting higher prices even in the face of sluggish sales...

...An observer blessed with a mind unclouded by economic training might easily consider Business Week's interpretation of its clients' behavior a strong argument for permanent price controls over the large corporations—now able to raise prices more or less at will in markets they dominate...

...The amounts involved are large enough to give Detroit genuine financial incentives—perhaps for the first time—to meet the 1985 target of 27.5 miles per gallon...

...His second option was to accept the business confidence argument (last heard at full volume in the White House by another engineer, Herbert Hoover), and reassure the tycoons that the Democrats are financially prudent...

...The $4 billion or so of appropriations for construction that remains is about the same stimulus Gerald Ford suggested in his last budget...

...The major energy companies that now are gaining increasingly strong positions in coal, shale and nuclear power seem destined to continue to dominate energy policy...

...Conversion to coal is a trickier matter...

...One of these enigmas is the insistence upon a gently escalating gasoline tax...

...There are, to be sure, virtues in the Administration approach...

...Similarly, the expected boom in home insulation is bound to be offset by the higher cost of new houses and a consequent disincentive to potential buyers...

...Much smaller than General Motors, Ford proved thoroughly competitive in executive wages...

...Ralph Nader, meanwhile, suspects that there is more oil and gas out there than the energy companies are admitting...

...Fierce opposition on both scores has already been registered by the business community...

...Indeed, the Administration—to its credit—has tacitly conceded that the decision to orphan the rebates was more political than economic...

...General Motors Chairman Thomas Murphy got a 65 per cent raise from his meager $575,-000 for 1975 to a more seemly $950,000 in 1976...

...It is an ironic comment on business fears of unions' "unrealistic" wage demands that the chairmen and presidents of our giant firms have been rewarding themselves at rates undreamt of in labor circles...

...And although $10 billion of extra consumer income is unlikely to raise prices very much in an economy whose GNP approaches (he $2 trillion mark, the business media persistently stigmatized the rebates as inflationary...

...The rebate fiasco signaled Carter's decision to assuage the timid businessmen at any cost, including another year or two of high unemployment...

...Here the environmental issues are crucial: Adequate expansion of coal supplies without relaxation of environmental objectives requires passage of a strong strip-mining bill, and if the users of the new coal are not to foul the atmosphere, they must install stack scrubbers and other devices...

...Businessmen preferred either no action at all or permanent tax cuts...

...And levying the tax with increments of five cents annually removes much of the shock effect of a really sudden and substantial jump in prices...

...Meany, only a trifle unkindly, declared that Alan Greenspan was still in Washington: He had simply changed his name to Charlie Schultze...

...If he stubbornly clings to this bad idea, Carter will simply risk defeat of more desirable elements of his program...

...Actually, the rebates would probably have been merely a pretext for a new round of price increases...

...The President's feeble antiinfla-tion recommendations to Congress are part and parcel of this wooing of the businessmen...

...Perhaps the weightiest and most credible response has come from the econometric model makers?Otto Eckstein of Data Resources, Michael Evans of Chase Econometrics and Lawrence Klein of the Wharton School...

...a strong incomes policy would have been the appropriate, or more precisely essential, complement to effective job creation...

...Luckily for the President, these blunders and retreats are likely to be almost forgotten during the flaming controversy over his newly unveiled energy program, which will probably occupy public and political attention for many months to come...

...Prices will rise in all the petroleum-based industries?synthetic fabrics, pharmaceuticals, plastics, and chemical fertilizers, in addition, of course, to gasoline and home heating oil and gas...

...Like smokers, car addicts are not easily discouraged by the expense of their habit...

...The President and his energy advisers understand that conservation is the best short-run response to a genuine energy emergency, and have concentrated their fire on some of the larger wastrels—oversized cars, leaky houses, and inefficient factories and power plants...

...It might also be recalled that a similar sharp upturn of aggregate growth rates in the first quarter of 1976 was followed by disappointing performance during the rest of the year...

...By the usual coincidence, this design would do most for the profits of the Seven Sisters...

...Yet even assuming the desirability of a greater reliance on nuclear power, it is difficult to project rapid progress if the new installations are to avoid, in the words of the official fact sheet, "densely populated areas" and "potentially hazardous or valuable natural areas...

...But now that the President has withdrawn both the rebates and the business incentives—estimated at $10 billion and $2 billion, respectively—practically nothing is left of his original inadequate program...

...They are little more than a vague collection of promises to enforce antitrust statutes, solicit early warnings of excessive wage and price rises, and encourage AFL-CIO President George Meany to chat with General Electric Chairman Reginald Jones about the importance of responsible behavior on the part of their cohorts...

...By every evidence the President has merely picked himself a two-year fight in postponing its application until January 1979...

...Carter has several times promised to deprive Exxon and its six huge colleagues of windfall profits, but the new wellhead taxes designed eventually to raise the price of domestic oil to world levels will eliminate huge earnings at only one stage of operation...

...The fact is, however, that unemployment, after some signs of receding, is about as high now as it was last spring...

...In sum, the case for decisive action from Washington is every bit as strong today as it was on Inauguration Day...

...In other words, corporate managers—convinced that any serious attempt to deal with unemployment is bound to be inflationary—are determined to take the sort of action that validates their own forecasts...

...Worst of all is the Administration's surrender of any inclination to advocate another campaign pledge, either vertical or horizontal divestiture...

...Again the echo of the Ford era was unmistakable...

...As for nuclear energy, the Administration plans—not very specifically—to simplify the licensing procedure for new generating stations...

...speculated, to anticipation of the since-withdrawn $50 rebates...

...The brainchild of Council of Economic Advisers Chairman Charles L. Schultze, they never enlisted a constituency of their own...

...The virtues, though, are overshadowed by the program's weaknesses: the cloudiness of the tax recycling mechanism to low- and moderate-income families, the failure to grapple with its inflationary and recessionary impact, the lack of integration of energy and mass transportation programs...

...The AFL-CIO rightly called for a package twice as large focused upon public works, housing and new Federal jobs...

...The cheerful ringing of cash registers may have been due, as Senator Edmund Muskie (D.-Me...

...He could have decided early and firmly in favor of, at the minimum, the stand-by wage and price controls he supported during his campaign...

...The politics of the tax are as mystifying as its economics...

...The penalties on large cars and rebates to the purchasers of small ones seem at first inspection well devised...

...They are, incidentally, self-compensated too...

...Most egregious of all is the decision to leave undisturbed present profits and the market dominion of the Seven Sisters...

...It follows, therefore, that Carter's failure to take significant action against unemployment and inflation will be still more damaging to the economy if the energy program survives the rough Congressional handling it is receiving...

...is undoubtedly correct in saying that much of the money will be paid to families who would have acted without cash incentives...

...At the same time, growth will be slowed in autos and in satellite industries—such as glass, rubber, machine tools, and chemicals—that depend on Detroit for substantial percentages of their sales...

...The second impulse is to raise prices before costs rise this time around, on the theory that if Carter does in the end establish price controls, American industry will confront the renewal of Diocletian tryanny in good shape—on a high price and profit plateau...

...Upon assuming office, Carter faced a choice in dealing with the realities of concentrated market power...

...Seldom has so much been leaked so early to so many...

...How, he plaintively asks, will the 60 million Americans who belong to families of five or more fit themselves into small, energy-thrifty vehicles...

...The dollar totals were no doubt plumper, but inflation drained them of real meaning...

...Major uncertainties al-so surround the projected shifts by utilities, factories and homeowners from oil and gas to coal, nuclear power and solar energy...

...Its top two, Henry Ford II and Lee Iacocca, paid themselves $970,000 each in 1976, treble their 1975 remuneration...

...On the plus side, the amounts of the proposed subsidies for insulation and solar heating (particularly the maximum $2,000 for solar energy adoption) seem substantial enough to evoke considerable response—although Senator Edward Kennedy (D.-Mass...

...The first is a desire for better profits than those experienced in a disappointing fourth quarter of 1976 and opening quarter of 1977...

...The third campaign has just been launched, but the first two are going badly...

...They have long advocated complete deregulation of oil and gas, relaxation of environmental restraints on coal extraction, and more emphasis on new production than conservation...

...In excusing this Carter surrender, official spokesmen have emphasized some favorable economic statistics —greater industrial production, retail sales and corporate earnings, as well as more recent upturns in housing starts and gross national product...

...The official fact sheet cautions: "The trend of oil and gas companies into mining merits close attention...

...The $16 billion combination of tax rebates, permanent reductions, public jobs, and public works proposed by the President last January was much too small to cope with the aftermath of our worst recession since the late 1930s...

...It is true that gasoline is much cheaper here than in Western Europe, but it is equally true that the doubling of its price in the last three years has had no measurable effect upon American driving habits...

...Republican National Chairman William Brock, early and late, has criticized high gasoline taxes and penalties on large cars...