When Jimmy Carter mapped out strategies for his new administration last December, some of his boldest plans were in the area of economic policy. The President-elect and his advisers boasted they were shaping comprehensive programs that would combat inflation aggressively, bring down high unemployment and balance the federal budget by 1981. Unlike the conservative Ford administration, this new Carter group was going to move.
Now, barely nine months after the President took office, his goals seem no closer and his overall economic strategy is beginning to crumble. While the economy admittedly is in no immediate danger of falling into a recession, Carter's grand strategy clearly has run into trouble. Early January's plans for a formal wage-price restraint program have collapsed, the goal of a balanced budget has been compromised severely, and the economy is proving more sluggish than expected.
Moreover, even some of the administration's best friends have begun urging it to start afresh. Arthur M. Okun, the former Johnson administration economic adviser, called on the White House last week to abandon traditional policies, which he said were not working, and to seek more unconventional solutions. And Albert T. Sommers, vice president of the Conference Board, has urged policymakers to take a more pragmatic - and aggressive - approach, both on stimulating the economy and battling inflation.
Why have the administration's best-laid economic policies gone awry?
The reasons are complex, with no overriding thread. But interviews with a number of key economists, policymakers and political analysts point to three basic problems:
Analysts say some of the President's early economic promises plainly were over-ambitious, and - by implication - unrealistic. The pledge to balance the budget is cited most frequently. Carter's economists knew full well the pledge was unachievable unless the economy performed more vigorously. But the President, perhaps yielding to wishful thinking, repeated it often - and without any qualifiers.
In several key areas, the administration was foiled by its own political bumbling - both in handling Congress and in reacting to opposition from various opinion groups. A major stumbling block was the White House's apparent readiness to abandon any program instantly if it seemed likely to draw opposition from the business community. In one way or another, oversensitivity to business' reaction prolonged adherence to the pledge of a balanced budget and helped kill two other efforts - the $50 tax rebate and the wage-price restraint plan.
For one reason or another, the economy did not perform up to expectations - jeopardizing a number of the administration's basic economic goals, some of which clearly were destined to be in conflict except during a period of robust economic growth. Ironically, some analysts suggest part of the problem may be that the President was too much of an activist in other areas, particularly in pressing ahead quickly on his energy and tax-revision programs, which themselves may have inhibited capital investment.
Perhaps the first Carter economic pledge to go was the promise of an aggressive wage-price restraint program. Before the inauguration, the President-elect and his advisers were firm in asserting the government had to act to hold down wages and prices - even if it meant using voluntary guideposts." After an initial deluge of protest, the plan was softened to an informal mechanism for providing advance notification of wage and price boosts, but even this was retracted after business and labor objected.
Today the Carter "anti-inflation" program is only a shadow of its earlier self - a limited monitoring effort by the Council on Wage and Price Stability, not all that far removed from the Ford administration's. The White House did make one attempt in July to "jawbone" back a steel price increase, but the industry simply thumbed its nose at the administration. And there the effort still stands.
The promise to balance the budget by 1981 also has gone by the boards. When Carter unveiled his own budget proposals last January, the administration projected that not only would the budget be in balance by 1981, but policymakers would be able to draw on a $60 billion surplus, or "fiscal dividend." What officials didn't say - at least publicly - was that all this depended on a vigorous economic expansion this year and next.
Now, with the outlook less optimistic than Carter advisers' earlier assessment, policymakers have begun hedging the promise by conceding the "balance" will come about only in a "high-employment" economy - which they privately admit is unlikely to emerge then. And an internal White House analysis shows that, even in the best of circumstances, the budget in 1981 will be at least $20 billion to $25 billion in deficit.
A similar fate has overtaken Carter's early-January economic stimulus plans. While most parts of the package passed Congress intact, the administration ran into unexpected controversy over its proposal for a $50-a-person tax rebate - the centerpiece of the President's original January stimulus package. Almost as soon as the White House proposed the rebate measure, Congress and the business community denounced it as a waste of money. Carter withdrew it abruptly, without even fighting.
Now, with the forecasts for 1978 showing the economy likely to be more sluggish than expected, the administration has little left in its arsenal except to propose a speedup of the withholding-rate reductions in its coming tax-revision package - a move that many fear could endanger passage of its "loophole-closing" measures. "They just gambled wrong on that one," a congressional economist says. "The rebate, right about now, would have come in handy."
Not surprisingly, the policy fracas has left the administration with substantial new uncertainty over whether it will meet its basic economic goals - to bring the unemployment rate down to 4 3/4 per cent and the inflation rate down to 4 per cent by 1981. The goals are the basic objectives of the overall Carter economic strategy.
While the jobless rate so far has fallen more rapidly than the administration predicted in January, all of the gain was during the first quarter. Unemployment has remained on a 7 per cent plateau since April. And the latest internal White House forecast shows the economy will be so sluggish after mid-1978 that joblessness is unlikely to decline much further - and even may begin rising again, unless there is a quick tax cut.
The outlook for inflation is even more dismal. Except for a brief surge at the start of this year, the price pace has remained virtually unchanged since the President took office and is considered unlikely to slow from its present 6 per cent rate for the foreseeable future. Indeed, Okun and some others fear the price spiral could speed up next year if no new steps are taken. If so, that could lead to a mini-recession later on.
Other administration economic efforts also have run into trouble:
The highly touted zero-base budgeting program, which Carter officials implied would revolutionize the government's fiscal policymaking, reportedly is proving to be spotty - with no visible savings, at least at this early stage. Insiders expect the results to be modest.
The administration's tax-revision package, a major campaign issue in last year's presidential race, is facing an uncertain future. Most analysts are skeptical that the measure will survive even moderately intact.
The President's energy program is now in shambles, having been decimated by the Senate. Although Carter's new go-to-the-people approach may yet save the measure, the situation is so bad that top advisers already are talking about salvage operations in 1978, rather than passage this year.
To many analysts, the frustrating has been that, in many of these instances, the administration has been aware of these pitfalls all along. Schultze, for example, is known to have been wary from the beginning of any long-term budget-balancing pledge that did not include the "high-employment" caveat - and cautioned early on against any over-promising.
According to some observers, what got the administration into trouble was Carter's own insistence on reshaping many of these promises and actions to fit his own traditionalist instincts. These leanings were underscored by Bert Lance, the President's former budget director - sometimes with uncertain results.
Alan Greenspan, President Ford's chief economic adviser, suggests part of the problem may be that Carter himself is philosophically so far apart from his key advisers - particularly now that Lance is gone. Greenspan says the result is that policymakers can't predict (as they could in the Ford administration) how the chief executive will react, and Carter is more likely to reverse them later - as in the case of the $50 rebate.
Even more disastrous, from the point of view of some policy decisions, was the President's reluctance to do anything that business might complain was likely to dampen confidence - a never-ending list that some outside Carter advisers argue it is futile to try to satisfy.
It was this fear of upsetting business (and, in some cases, labor as well) that ultimately helped kill both the wage-price restraint program and the $50 rebate proposal, and kept the administration pledged to a balance-the-budget-whatever well beyond the point that that battle was lost.
Okun, in particular, is dismayed by this trait. "Businessmen don't hire anyone on the basis of whether they like the President," he says. "They follow the order book and the cash register."
And Michael Wachter, the University of Pennsylvania economist who was part of Carter's campaign "brain trust" in 1976, points out that, if anything, one of the President's problems is that he has done too much in proposing new programs - a pace that makes business feeI uneasy. "Maybe things should have been done more piecemeal," he says. "They're just churning out too fast."
To be sure, as policymakers hasten to point out, the administration hasn't lost all hope of succeeding in achieving its long-range goals. If the coming tax cut acts as expected and the inflation rate doesn't speed up after all, Carter still could come close to his objectives by 1981.
But most analysts now argue that those goals have become a long shot, rather than an even bet or more, and the odds increasingly are that the administration won't ever achieve them.
With Lance gone, the administration's economic policymaking group is less cohesive, even if it is less one-sided. Council of Ecnomic Advisers chairman Charles Schultze's clout now is uncertain, and W. Michael Blumenthal remains an enigma even to close acquaintances, despite his nine months' tenure as Tresury Secretary.
Meanwhile, the long-range economic strategy mapped out so painstakingly by Carter advisers last winter clearly has run into a snag. One disgruntled Democratic economist last week likened the present outlook to the Ford administration's much-criticized economic policies of 1975-76. For good or for bad, there are others who would agree that the assessment may fit.