Permanent Recession : Gerald Ford's Economic Policy

by Stuart Elliott New America Dec. 1975

Hardline purist conservative economic advisers, Gerald Ford's parochial philosophy and the challenge of the ultra-right conservative candidacy of Ronald Reagan have combined to make the Ford administration the most conservative since Hoover. Like Hoover, Ford is unable to comprehend the depth of the economic crisis and unwilling to offer a realistic program for recovery. The longer the current recession, already the worst and longest since the 1930's, drags on the more closely the Ford administration comes to resemble Hoover's.

The failures of the Ford economic policy are all too apparent and all too real. In the year since Ford took office three million workers have been added to the unemployed rolls. Even more startling is the administration's projection that unemployment will average eight percent in 1976 and will only slowly decline, remaining above five percent even in 1980. According to the government's own estimates the American economy has lost $200 billion in production this year alone. Between 1976 and 1980 it is estimated that the recession will cost the American people $1.5 trillion.

Rather than regarding these dismal projections as a call to action, the Ford administration accepts unemployment as a necessary and unavoidable evil, the only means of achieving its economic goals—a stable price level and corporate dominance of the economy. In Ford's political economy, as in Nixon's, full employment is continually redefined at ever greater levels of unemployment. Full employment has come to mean the level of unemployment that is assumed to be consistent with stable prices. Thus, in the summer of 1974 administration and corporate officials apparently decided that it was desirable to countenance and, if necessary, to contrive a slowing of the rate of growth for two to three years or longer, so that unemployment would remain above five percent. By fall. Ford's goal had risen to a minimum of six percent unemployment. By accepting the projections of high unemployment as inevitable. Ford has gone beyond the planned recessions of the Nixon administration. The American people have been asked to endure a recession for five years or longer. And while this recession could not be called permanent, it will have near permanent effects on the lives and aspirations of millions of Americans.

If half of Ford's economic policy is an ill-concealed acceptance of high unemployment, the other is the view, most vigorously advocated by Treasury Secretary William Simon, that the welfare state must be curtailed and profits increased. No doubt Ford is a true believer in the free enterprise shibboleths that were the standard course at the hundreds of GOP dinners he attended as House Minority leader. But the real core of the Ford program is found in Simon's proposal of a $13 billion a year tax cut for corporations and wealthy taxpayers. Simon, as one might expect from his Wall Street background, constantly raises the specter of an America suffering from a capital shortage. Consequently, he argues that the way out of the recession is to increase profits. Contrary to Simon, the nation is beset not with a capital shortage but with a shortage of jobs and production. In fact, industry is being used to only 70 percent of capacity are, however, certain to increase the maldistribution of wealth.

Tax Against Poor

This Ford-Simon proposal is part and parcel of an attack on the progressivity of the income tax system. Ford's recent tax and spending cut plan is another example. The plan left out two progressive reforms that Congress had enacted as part of the 1975 tax cut. First, he left out the "earned income credit" which is designed to help the working poor with children. Second, he left out the $30 per person tax credit and proposed a $250 increase in the personal exemption. At the lowest income bracket the $250 increase in personal exemption would exactly equal the $30 credit. But at the higher rates the $250 increase in the personal tax exemption would be worth $175 in tax savings.

Of course, the greatest negative distribution of the Ford administration is the recession itself. The economic damage done to minorities, the poor, and working people by the Nixon administration has been compounded under Ford. Joblessness is an inherently unequal method of fighting inflation. A one percent increase in national unemployment means a four percent increase in unemployment for low-income groups. The entire range of government-assistance programs replace only 31 percent of pre-tax earnings loss for the poor. Nor are the poor alone in their suffering; the average worker is now worse off in real terms than in 1970.

The regressive tax cut plan was part of proposed plan that would include a spending cut of $26 billion to match the tax cut. (Actually the tax cut is only $11 billion more than the 1975 tax cut.) The plan is nothing more than the substitution of political gimmickry for economic program.

Even the President's top economic advisor, Allan Greenspan, has admitted that the plan would have a neutral effect, that is, it would not stimulate economic recovery. Paul Samuelson, like many other economists, has concluded that the Ford plan in fact would be contractionary. The proposal is motivated by the most blatant political considerations. On the one hand, the spending cut proposal is designed to counter the appeal of Ronald Reagan. On the other, the Ford plan would stimulate the economy prior to the November election, but would repress it afterwards when the budget cuts would take effect.

The plan is designed to balance the budget by reducing federal spending, despite the fact that the President's own budget message declared that if the economy were as fully employed in 1976 as it was in 1974 (it was underemployed even then) there would be an additional $40 billion in tax receipts. The surest way to achieve a balanced budget is a vigorous economic recovery to full employment levels.

The economic policy of the Ford administration can be summarized as high unemployment to restrain inflation and the increase of corporate profits. Despite the assurances of Ford, Simon, Burns, et al, working people are not served by such distorted priorities.

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