Ford inherited bad economy

Spiraling inflation, high oil prices, joblessness challenged president

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December 28, 2006|By William Sluis | William Sluis,Chicago Tribune

Gerald Ford was in the White House only 895 days. Even so, many of the economic problems of the 1970s came to a head on his watch.

"He had the misfortune of inheriting a truly horrendous situation, as inflation burst through and the Federal Reserve began tightening interest rates," said Chicago economist Robert Dederick. From the perspective of 2006, the economic lesson of the Ford administration is rather clear: Once inflation spirals out of hand, getting it back under control can be extremely difficult.

The 1970s "was the worst decade for the economy except for the 1930s," said investment manager William Hummer.

Much of Ford's dilemma stemmed from a rapid rise in oil prices, in the wake of an Arab oil embargo, which fed roaring inflation. Mortgage rates spiked higher. Auto sales skidded, as foreign carmakers entered the market with fuel-efficient vehicles.

The economy dropped into recession, creating talk of stagflation - where joblessness is rising but inflation persists. Many Americans questioned the leadership of Fed Chairman Arthur Burns.

Ford wasn't exactly a caretaker, but he was able to do little to alter the inflationary atmosphere and weak economy besetting the country in the closing months of the Vietnam War.

As inflation spiraled, the country saw its worst recession in 40 years. Joblessness soared to nearly 8 percent. The stock market wobbled and fell, recovering weakly.

Part of the problem was that Ford had "a less than illustrious economic team," said Hummer, of Wayne Hummer Investments.

As Dederick recalled, a conference growing out of the government's ill-fated Whip Inflation Now (WIN) program ended with a recommendation that Americans start wearing WIN buttons and grow so-called victory gardens.

"Everyone was looking for a painless answer to the economy's problems, but policy was running in circles," said Dederick, of RGD Economics.

Skeptics of the Whip Inflation Now program "turned their WIN buttons upside down, which meant `no immediate miracles,'" said economist A. Gary Shilling, who heads a consulting firm in Springfield, N.J.

To measure the degree of consternation felt by Americans, analysts developed the misery index, which added together the rates of unemployment and inflation.

In his autobiography, A Time for Healing, Ford says the huge increase in the price of oil was one of the most vexing problems he faced. As he took over from President Richard M. Nixon, the nation was recovering from an Arab oil embargo.

Ford recommended legislation that included mileage requirements for autos.

"Domestic oil production is going down, down, down. Natural gas production is starting to dwindle. Coal production still is at the levels of the 1940s. Foreign oil suppliers are considering another price increase. We cannot continue to depend on the price and supply whims of others," he said in a television address that accompanied the 167-page legislative proposal.

As for facing both recession and inflation, Ford says in his book that he consulted with Alan Greenspan, chairman of the Council of Economic Advisers, who later would become chairman of the Fed. In essence, Greenspan told him there would be no way out of the economic morass except to kill off the hydra-headed monster of inflation.

Ford said Greenspan told him it was time "to pull in our belts now, in order to enjoy a better life in the future."

Based on that advice, Ford resisted calls for creating massive federal jobs programs that might have worsened inflation when the recession wound down.

Investment manager Hummer said many of the difficulties Ford faced were worldwide in nature. Inflation wasn't confined to the United States.

"There was global economic instability and a very sick economy," Hummer said. "The ill-conceived wage and price controls fed the flames of inflation. Things were going downhill."

Economist Shilling said, "Ford was a very kindly man, who tried to calm the country."

While Ford had plenty of critics, "the stock market and certain aspects of the economy performed surprisingly well," said economist Peter S. Cohan, based in Marlborough, Mass.

He said blue-chip stocks "rose an annual average of 17 percent" during Ford's brief tenure.

Unfortunately for Ford, a majority of Americans perceived few quick signs of economic improvement. Jimmy Carter defeated him in the 1976 election.

Many of the vexations with which Ford wrestled worsened under Carter. His presidency saw the economy, in the view of many, swing out of control. The tumultuous economic backdrop helped lead to the election of Ronald Reagan in 1980.

Economist Dederick, who served as an undersecretary in the Commerce Department under Reagan, said the appointment of Paul Volcker to chair the Fed finally brought the inflation of the 1970s to an end. "Volcker said control of inflation was priority No. 1, 2 and 3," Dederick said. "The result was a great deal of pain."

By 1982, when the stock market hit a low point, Volcker had tightened credit so forcefully that rampant inflation was just a memory.

William Sluis writes for the Chicago Tribune.

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