The MacNeil/Lehrer Report; The Economic Consequences of the Weather

ROBERT MacNEIL: Good evening. How long is the nation going to feel the economic effects of this savage winter? That`s a question the country is beginning to ask. The weather has grown gentler this week, but another two to three week period of unusual cold is forecast. Will the damage to the economy be-permanent or brief? How long will factories remain shut and people forced out of work? Has the weather interrupted the economy`s painful recovery from recession? Those are the questions we consider tonight. Jim?

JIM LEHRER: Robin, exact, detailed information on the full scope of the adverse fall-out from the bad weather and the resulting energy shortage does not exist. The White House, for instance, says 1.8 million people have been laid off, but the Sindlinger Research Service puts the figure at three million, and others say it has been only a half a million, and so on. There are not even those ball park guesses on the number of plants, factories and businesses that have been forced to close down or curtail operations. It`s in the thousands, but that`s as close as anyone can come. It is known that some 17 states in all have been effected in some way, seven of those having been declared federal disaster areas. One of the most severely effected is Ohio where lay-offs numbered in the hundreds of thousands. Three-hundred and fifty of those were hourly workers at the Steel Improvement and Forge Company in Cleveland. They were laid off January 17, when their Cleveland plant was shut down. Charles H. Smith is Chairman and Chief Executive officer of the company. Mr.Smith, is your plant still closed as we sit here tonight?

CHARLES H. SMITH: Jim, unfortunately it is. We have some hopes that at 12:01 midnight, tonight, we may get some gas back in that plant.

LEHRER: If you do get gas back into your plant, when can you open up again?

SMITH: we`re going to try to start partial operations tomorrow morning. The shut-down that we`ve had for the last three weeks has been the most complete we`ve ever had to cope with, and we`ve had to shut down our equipment, drain all the waterpipes, and it`s going to be a big, laborious job to get started again.

LEHRER: All right. Do you anticipate being able to rehire all of these 350 people?

SMITH: We certainly hope so, yes.

LEHRER: And you think you are going to be able to do it?

SMITH: It would appear now we can`t bring them back all at the same time because in this shutdown we drained the: pipeline, if you will, of all the products going through the plant. So we`ve got to start now, as we start up again, at the front end and start refilling the pipeline.

LEHRER: How much have your employees lost in salaries since the 17th?

SMITH: We estimate that they have lost about a quarter of a million dollars in wages in this shutdown period.

LEHRER: How much has your company lost, do you believe, in profits?

SMITH: In terms of profits and, let`s say, losses -- not just lost profits, but the losses that have occurred . . .

LEHRER: Okay, just losses period. All right.

SMITH: We have lost about a half a million dollars in this period of time which was a lot of money for a small company like ours.

LEHRER: Do you see it as a permanent loss, Mr. Smith, or do you feel you`ll ever get it back?

SMITH: We hope we`re going to be able to get a large part of it back. None of our customers have canceled our orders. We still have the work to produce. It`s not going to come as soon as some of our customers had hoped. We`re going to do our best to try to pick up this loss.

LEHRER: Do you think you`re going to have to raise prices?

SMITH: Inevitably, yes.

LEHRER: Solely-as a result of this? I mean, price increases that you otherwise would not have instituted?

SMITH: I believe that energy in total is going to go up in price. It has to, and our company is one that is an energy intensive company. Our fuel costs are a very important part of our over all costs. So that I would anticipate that this will reflect in a price increase sooner or later.

LEHRER: Mr. Smith, do you feel that you were had, or do you feel that you were dealt with unfairly, or do you feel that it was justified in your plant being closed down?

SMITH: I think our plant had to be closed down under the circumstances. None of us would want to have the responsibility for homes going cold, gas lines losing pressure to the point that there would be a real hazard for the population of the area where we live. On the other hand, I feel that the real culprit in this has been the effort of the federal government to regulate prices of gas. If we had a free market in gas, I do not think it would have occurred.

LEHRER: I see. Thank you, Mr. Smith. Robin?

MacNEIL: Well, SIFCO is just one company. What does the picture look like when all such experiences are added together and projected into the regular economic forecasts. One respected institution in the forecasting game is Chase Econometric Associates, a subsidiary of the Chase Manhattan Bank. Its president is Dr. Michael Evans.

Dr. Evans, is this going to be a serious set-back to economic recovery?

Dr. MICHAEL EVANS: I think it will be. I think that the economy was not that healthy in the first place, and now it looks like we really won`t have a very good year at all.

MacNEIL: Has it wiped out the recovery we were having so far or just interrupted and delayed it, do you think?

EVANS: For the past three quarters the economy was growing at a rate to keep the unemployment rate about where it was, around 8%: I think we`ll have more of that this year. In other words, I don`t think the unemployment rate really will improve over the course of a year.

MacNEIL: So what you are saying adds up to a very serious effect from period of several weeks of very harsh winter.

EVANS: That`s right. It`s not just a short term effect. I think it will last throughout the year.

MacNEIL: What is the effect going to be? How are people actually going to notice it?

EVANS: First of all, they will pay more for their fuel bills, not only in this very harsh winter but natural gas prices, oil prices, electricity prices will be five to ten percent higher over the rest of the year than they would have been. Of course the fruit and vegetable crops in Florida have been wiped out, and most people estimate the fruit and vegetable prices will be 50% higher this year. That`s quite a blow to the average housewife.

MacNEIL: In what other ways will the average person notice the long term effects of this, if they`re going to be long term effects?

EVANS: Those employees that were laid off, that`s lost purchasing power. There is probably a million people out of work now. That estimate is a little conservative, but even so, these people are not earning pay checks, and they probably will not get it back during the rest of the year.

MacNEIL: You, I understand, have some figures or parameters on what you actually think the economic damage adds up to. What are those figures?

EVANS: We figure that the cold spells cost about 8 billion dollars out of the pockets of consumers, and that furthermore, if this damage continues, and if the drought conditions continue throughout the Midwest and Western part of the country, it could go as high as 15 billion dollars for the year.

MacNEIL: Do you see the rising price of fuel and other things having a permanent, inflationary effect?

EVANS: I think they will because I don`t think that these prices are going to come down again. Our long term energy situation is very serious. We`re not only short of natural gas this winter. We`re going to be short of it next winter too.

MacNEIL: So what you say adds up to a somewhat gloomy prognostication out of the evidence we have in front of us. Let`s get another view from a different economic forecaster. Dr. Albert Cox, Jr. was a special assistant in President Nixon`s counsel of economic advisors for a year. He is now president of Merrill Lynch Economics Incorporated and chief economist of the stockbroking firm Merrill Lynch Pierce Fenner and Smith. Dr. Cox, do you take as gloomy a view as Dr. Evans?

Dr. ALBERT COX, Jr.: No, I don`t. For one thing, we think that the economy before this winter situation hit, had achieved a good head of steam. Now we do think that this situation is going to put a dent in activity and in the statistics that are going to be reported the next month or two, but after that we think the expansion will resume and be quite strong.

MacNEIL: What do you think the effect is going to be? How would you describe the effect, this dent you are talking about?

COX: For instance, in-terms of industrial production, it will definitely be down a little bit, we think, in January. In February it will probably be down a lot. After that, we think, if we have a little luck on the weather - - and that`s the way we would tend to bet -- it`ll be going back up again, and we`ll be headed back on up the way the economy was before this hit.

MacNEIL: You work for a firm that advertises the slogan that they`re bullish on America. Your views are not conditioned by this sort of professional optimism, are they?

COX: No, they`re really not. We try to be as objective as we possibly can be, but we just don`t think that this situation calls for that in the longer run.

MacNEIL: How do you think that people are going to feel these effects most? Ordinary people.

COX: I think that the most basic effect is going to be on inflation because, as Mike mentioned, what`s happened to the fruit and vegetable situation in Florida and, of course, we have a drought also in the Western part of the United States, and that`s going to put upward pressure on food prices, so the longer lasting effects we think will be in the price of food, not in terms of employment or income.

MacNEIL: I heard another interpretation of that fruit and vegetable thing for Florida, especially in citrus, that what the frost has done is to eliminate an embarrassing surplus for many of them. Just restored them to something like a competitive market situation.

COX: From their viewpoint, that may be the way they look at it, but from the viewpoint of prices it`s going to definitely put sharp upward pressure on-prices, and it`s going to add -that plus the drought in the West -- it may add as much as l% to the food price inflation this year.

MacNEIL: Yes. Some economists describe the effect of this sort of thing as really more a transfer of money rather than a loss because some people, like the gas companies, are going to benefit in the short run while other people are suffering from it. Do you see it that way, as sort of, in a sense, equalizing because it`s moving from one group to another rather than being lost?

COX: I don`t see it completely that way. There is going to be some lost income. There`s no question about-that. But there are those transfer effects in the picture,, and I think that we`ve got to bear that in mind in terms of, you know, assessing the seriousness of this thing.

MacNEIL: Do you like to put a figure on how much income you think has been lost? Dr. Evans mentioned about 8 billion dollars, I think he said. Do you like to put a figure on it?

COX: Not really because I don`t think that we really know as yet the full facts. You know, there are all kinds of guesses about how much unemployment there really has been caused by this. We won`t have the facts from the Labor Department for a couple of weeks. So we feel we`re somewhat in the dark right now and that we would not like to extrapolate the bad weather which is only a few weeks old in duration.

MacNEIL: Jim, one gloomy view and one slightly more optimistic view.

LEHRER: Okay, Robin. Let`s now find out what the federal government can or should do to ease the short term and/or long term economic problems caused by this very bad winter. One man who is currently wrestling with that very problem is Congressman Joe Fisher, Democrat of Virginia. Congressman Fisher is a member of the House Ways and Means Committee and the House Budget Committee and he is an economist by profession.

Congressman, first of all let me ask you to put on both your hats as an economist and as a congressman. How do you see the effects of this bad winter on the economy. You`ve heard what Dr. Cox and Dr. Evans have had to say.

Rep. JOSEPH FISHER: I see the effects as severe in the short run and could be very severe if the cold weather and all the damages from it continue much longer. In the longer run, looking to next summer and beyond, I think it won`t be so easy to see what the effects have been on the general economy.

LEHRER: Where would you tend? Would you tend to go with Dr. Cox then on the basis that the economy was recovering and this is just kind of a temporary setback, but basically everything is going to be all right in a few months?

FISHER: You know, it`s always comfortable to say you`re in between Evans and Cox or somebody, and I think actually I am between. Perhaps closer to Dr. Cox.

LEHRER: Uh-hm. You`re more optimistic than . . .

FISHER: A little bit more, yes.

LEHRER: All right. Now let`s talk solely under the Congressman`s hat now. Is the federal government doing all it can do, first of all to get through the short term problems that have arisen as a result of this bad weather?

FISHER: I wouldn`t say it`s doing all that it can do. Hardly anybody ever does all he can do. But I think the federal government has stepped up to this pretty well. The President has declared a number of disaster areas which triggers quite a number of special, quick aid programs from the Federal Disaster Assistance Administration.

LEHRER: And that makes it possible for businesses to get loans from the Small Business Administration, farmers from the Farm Home Loan Board if that`s the official . . .

FISHER: That`s right. The Farmer`s Home Administration.

LEHRER: And then increase unemployment benefits. That`s the basic thing that was there for any disaster situation, right? Anything other than that though?

FISHER: For example, in Florida the migrant workers who are thrown out of work and aren`t covered by the regular unemployment compensation are eligible for special grants under the emergency powers, the disaster powers. Yes, there are other things. There are aid for up to one year for housing; there are programs for aid to local government for repair and replacement of damaged facilities. And there are several other things that can be done along that line. The government agency, the disaster agency, tries to put these things together and bring them in quickly. And I`m sure that they don`t do everything possible, but they do pretty well.

LEHRER: All right. Let`s move to the long term. According to Time Magazine there`s an awful lot of debate already among the Carter administration, among the Cabinet members particularly, about whether or not the President`s stimulation package economics, the $50 rebate bit and all of that, is enough now as a result of all this bad weather problem. What do you think about that.

FISHER: I think the bad weather, and if it hangs on much longer will indicate that the President`s package for the first year perhaps should be expanded somewhat. It`s a 15 billion dollar package the first year weighted for tax rebates. The second year it`s about the same amount, but the rebate is over. It`s public jobs, public works, training programs. And I think the consequences of this really bad stretch of weather -- you know it`s once in 50, once in 100 years -- and I think this indicates that perhaps we should put more into that emergency package.

LEHRER: But wait to see if it gets any worse. You`re not prepared to say at this point how much or anything like that. You want to see if the weather continues.

FISHER: Yes, I reserve judgment, but I would expect, if it keeps on for another couple of weeks or so, it would be wise to increase part of the package that gives a quick benefit.

LEHRER: All right. Let me ask you, Mr. Smith. First of all, when you were ordered to close down your plant and this bad weather situation had a direct fall out on you and your employees, did you automatically find yourself looking from Cleveland down to Washington for a solution to the problem?

SMITH: As I said before, Jim, I think that the long range solution has to be deregulation of interstate gas. If this were done, I don`t think we`d have the kind of problem we have today.

I really don`t think that Washington is the answer. As a businessman that`s struck with a very difficult problem what I`d like to have the Congress do is let us alone. The free market, the free enterprise system will solve these kind of problems given a chance, but when they are smothered with regulations we get into this kind of a problem.

LEHRER: Do you have view on the Carter economic program as to whether or not it ought to be increased now, or do you even like it at all?

SMITH: I think that in the long range one of the basic problems in this country, and I think the economists would agree, is the problem of inflation. To the extent that the Carter program might make that more difficult, it worries me. Now, I am not a professional economist unlike my three friends on this program so that I express this as a businessman. But every time the federal government spends a lot more money than it is able to collect, we have inflation.

LEHRER: Well, let`s go to the two economists in New York. Gentlemen, what do you think about the Carter economic plan and whether or not it should be increased now in accordance with what the Congressman says because of this bad weather. Mr. Evans?

MacNEIL: Mr. Cox. I`m sorry. (Laughs)

COX: I think it would be premature to say the least based on our thinking; to do anything additional now. We`re very fearful that the package as it is contains the seeds of another big round of inflation, and this weather situation is very fluid and can change very rapidly. We just saw the workers in New York and northern New Jersey that were laid off a week ago all going back to work this week.

LEHRER: As Mr. Smith said in his plant they`re going back to work tomorrow.

COX: In Ohio, yes. So we`re hopeful. I think it would be a real mistake to add to the Carter program right now unless you want to assume we are in the ice age forever or something like that.

LEHRER: Are we in the ice age, Mr. Evans, economically?

EVANS: I don`t think so. I think that the Carter package is terms of the total dollar amount isn`t so far off, but I think it`s absolutely the wrong package. I think it`s been put together poorly. I think the major effect would be as Mr. Cox says, would be inflationary without putting many people back to work, and that is not what anybody wants.

LEHRER: Wait a minute. Economists are not supposed to agree. Now wait a minute. (Laughter) What about this specific problem, Mr. Evans, of getting through this bad period. Do you think any thing special should be done economically in any way?

EVANS: We`re doing the right thing through disaster legislation. That`s what it was designed for, and that`s what it`s doing. You don`t cure disasters by increasing tax rebates. All the tax rebates in the world won`t bring back those oranges that are frozen. We need different kinds of legislation for the longer term problems.

LEHRER: Congressman, do you agree with that?

FISHER: He is quite right. You can`t grow oranges by giving tax rebates, but you can stimulate the economy to some extent and provide jobs and encourage production and even, after a little while, perhaps get more profits for business.

LEHRER: So you disagree with him in other words?

FISHER: Yes. I disagree with him, certainly in emphasis.

LEHRER: Yes. Are your employees, Mr. Smith, are they looking forward to a $50 rebate? I mean, I realize you have a philosophical problem about all of this, but in terms of the people in your plant who have now been out of work for three weeks, wouldn`t they welcome a $50 rebate or even more?

SMITH: There`s no question but what the employees in my plant who have been out of work for three and a half weeks would welcome any income right now. On the other hand, the question of whether this will really stimulate the economy is another thing. They need help. There`s no question about it.

LEHRER: Okay. Robin?

MacNEIL: Does this come to the difference between you two. You think the economy needs more stimulus now, and you don`t think it needs more stimulus now.

COX: That`s right.

MacNEIL: So if you think it needs more stimulus, what kind of stimulus do you think it needs?

EVANS: I think we need a permanent income tax reduction, one that would apply both to personal and corporate income taxes. I think that would lay the long term ground work for an increase in jobs and also keep the rate of inflation under control.

MacNEIL: Now, did you think that before this severe weather set in?

EVANS: I did.

MacNEIL: And what do you think they should do different now because of the severe weather?

EVANS: I don`t think you can fight severe weather with the ordinary types of fiscal policy. I think the disaster legislation is a fine idea for that, and I don`t think the fiscal policy is the proper tool. Fiscal policy can`t solve everything. It can`t solve the swine flu for example. It`s just not designed for everything in the world.

MacNEIL: But you would increase the amount of economic stimulus that you thought was necessary before because of the weather?

EVANS: But I would do it through a permanent tax cut and not a temporary rebate.

MacNEIL: And you wouldn`t do anything like that at all?

COX: No! The government doesn`t have any money. That`s the first thing. All they do by increasing the stimulus is to borrow more. Now we`re afraid at this stage of the economic expansion, since we think it is stronger than Mike does, that extra borrowing among other things is going to drive interest rates up in the third year of expansion if the private borrowing is pretty strong.

MacNEIL: Yes. Congressman, which of these sides do you come down on?

FISHER: I come down on the side of being ready to consider, if the cold weather continues, a somewhat larger stimulation package or the part of it that would act quickly. And I would do this out of concern for the unemployed and the business firms and so forth that have been particularly hard hit by this.

MacNEIL: There are quite a lot of your Democratic colleagues in the House who think that Carter`s plan is insufficient in its stimulation for new jobs and who already want to increase the pack age regardless of the weather. Isn`t that true?

FISHER: That is true. I`m not out on the extreme there. I have argued for a very slight increase. A little perspective here. You know we`re talking about a 15 billion package out of a national economy of 15 hundred billion or so, and when we talk about increasing it a little bit or decreasing it a little bit, we`re talking about one or two billion dollars. So we shouldn`t get the idea in our heads that this is going to solve all our problems.

MacNEIL: So you`re all really talking about fine tuning, not really massive changes?

LEHRER: Mr. Smith wanted to . . .

MacNEIL: Yes, Mr. Smith.

SMITH: I wanted to make a point that I think is going to have some bearing on this question of what this weather problem has done to the economy. In my own little company we have a desperate short age of capital. We have expansion plans that we want to carry out.

LEHRER: New plants and that sort of thing?

SMITH: Expansion of our business. New equipment, more jobs and so on. The shortage of capital is what holds us back. Now it would appear that we are going to have to take the limited amount of capital that we have and go out prospecting for gas-wells in Ohio in order to keep our plant running., Put in-:a whole new fuel system into our plant because we cannot stand a shutdown like this every year. So that we must find some way to protect our company and the jobs that it provides. And it means that we`re going to have to divert capital from business expansion over to doing something that we`re not even equipped to do.

LEHRER: You mean, converting to another fuel system all together? Fuel oil or whatever.

SMITH: Converting to another system. Seven years ago we were forced by the Environmental Protection people to put in a whole new power plant to burn gas instead of coal. Now we`re being told we must convert it back to coal. Millions of dollars involved in it, and yet this is what is going on. And this is why I say, "Please government, leave us alone."

MacNEIL: Do you take this into consideration in your models? That factories like Mr. Smith`s may have now to go to alternative fuel systems and that that will therefore remove capital they might be spending on expansion which would cause the economy to grow, both?

EVANS: The idea is there that if Mr. Smith spends X million dollars on one thing or X million dollars on another thing, the total effect on the gross national product is the same, but if he has to spend money looking for new fuel sources, that would tend to be inflationary. Whereas expansion wouldn`t be. That`s why I think we happen to agree about the inflationary aspect being fairly severe from all this.

MacNEIL: Can I ask each of you, is there something that can be done in the way of contingency plans like the military has to mitigate the effects of another really cold spell like this should it come again. Is it just an act of God that we can`t do anything about, or are there things we could do that would make it less severe next time?

EVANS: We`ve had cold weather before, but we haven`t always had natural gas shortages before. The administration has just got to get its energy policy act in gear. It can`t go on pretending that there`s plenty of natural gas when there isn`t. Because right now the way the present laws read, we`re going to have less natural gas next winter than we have this winter, and that`s not going to make things any easier.

MacNEIL: What`s your opinion?

COX: I hope that what it does is to clarify the issue a little more between the environmentalists who are blocking so much energy development such as drilling off the Atlantic seaboard and atomic power plants, and so forth. To clarify that issue. We`ve got to decide whether we want to freeze to death or whether we want clean air and pure water to the nth degree.

MaCNEIL: Congressman?

FISHER: I have to point out that the business community frequently want the government off their backs when it comes to price control and governmental regulations, but they sure do want the government help when it comes to new loans to develop new sources of energy and when it comes to tax credits and things like that. It pretty well boils down for business people as others, you like the government when they`re doing what you want them to, and you don`t like them when they`re not.

MacNEIL: We have to leave it there, Congressman. Thank you very much. Thank you all in Washington. Good night Jim. Thank you here. Jim Lehrer and I will be back tomorrow night. I`m Robert MacNeil. Good night.