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    FINDING THE ENERGY TO SAVE THE ECONOMY

    BY DAVID LIGHTMAN
    05/16/2001
    by DAVID LIGHTMAN on 5/16/01.

    In many ways, the key to avoiding a full-blown energy crisis is to keep the public confident about the economy and willing to spend.

    But that won't necessarily ease the immediate concerns of increasingly rattled consumers watching the increasing prices at the gas pump and worrying whether they'll be able to turn on their air conditioners this summer.

    As House Democrats unveiled their own energy plan Tuesday, and President Bush prepared to offer his Thursday, it was obvious that one of the biggest dilemmas was crafting a package that gets consumers what they need, jolts the economy enough to keep energy readily available, but doesn't trigger high inflation or federal budget deficits.

    It's a tricky balance. Democrats gathered Tuesday at a southeast Washington gas station, stood on the concrete and passed out booklets detailing an ambitious series of tax breaks, conservation measures and long-term strategies.

    But when asked how much those breaks cost or how the government could afford them, Rep. Rosa L. DeLauro, D-3rd District, like her colleagues, was not sure. "There will be a price tag at the end of the process, and we'll come up with that," she said.

    But there are several elements to this complex equation.

    One is that soaring energy prices have the potential to send the economy into a recession. It happened in the 1970s, and experts are concerned it could happen again.

    "You have to expect that if prices keep going up, you'll see an impact next fall and certainly in the winter," said Chuck Fuller, vice president for public affairs at Citizens for a Sound Economy, a Washington research group. "And it follows that the economy will sink more quickly as that happens."

    The logic is this: While the economy has slowed, it has not stalled. So consumers can largely counter higher prices with conservation, as can factories and retailers.

    But that can become futile: A thermostat can be lowered only so much, people need certain amounts of gasoline to conduct their daily lives, and factories need a certain amount of power to keep operating.

    The only reasonable alternative is to pay the higher prices, and that in turn means cutting back on other purchases or passing higher costs on to consumers, all of which ignites an inflationary spiral.

    The most obvious preventive measure would seem to come from the Federal Reserve Board, which again Tuesday chose to counter the slowdown and potentially higher prices with lower interest rates. But most economists believe it takes a year for lower rates to ripple through the economy.

    The easiest legislative remedy would be to repeal, or at least suspend, the 4.3 cents per gallon gasoline tax enacted in 1993.

    Republicans have expressed some support, and bills are pending, but many analysts and members of Congress find it an appalling tactic.

    "It would threaten the surplus big time," said Carol Cox Wait, president of the Committee for a Responsible Federal Budget, a Washington budget group. Not to mention the specific projects the gas tax funds, notably road construction.

    Bush is contending that the best way to combat the energy crisis' economic impact is to give people a big tax cut, which will give them more to spend on higher costs until his other initiatives kick in and increase supply.

    Sen. Joseph I. Lieberman, D-Conn., found that logic absurd. "My first reaction was to laugh, but I want to be respectful," he said. "But the next thing you know, they'll say the tax cut is the answer to the problem of arsenic in drinking water."

    What's more likely to emerge is a series of relatively small steps to help people economically, steps that will ease some short-term problems but are unlikely to make much of a dent in the federal budget.

    A key short-term solution, said White House spokesman Ari Fleischer, would be "a series of ongoing discussions with leaders of OPEC and they will continue to take place. They are quiet, they are diplomatic and that is the focus of the president's efforts."