You are proposing now to add to the exorbitantly high world price. of oil additional excise, which will make the price still higher.

I think that OPEC then in retaliation will raise its prices. I think that is a very real risk.

The question is, how certain can we be that these increased prices will in fact result in a reduced level of consumption at the time that you anticipate?

We have looked at studies that have been presented at the Economic Committee of Congress, which suggests that even the price of gasoline, in the pump, if it went up 30 cents a gallon, I think you're suggesting that President Ford's program would raise that price 10 to 12 cents per gallon.

Even if the price went up 30 cents a gallon, it would resolve because of the inelasticity of the demand for gas. After all, people have to have it whatever it costs. That is how we have designed our economy.

And the 30-cent price of the gasoline at the pump would only bring down consumption level by about half a million gallons, and that is what the President himself acknowledges to be the goal.

Mr. ZARB. Mr. Chairman, I have been sitting here quietly not knowing whether I was going to get a turn. If I am out of turn, let me know. It seems to me that virtually everyone who has spoken today, and has written in the press, has started by saying that I am in favor of conservation. I am also in favor of independence.

I will answer your question. I am not going to make a speech. But when we get down to the price of what we have to pay for either event there are those who will quarrel that the price is too dear for the interest that they particularly have an interest in.

The President's program for conservation is one which we believe. will raise the value of oil energy in our society to a level, over a long period of time-I'm not talking about 5 to 10 years-will have our economy make different selections and different investments.

It reaches to the homeowner, who will put on storm windows, who is reluctant to do it still. Or to the automobile driver who might buy a smaller car instead of another kind of automobile.

Or to the factory manager who must invest in a different kind of equipment to get sufficient use out of this scarce thing that we call oil

energy.

We might quarrel with whether the elasticity levels are at the right point. Our people have gone into this exhaustively at the outset, and of course more extensively since there has been challenges to these numbers.

They have made a determination that we will reach our goal. The only legitimate analysis that contradicts that thus far has been printed by the Wall Street Journal, and they say we will fall short by 200.000 or 300,000 barrels a day, and we can see in our program where that might occur, but we have some makeups for that.

The critical question, it seems to me, is do we want to have a changing economy that we use energy over the long term at a different value level, and treat it as a scarce commodity, and then what technique is best to use?

Then I think we should look at the real cost of each alternative. No

courses in energy crisis solutions, and we would want to hear other views as to where we might be mistaken.

We think that we have the data to back this up. The President has said very clearly however, that if that goal is not reached through the vehicle of raising the value of energy that no one will guarantee its results by limiting exports and allocating the difference.

Senator CASE. Import or exports?

Mr. ZARB. Imports. I meant imports.

Senator CHURCH. That is the point I would like to ask my last question on.

Since the impact of price upon consumption is, at best, guesswork, why wouldn't it be far more satisfactory, and far more certain, to approach this directly?

The President has said that if his present program doesn't work after all of these price increases, then he's got to approach it directly

anyway.

Why don't we approach it directly from the outset by simply beginning with limitations on imports? Thus, we will know for certain how much we will reduce consumption.

Then we can make adjustments in the economy by phasing it in over a period of time. Wouldn't that be a far more reliable way to approach reducing imports than to boost prices generally in the economy, and wait to see how much that results in a reduction in consumption?

Mr. ZARB. Senator, that is certainly an alternative, and one that was developed very, very fully before the President saw the options available to this Nation to get this particular job done.

I will outline only in brief terms the negative aspects of that program, but could fully go into a lot of analysis that reflects some of its benefits and many of its problems.

If we hauled in economists that are now coming in on the President's program, and laid before them the scheme of having the Government of the United States begin to create a shortage, such as a self-imposed embargo, either abruptly or gradually, we would then be depending upon the Government, and that would be my agency.

I have said publicly if the Congress will listen, and the President signed it, we would have the best allocation system that any government could put together at anytime. I would promise you that.

But having said that, I can only refer you to the problems that we would have with Government employees making decisions every single day as to whether this company is allowed to have this percentage of oil, or that percentage of oil, and whether that company is allowed to start operations, because if a new company comes on stream to start operation we have to take it away from somewhere else.

Well, the economists, some of whom have spoken publicly on the President's program, would be quick to say that the economic disruption with that kind of approach would be very significant.

The point is that that program, not only in its inequities and possibilities of difficulties, its economic price, in the eyes of the economist that have looked at it, say that it is greater than the one that we have spoken to a few moments ago.

Senator CHURCH. I find it hard to accept the argument.

I recognize its dismay when I consider the tremendous inflationary

All I can say is, it seems to me that the President himself, admits that after paying that higher price, if the program fails to reduce consumption sufficiently, he is going to have to turn to the direct approach

anyway.

I think that is the way we are going to end up before this is over with. That is one of the reasons for me talking in the beginning about the experiment of inflation-that we proceed ultimately to do the think that is open to us now.

Mr. ZARB. As we examine the inflationary impact-and this debate should be resolved with real numbers, and that is possible-we have calculated a 2-percent increase in the CPI on a one-time basis.

And indeed, any increase in inflation is not good to have.

We compared the unemployment activity that would occur, and the disruption in terms of recessionary activities that would occur, based upon the straight allocation program, our economists, a good many noble people, concluded that that was one of the poorest alternatives from an economic standpoint.

When the President said, "I will use those authorities," he was responding to those who would question whether or not the principle of raising a value and having the economy make its decisions day in and day out may not get us all the way. It was simply a guarantee.

The CHAIRMAN. While you are on that, I want to mention, that when you get the figures up would you kindly respond to this statement by Mr. William Seidman, which is on the UPI ticker of January 15. He is the President's Economic Coordinator.

And I will give you those. That in addition to the 30 billion, which you have gone into detail, American consumers will ultimately pay in higher taxes and tariff fuels ripple effect, such as higher transportational costs, which will add $25 billion to the consumer's cost, as Seidman told reporters.

When you have time, please do that, because he completely contradicts the position you've taken on ripple effects.

Mr. ZARB. We'll ask Mr. Seidman to respond to that directly.

The CHAIRMAN. He also advised me at a staff briefing. He brought the figure to $55 billion. I meant to bring that in and he's supposed to be in charge.

You can understand why we're concerned when the top economic spokesman says the total is $25 billion.

Senator CASE. I hope it would be possible to have him before this committee.

The CHAIRMAN. We will. There's just a $25 billion difference here. Senator HANSEN. Mr. Chairman, let me observe, first of all, that I guess the administration isn't any better coordinated on one position policy than the Democratic majority in the Congress. We seem to be in about as much disarray as some of you are.

I would say first of all, that we've got to consider this fact, the President came up with a specific proposal that addresses three major subject areas, and those are inflation, jobs, and energy.

I think we're belaboring the point if we say now, as some would have us do, that the only concern has to be to focus our attention on our jobs.

I would say that this package that the President has presented is a

have some questions to ask him and I've already asked questions of the FEA people. They know that there are proposals that I think are counterproductive and I think need to be changed.

Let's not forget that the President of the United States, for the first time, has put together a total package that addresses the three major concerns that are shared by nearly every American.

What about inflation? Sure we've got inflation. It's rampant and everyone knows it. What is the one single reason, the most important reason for it? The sharp escalation in the cost of energy.

Who did anything about that? Not the typical American. It was brought about because the foreign oil exporting nations, and I started to say Arab countries and it includes most of them obviously, but some others as well are included; Iran, Venezuela, Canada, our great friends to the north, and they are great friends. They're charging us just as much as the Arabs are charging us.

So let's not be myopic in thinking the problem is precisely an ethnic one as some would have us believe. It really isn't.

The fact is that this cartel pulled their members together and said let's push the price up. I think some of the reasons may be obvious to some of us, and I don't pretend for a moment to say that I know all of them, but for one thing, they didn't like our foreign policy in the Middle East.

Some people in this country, oil people and politicians and others have been saying for a long time that if we permit our dependency upon a foreign source of energy supply to escalate too sharply, we're going to find that those nations that supply that energy may very well start trying to dictate what our foreign policy shall be in those areas of the world in which they have major interests.

That's precisely what has happened. I don't say there would be a resolution of our inflationary problems today if we were to resolve our foreign problems on their terms. I do say that the President's message addresses this problem. It does cost money.

The most frustrating, and the most agonizing fact of all about this outflow of money that goes to pay for the oil we import is that it doesn't produce one job; not one job in America. They're in the Middle East. They're in Venezuela, in Canada, in Nigeria, and in Indochina. I think it makes awfully good sense, as the President has said, to put this import fee on foreign oil. And everyone knows that if you raise the price of candy, any schoolchild knows that when it goes from a nickel to 15 cents, you're not going to buy quite as much unless you can get more money from your mother or dad than you were getting before.

Maybe most kids don't remember 5-cent bars of candy but I do.

Nevertheless, the President has addressed this issue and he has also addressed, parenthetically the foreign policy issue although it may be minimized somewhat in terms of overall importance. The fact remains that as we achieve a goal of energy independence through Project Independence, we're going to be able to take the kind of posture throughout the world that best serves America. I think that's important.

I think that's so important that we ought not, for a moment, ever

What about jobs? Jobs are important. For a long time some of us in the West, and others whom I would like to believe are more farseeing than others, say let's decontrol natural gas.

Of course, the Federal Power Commission and most of the eastern people said never. Most of the members of this committee have said never, and many Members of Congress have said never decontrol natural gas. It's going to cost the people more money. It's costing us more now. And, you know how? I read it a couple of weeks ago that United States Steel has a little plant in Ohio; they employ about 1,800 people that are out of jobs now. They laid off 1,200, first. Then in another week they wanted to lay off 600 more. Maybe that isn't many people.

The important fact is that this little United States Steel plant happened to be producing tubular goods, fittings and the things that the oil people use, the independents who made 88 percent of all the new discoveries last year. Things that they need now and can't get because the materials aren't available.

We needed to decontrol natural gas a long time ago, then you wouldn't be burning it as we have been burning. But we refuse to decontrol natural gas because it's a popular thing to do.

I say that no one wants to pay more, including the little kid who has to pay 15 cents for a candy bar. The facts are, if you want to get more, you've got to pay for it and we should have been paying more for natural gas a long time ago.

Also, what I say about natural gas is true about oil. If we want to have more oil, we've got to pay for it.

I talked with a man from Denver, Colo., who knows something about what he's talking about. He said to me, and this was several years ago, that if we could get $7 a barrel for our crude, we would have, with the technology we now possess, the ability to market shale oil. In the meantime, of course, prices have gone up. Everything has gotten more expensive and what was then true, no longer is true.

The thrust of the President's import tax and the thrust of the excise tax, making these conventional sources of energy more costly, will have the effect of spurring the development of these other important energy sources we have in the United States now. That's of tremendous importance, because we have enough coal in the Powder River Basin which begins in Wyoming, where the creek is a mile wide and an inch deep and flows uphill most of the time to supply all of the energy needs of this country for several hundreds of years if we make good use of it.

One of the ways to make good use of it is to make it competitively profitable for the companies engaged in the energy business to develop coal, or synthetic gas from coal, and to permit coal liquifaction, so as to be a supplement to the gasoline that we now have to depend upon. We know that nearly 40 percent of all the crude oil we use in this country today is translated into gasoline.

We'd be making a bad mistake if we were to criticize the President's program on the basis of talking only about gasoline. That's another point that I want to make.

Rationing, some people say, has to be the solution. But it addresses