Playboy Interview: William E. Simon

The number-one topic of conversation in Washington and elsewhere these days is the sad state of the American economy, and an increasingly angry citizenry is blaming its political leaders for both high prices and lost jobs--and turning to them for help. Except for President Ford, the man who's been under the heaviest pressure is Secretary of the Treasury William E. Simon. In prosperous times, Treasury had been a sinecure for rich bankers and industrialists desirous of some high Governmental title to chisel on their tombstones. Not in 1975. Treasury--not State or Defense--is where the action is in Government today, and no one knows that better than the man who is now in its hot seat.

Simon was born November 27, 1927, in Paterson, Nezo Jersey. His grandfather was in the silk-dyeing business, his father in insurance. Young Bill grew up in comfortable circumstances in Spring Lake, a resort town on the Jersey shore, and attended private schools. After a stint in the Army, Simon went to Lafayette College in Easton, Pennsylvania, where he prepared to study law but also found time to play poker and drink beer--and wound up lipping the scales at 240 pounds. Nowadays, however, he is, at six feet, a trim 165 pounds.

By the time Simon got his B.A. in 1951, he had married the former Carol Girard and was already the father of two children (eventually, there'd be seven). Setting aside his plans for laiu school, he began a career in finance--which culminated in a senior partnership in the New York investment-banking firm of Salomon Brothers. So hard-driving and aggressive was Simon as head, of the firm's Government- and municipal-bond departments that one associate dubbed him "the Vince Lombardi of Wall Street--to him, winning was everything." When President Nixon appointed him Deputy Secretary of the Treasury in December 1972, Simon's share of Salomon Brothers' profits was reportedly between $2,000,000 and $3,000,000 a year.

The Simons left behind a 64-acre estate in New Vernon, New Jersey, and went to Washington with four of their children. (Two others are in college; another is working.) They now live in a large stucco house with a swimming pool and stables on seven loooded acres in McLean, Virginia. Back in his Wall Street years, Simon swam every day and played an occasional round of golf or set of tennis. Formerly a surfing enthusiast, he once took his wife on a South Pacific odyssey to Oceania in search of "the perfect wave." But his present 13- and 14-hour workdays at Treasury leave him no time for such activities. He's up before dawn and at work until at least eight P.M.; at the office, he is constantly in motion. While others are being seen lunching at the Sans Souci and other Washington bistros, this workaholic is gulping down a sandwich, Coke and fruit at a desk piled high with papers. Food is of such little importance to Simon that he some-limes eats the same kind of sandwich day after day for months at a time. (He recently switched from liverwurst and Swiss to ham salad.)

With his thick glasses, slicked-back hair and tailored suits, Simon seems hardly the sort of person who might become a pop figure. Yet last year, when Simon was serving as Federal Energy Administrator, cartoonist Garry Trudeau in his comic strip "Doonesbury" made a staple feature of the pipe-smoking "energy czar" who distributed gallons of gasoline to pleading Toronado owners the way medieval Popes passed out indulgences. No crowds lined Pennsylvania Avenue cheering "Long live the czar!" when Simon trekked over to Capitol Hill; but he managed to give Congress and the American public the impression that something was being done during his five-month tenure in that office. Simon tuas appointed Secretary of the Treasury in April of last year and now looks back on his lime as head of the Federal Energy Administration almost wistfully. "I must admit that during those very trying days with the gasoline lines and all the hectic activity, I thought Trudeau's cartoons were awfully funny." Unfortunately, Simon has little time to reflect on the "good old. days." The action has switched from energy to tlie economy and, as Simon puts it, "I seem to be in the center of the storm again."

Because his conservative economic theories do not sit well with many on Capitol Hill, Simon assiduously courts Congress, behaves deferentially to its barons and promptly returns the phone calls of even junior members. This approach may not result in any ideological conversions, but it does make friends. After all, if a Congressman can get the Secretary of the Treasury to take--or at least seem to take--an interest in the economic problems of a factory back home, he probably couldn't care less whether the Secretary is a disciple of Adam Smith or of John Maynard Keynes. The most slashing attacks on Simon have come, in fact, not from his potential adversaries in Congress but from his supposed allies in the Ford Administration. In January, syndicated columns were overflowing with news leaks from anonymous "White House sources": Simon was on his way out. Who leaked those stories is a matter of conjecture, but the finger seemed to point to Roy Ash, the former head of the Office of Management and Budget, or to Presidential counselor Robert Harlmann. The rumors got so bad that President Ford finally gave Simon a public vote of confidence--ending the whispering campaign, at least for the time being.

Because what Simon thinks and does in the next few months will affect the health of the American economy, Playboy asked Peter J. Ognibene, a New Republic contributing editor, to interview the Secretary of the Treasury. He reports:

"My first meeting with Simon was late in the afternoon of the day after Christmas. When I walked into his office, I saw him standing behind his desk, staring intently at a paper in his hand. He stood seemingly frozen in that position for almost a minute before he noticed me. Later, when we were talking, he seemed similarly intent when he answered my questions. Discipline and concentration are what make this man tick, and I suspect these qualities have been the keys to this noneconomist's ability to learn and function in this most complex assignment.

"Simon is a believer, and his faith in the American system of private enterprise seems almost unlimited. 'Government is a menace,' he says, asserting that the country would be much better off if business were permitted to operate unfettered in the market place. He believes this so deeply that at one point in the interview he twice said 'countries' when he meant 'companies'--a telling slip that may be indicative of the sovereignty of corporations in Simon's scheme of things.

"In our first interview session, he came on strong about the need for fighting inflation by cutting Government spending, keeping a tight rein on the money supply and, in general, opposing suggestions that the Federal Government needed to stimulate the economy to fight the growing recession, with its skyrocketing unemployment. Before I left that evening, he mentioned that he was leaving at five A.M. the next day for Vail to meet with President Ford and his other economic advisors. Out of those meetings came the State of the Union message and the Administration's program for dealing with inflation and recession.

"I saw Simon again early this year and noticed a subtle shift in his emphasis from the fight against inflation to the need to stimulate,--but not overstimulate--the economy. It soon became apparent to me that he had lost his battle to get the President to take a hard-line, anti-inflation stand. In our final session at the end of the month, he strongly defended the President's proposals to cut taxes, increase the budget deficit and raise the ceiling on the national debt another 100 billion dollars--proposals that were clearly anathema to him.

"Yet, in spite of it all, Simon seems to relish, being 'in the center of the storm,' and there is no doubt that he is. I think he feels a strong sense of loyalty to Ford, and neither man would stand to gain if the Treasury Secretary and the President were to come to a parting of the ways before Congress had acted on the Administration's economic proposals. How long Simon will stay--or survive--in office is anybody's guess. I suspect that the key to his tenure will be how well--or, indeed, whether--he can continue to defend, in public, Presidential proposals that run so contrary to his run personal philosophy and, preferences. "

[Q] Playboy: Most people have come to believe there's something fundamentally, dreadfully wrong with the American economy. Opinion polls indicate that not one person in ten believes our economy is well managed. Is this lack of confidence justified?

[A] Simon: Basically, I agree with those who say our economy has not been well run--despite its good intentions, Government seldom seems to run anything well, I'm afraid. Yet there's a perception in America that there exists a simple, quick solution to our economic malaise and that an action, or a set of actions, will cure this problem instantly. That isn't the case. But before we can understand how to cure the problem, we have to explode a myth that has become quite popular in recent months: that nobody knows how it all happened. We do know.

[A] Our present inflation problem stems from a series of special shocks that hit our economy. One was the poor weather in 1972 and 1974 that caused a shortage of food, which, in turn, created an explosion in prices. Two, a little-noted, simultaneous boom in every industrialized country in the world created greatly increased demand for internationally traded raw materials; this also had a tremendous effect on price levels. Three, two devaluations of the dollar, while necessary to make us more competitive abroad, had a short-run inflationary effect. Four, the quadrupling of oil prices during and after the Arab oil embargo had a profound effect: Food and oil prices accounted for most of our price increases during 1973 and early 1974. And, lastly, our 1971-to-1973 flirtation with wage and price controls resulted in further distortions, shortages and scarcities.

[A] Special shocks like these have occurred before--but never so many at the same time. Under normal circumstances, the economy absorbs such shocks and price levels recede to what you and I would consider an acceptable rate of inflation. This time, due to the irresponsible excesses in fiscal and monetary policies over the past decade, we have been left with a most unacceptable rate of inflation.

[Q] Playboy: Would you define what you mean by irresponsible excesses?

[A] Simon: We've had budget deficits in 14 of the past 15 years, and the prospect is for budget deficits over the next two fiscal years. There is no doubt that budget deficits during periods of high economic activity create great financial and economic instability. The demands that Government places on our economy during these periods put tremendous upward pressure on prices. Then the financing of these budget deficits puts great pressure on interest rates and creates instability in our credit markets.

[Q] Playboy: Yet President Ford's economic program calls for the biggest Federal budget deficit since 1943; and you recently had to go up to Capilol Hill to ask that the ceiling on the Federal debt be raised from 495 billion dollars to 604 billion dollars. How did you personally feel about having to take that step?

[A] Simon: I thought it was horrible.

[Q] Playboy: Why?

[A] Simon: Because our Federal spending is growing in absolutely alarming proportions, as are the deficits. And everyone knows my abhorrence of this. It took us 174 years to get to a budget of 100 billion dollars--it seems like just yesterday that President Johnson was debating whether or not to go over that mark. It took us nine more years to get to 200 billion. It took us only four more years to get to 300 billion.

[A] These are the fundamentals that we have to deal with, and what must be recognized is that this is not a problem that came about overnight. This problem has been a long time coming. I like to say we have a love-hate relationship with inflation.

[Q] Playboy: Would you elaborate on this love-hate relationship?

[A] Simon: Nobody likes the results of inflation, but we love what causes it. We love the spending, the creation of money and purchasing power. We love Government spending programs, but these lead to massive deficits--so we create more money to finance even larger deficits. What we have to do is shift these policies to promote savings, investment and the increased productivity that will mean more goods and services at cheaper prices and, of course, more jobs.

[Q] Playboy: But the more people save, the less they spend. Isn't the purpose of President Ford's tax-rebate plan, and those variations on it supported by Congress, to increase consumer spending?

[A] Simon: It's true we're trying to generate consumer spending through the broad area of our economy. But saving is also important, because money put into our thrift institutions is good for the housing industry, which has also got its problems today.

[A] Did you ever stop to think that the people in the upper brackets are the ones who provide the vast amount of money for savings and investment in this country? What do we want to do, take all incentive out of our system? Continue this transfer that's been going on in this country, from the people who produce to the people who don't produce?

[Q] Playboy: You sound as if you were campaigning on a platform once attributed to Senator Barry Goldwater, the repeal of welfare and Social Security legislation. Are you?

[A] Simon: Of course not. I'm not suggesting that we shouldn't be compassionate in this country. But when we do it at the expense of destroying our productive plant, or injuring it so greatly that there's no money available for increased productive capacity, we penalize the people at the low end of the income scale, because that means that new jobs aren't created, that additional goods and services aren't provided at cheaper prices.

[A] Of course we're concerned about people in low-income brackets. Take a look at our permanent tax-reduction proposals. They're heavily weighted toward the low-income people. In them, the minimum standard deduction would be raised, the poverty level increased from the present $4300 annual income to $5600. In other words, people with incomes of $5600 or less would pay no taxes at all. The lowest four or five tax brackets would he slashed, the first down from 14 percent to 7 percent, and so on. It's a highly progressive tax, heavily weighted toward helping the low- and middle-income people. The middle- and upper-income people are going to be spending more in increased costs for energy than they receive in return; the people in the lower brackets will be getting more back in rebates than they're spending in higher gasoline costs. If you're suggesting that we put through a massive increase in welfare, that's not what this program was designed to do. It was designed to be more than fair, which it is.

[Q] Playboy: Don't the burdens of inflation fall disproportionately on diose with the fewest resources? Cadillac sales, for instance, have been doing well; so have those of other expensive merchandise. The rich seem to have plenty of money to spend.

[A] Simon: There is no doubt that inflation is highly regressive and, in that sense, is the cruelest tax of all. And Government just as surely levies this tax on the American people as it does the income tax. We have what we consider to be a progressive tax system, in which diose with the ability to do so pay more, proportionately, than do those at the lower end of the income spectrum. Yet Government policies are exactly the opposite, because Government policies promote inflation. The best thing we can do for this class of people is to wage a battle against inflation itself.

[Q] Playboy: One of the traditional ways Government tries to fight inflation is by making interest rates higher. Doesn't this just raise the price of anything that has to be financed, such as an automobile or a house? Doesn't this just fuel inflation?

[A] Simon: There again, you're talking about the results of the problem, not the cause. Your Government has always been wonderful at attacking the results or the symptoms of the problem rather than going at the fundamental problem itself. This Band-Aid approach is one of the reasons we're in the mess we're in today. High interest rates obviously accompany high inflation rates, but they don't cause inflation. When the Federal Reserve tightens money, that acts as a restrictive mechanism, but it is a very crude and blunt one. It's been used in the absence of fiscal restraint because we haven't had the discipline in our Government to use the budget in a restrictive fashion.

[A] Above all, our policies must be consistent. We cannot afford to have them take on the appearance of knee-jerk, stop-and-go efforts that one minute are fighting inflation and the next minute are fighting recession, with all the attendant disruptions that occur. Government should try to follow, as nearly as possible, a steady-as-you-go course in fiscal and monetary policies. That'll go a long way toward bringing stability to this country on a long-term basis.

[Q] Playboy: You alluded to wage and price controls and some of the artificial effects their imposition had on the economy. Why not reinstitute voluntary wage-price guideposts, such as we had in 1965?

[A] Simon: Unfortunately, just as there is no such thing as being a little bit pregnant, there is no such thing as a little wage-price control. The effect of voluntary wage-price guidelines in the private sector is to raise prices and wages--in anticipation of the mandatory controls that will surely follow. I think we are seeing that to some degree in our economy today. People are raising prices with the expectation, due to all the public comments by some of our leaders clown here in Washington, that controls are not far off and, therefore, they better protect themselves. As competition returns to the market place, the rate of inflation will come down. It is coming down now and it will continue to come down.

[Q] Playboy: Because of your devout belief in the market place, some people imagine you to be the reincarnation of Adam Smith, with his faith in "the invisible hand" that supposedly guides the market place. When you talk, as you so often do, about free enterprise, what do you mean? How do you visualize the American economic system in operation?

[A] Simon: I see the traditional American free-enterprise system, which has provided the American people with the greatest prosperity and the highest standard of living of any nation in the history of our world, operating well only under conditions of maximum freedom. That doesn't mean the Government has no role to play in our economy; its role, as I see it, is to make sure that competition is, indeed, kept alive dirough enforcement of the antitrust laws and diose regulations that protect die public but don't impede enterprise.

[A] And, in the long run, we do that by making sure the economy is functioning properly at all levels in a truly competitive way, opposing anticompetitive practices that can, indeed, hurt the American people. But it is not the role of government--it most certainly is not the role of government--to do for the people what they should be free to do for themselves.

[Q] Playboy: What are some of the areas in which you think government ought not to be?

[A] Simon: Government at all levels today has taken over about 33 percent of the gross national product, and that percentage is glowing each year. As government continues to increase its spending and regulatory programs, it removes decision making from the private sector and puts it in government's sector. And when government at all levels finally takes 45, 50 to 55 percent of the gross national product, you've effectively strangled the private-enterprise system. I wish the American people could get a basic understanding of what it means when government removes your economic freedoms, because shortly thereafter, as happened in ancient Greece, your social and political freedoms follow.

[Q] Playboy: Why are heavy Government spending and the borrowing it entails so dangerous?

[A] Simon: Well, there is a finite pool of savings in the United States. This pool exists not only in the pockets of individuals but in our savings-and-loan associations, savings banks, commercial banks, life-insurance companies, casualty companies and pension funds, and from it business--large and small--gets the resources it needs to grow, increase productive capacity, build houses and provide the American people with goods and services at the lowest prices of any country in the world. As the Federal Government continues to grow, creating agencies and pre-empting many of the functions of the private system, its demands on this pool of savings grow. Those demands grew in fiscal 1973 to 59 percent of the total market; and in fiscal 1976, the U.S. Government's total take is estimated at 68 percent of this market. Now, when the United States Government, which has the highest credit rating in the world, moves into the capital market, it moves in at the head of the line and pre-empts investment money from all the other borrowers. Who becomes disadvantaged? At first, the housing industry and small business. As the effect of Government borrowing works its way down the ladder, it begins to pre-empt some of the better-rated corporations from raising money. We have to reverse this process, because it creates great economic and financial instability and exerts tremendous upward pressure on interest rates as we force private business to go to alternate lenders--or drive it out altogether.

[Q] Playboy: Why has this problem become so serious?

[A] Simon: We have to go back to what I said at the outset, that our greatest difficulty is understanding the problem so that people will have the patience and wisdom to pursue the proper policies to meet the problem. This is the third time in ten years that we have been presented with bills for past Government failures due to irresponsible economic policies. Each time we refused to accept them, and the next time the bills were higher. Just to go back and use this simple comparison: In 1966, we had an inflation rate of four percent, interest rates peaked at six percent; in 1969 to 1970, inflation was over five percent, interest rates at nine and a quarter; last year, interest rates and inflation rates peaked at about 12 percent. I suggest that if we refuse to pay the bill this time, it will become unacceptably high in the future. I must admit that on occasion, I really question the ability of democracy to beat inflation.

[Q] Playboy: Why?

[A] Simon: Because it requires the wisdom and patience to do the right thing, to make sacrifices in order to attack the fundamental cause of the problem.

[Q] Playboy: What is the right thing? Do you favor cutting the defense budget?

[A] Simon: No, we've trimmed our defense budget rather dramatically. We're 40 percent less than we were in 1968 in real dollars; and the costs, economically, politically and otherwise, of becoming a second-class power in the world are far too great. We cannot allow this to happen.

[Q] Playboy: What's so terrible about becoming a second-class power?

[A] Simon: We have responsibilities in this world. First of all, the protection of our country and its people and of our borders. We also have a responsibility, as the greatest country in this world, to assure that freedom remains in many other countries. Our military strength gives us strength in our economic and political bargaining positions throughout the world, and we cannot allow these to deteriorate. We also can't allow the military to grow unnecessarily or imprudently, but by any measurement, our defense expenditures have declined.

[Q] Playboy: If the United States is so powerful, why were the oil-producing nations able to quadruple their prices with impunity?

[A] Simon: Well, you're just showing me the natural impatience of all of us in America. You have to recognize that the quadrupling of oil prices is just a year and a half old now. Everyone looks for instant success and policies to accomplish a reduction in the price of oil, a reduction of the inflation rate or a resurgence in our economy. These things take time.

[Q] Playboy: Where can cuts in the Federal budget be made, if not in defense? Military expenditures still take almost 100 billion dollars out of about a 300-billion-dollar budget.

[A] Simon: It's a little bit less than that. But I didn't say I wouldn't cut defense. I would say that we should take a look at everything else, measured in terms of our priorities, domestically and internationally. Every area that you look at as a place to reduce Federal expenditures evokes objections from special-interest groups. I think myself that it's fairer to cut on an across-the-board basis.

[Q] Playboy: Just say, OK, we cut five percent of everything?

[A] Simon: I recognize that an awful lot of the expenditure side of the budget is on a contractual basis, and it's going to take time for the contracts to run out. But we have to contain and eventually cut this massive deficit and the expenditures that are growing at such an alarming rate. It will require a cooperation between the Administration and Congress that so far has not been very evident, though.

[Q] Playboy: As far as partnership with Congress goes, there's been speculation that some in the White House consider you a liability in dealing with Capitol Hill--presumably because of your very outspoken views. There were stories in the press earlier this year, supposedly leaked by a White House source, that you were going to be asked to resign. Do you have any idea who was trying to do you in, and why?

[A] Simon: No, and I never read where anyone suggested I would be a liability in dealing with Congress. I think it's fairly well recognized that I've always enjoyed very cordial relations with Congress and I expect that will continue. But I really have no idea who the famous White House source is supposed to be.

[Q] Playboy: Don't you have any suspicions?

[A] Simon: No! And I'm simply too busy to ruminate about things like that.

[Q] Playboy: It's been said that you and the former head of the Office of Management and Budget, Roy Ash, didn't see eye to eye. Do you suspect him?

[A] Simon: I don't suspect anybody, because I've seen the rumor mill operate in this bureaucracy. These rumors are among the favorite pastimes in the Government; I have no idea where they start.

[Q] Playboy: Cordial or not, your relations with members of Congress show strain when it comes to some of the expensive Government programs they propose.

[A] Simon: My message to those legislators who advocate increased Federal spending is simple: We have to stop this! It's time to tell the American people that we're going to have to begin to think about paying for all our expenditures or make them grow a little more slowly. Nobody can continue year after year after year after year to live beyond his means, and we, as a people, have been living beyond our means for many years. Now we're paying the price for it.

[Q] Playboy: You've spoken about Government spending and how it affects the economy. What about the other, more hidden Government influences, such as subsidies in the tax code that tend to favor certain businesses over others?

[A] Simon: You didn't use the term loophole, but that's the word people usually use when they're criticizing subsidies. Everybody's loophole is somebody else's subsidy. Congress has enacted a great many of these subsidies to provide incentives to get given results--everything from the investment-tax credit to the deduction of interest on your home mortgage--and they work. The oil-depletion allowance is a subsidy; it's a carrot that enables the independent producer to get money from doctors, lawyers and businessmen to go drill the wells. All of these subsidies written into the tax law are constantly being reviewed and changed as the incentive is deemed no longer necessary.

[Q] Playboy: Let's talk about some of the specific ways Government intervenes in the economy to help producers at the expense of consumers. Take subsidies to merchant shipping, regulation of airline fares so there's no price competition, the Interstate Commerce Commission's control of freight rates--all of which seem to increase the cost to consumers. Would you address some of these points?

[A] Simon: Well, I think Government regulation initially was established to protect, if you will, the citizen and promote competition. But I think just the reverse has been the result, because special interests have built up constituencies--whether it is the truckers or the shippers or the airlines--that constantly promote price fixing or operating inefficiencies, which are to the detriment of the consumer, of course.

[Q] Playboy: Certainly, there must have been reasons for the Government to have established such regulations. How did they come about?

[A] Simon: I would guess that, as is the case in all special-interest actions, they become embedded in Government regulatory mechanisms. If through Government regulation you end up protecting a particular constituency--whatever that constituency is in the broad category of business or industry--you increase the cost to consumers. But is this the way the system should work? To promote inefficiency? Well, the argument is that without this protection, the industry would shrink and people would be out of work. Maybe they would and maybe they wouldn't. But should we have subsidized the buggy-whip manufacturers or the makers of stagecoaches when the automobile came in? Because, God, what would we do when stagecoaches weren't being made anymore--wouldn't we just have to go on paying their workers unemployment insurance?

[A] What the hell happened to the American free-enterprise spirit: Did the Pilgrims need subsidies? Or the pioneers in their covered wagons who went out and developed the West--did they need all of these things that Government promises to do, then does so inefficiently? Again, Government has a role to play to make sure that everybody has an equal opportunity, an equal education, but, my God, do we overdo the rest of it!

[Q] Playboy: Well, of course, one of the incentives the pioneers had was free or cheap land if they were willing to homestead it.

[A] Simon: Oh, I think that the same incentives exist today for Americans to open businesses; the freedom this country allows its citizens is incentive in itself. But let's not kid ourselves. Politically, that's not the direction in which we're heading. As a matter of fact, we're heading in exactly the opposite direction, and the results are predictable. We've seen it happen in other countries, such as the United Kingdom and Italy. The United States Government, with its gross inefficiency and mismanagement, ends up taking over in certain areas and subsidizing them to greater and greater degrees, and that costs the taxpayers a lot of money, too.

[A] Just take a look at the agricultural subsidies. For years and years and years we withheld land from production. Well, now we've freed it and we're going to produce food all out. We've removed the farmer from under the thumb of Government. If we could do that in many of our other controlled and restricted areas, we'd have a much healthier and happier America.

[Q] Playboy: But you obviously support some Government regulation of the economy. Where would you draw the line? Are you opposed, for example, to the Government's requiring that automotive manufacturers make automobiles safer?

[A] Simon: Why, of course we ought to have safe automobiles. Seat belts, for instance, are a good idea. But we shouldn't go overboard with some of die things we put on.

[Q] Playboy: Such as?

[A] Simon: I mean the seat belts where the buzzers go off and drive you right out of your mind. Talk about the removal of personal freedoms! I think it's absolutely ridiculous--the headrests in the cars and all the rest of it. All that adds tremendously to the cost of the car.

[Q] Playboy: Yet the automotive industry resisted mandatory seat belts for many years. Do you think it was the proper role of Government to compel Detroit to install seat belts in new cars?

[A] Simon: That's the role of Government. Sure. Government should make sure that the American people are protected from a health or safety point of view, and from a price point of view. That's why we propose things like labeling, making sure that the consumer knows exactly what he's buying, whether it's labeling the ingredients when you buy a bottle of X or whether you're borrowing money from your bank and need to know the interest and the effective actual cost you're paying.

[Q] Playboy: Where, then, do you draw the line? Do we need a Securities and Exchange Commission to keep people from speculating with other people's money? Do you oppose Government protection of common resources, such as air and water?

[A] Simon: No, I think it is Government's responsibility, because, as we saw for so many years, the end product of our uncontrolled Industrial Revolution in this country was going to be considerable damage to our environment. I think that sometimes, though, we should sit back and say, "All right, what is the economic impact of this law we're passing now? Are we attempting to do something too quickly?" These problems come about because of a long period of abuse. Our environment, inflation, energy: All three problems came about through many years of neglect in one form or another. Well, it's going to take time to cure those problems, but let's not try to cure them overnight.

[A] We passed a very stringent Clean Air Act and an Environmental Protection Authority Act that legislate within a very short period of time a complete change in the modus operandi of business, the way people live, the way they build their buildings, and so on. We required environmental-impact statements, but no inflationary--impact statement--as is now required--to assess prospective economic damage.

[Q] Playboy: You believe some Government intervention is necessary, but you have yet to say where you would draw the line. In a free-enterprise system, along with the freedom to use your resources to produce goods for a profit goes the freedom to fail if you are an inefficient producer. We have seen in recent years the Government move in to prop up inefficient producers, such as Lockheed Aircraft Corporation. Can you justify such things as the Lockheed loan?

[A] Simon: I'd take it on a case-by-case basis. If a compelling case could be made that the Government had helped create the problem of the particular company or industry, then we would have to decide whether we had a responsibility to assist it back onto its feet. And I think in the Lockheed case it was argued quite strongly that, A, Government had had a good deal to do with it, and, B, its impact on our economy was not worth allowing us not to assist them. So we decided that it would be money well lent, and it was only a loan, to help them through this transition period. But, by and large, any case for Government aid should meet some pretty strict criteria, because I do not believe that Government should subsidize failure due to mismanagement or inefficiency.

[Q] Playboy: Let's talk about unemployment. At your Senate confirmation hearing last year, you predicted that unemployment would not reach six percent. It is now more than eight percent and is expected by many to remain at that level for some time. Did you misassess the unemployment problem?

[A] Simon: This is what causes people to get confused; they read about things like this in newspapers and magazines. Forecasting the future, which is the role of economists--not only in Government but outside--is very precarious. At the beginning of 1974, the economic seers were pretty unanimous in the forecasts that were being put forth. What people don't seem to perceive is that making economic policy is an ever-evolving event; that as events change, every action has its reaction. Also, the mood of people, the state of consumer confidence, can radically alter developments. Last fall, double-digit inflation frightened and confused the American people so much that they went on the biggest buying strike in the history of this country. That hurt the entire economy, and it was completely unpredictable. I wish we could get out of the business of forecasting, but, unfortunately, in setting policy one must take circumstances as they exist today and make assumptions about what will occur in the future.

[Q] Playboy: But don't you see a danger of a serious credibility gap?

[A] Simon: Not as long as we in Government attempt to explain away the forecast. We should explain to the people that forecasts are tenuous at best, that our ability to foretell the future is as imprecise as anybody's. But we can assure them that as events unfold, we will change our policies, adjust the mix to meet changing conditions.

[Q] Playboy: Most people believe the economy is going to get worse before it gets better. What do you say to those who feel we are headed for a depression on the order of what we suffered in the Thirties?

[A] Simon: Well, my goodness, I think people who suggest that are not making a true comparison. In the depression of the Thirties, unemployment was at 25 percent. Today it's a third of that. We didn't have the basic structural strengths then that we have in our economy today that protect us from really deep cyclical declines in our economy. We have a Federal Deposit Insurance Corporation that insures each individual's bank deposits up to $40,000. We have a Securities and Exchange Commission, and a Federal Reserve System that is truly a lender of last resort in our economy. During the Thirties, the Federal Reserve contracted the money supply by 33 percent, whereas today it is expanding the money supply. So I'm sorry to contradict the doomsayers, but our economy is much more dynamic today. Every factor is so much stronger that a depression, in my opinion, is next to impossible.

[Q] Playboy: But, again, the various things you just mentioned--Federal Reserve, FDIC, unemployment compensation and the like--are all ways in which the Government has intervened, apparently to the benefit of the economy.

[A] Simon: Government does have a legitimate role in certain areas to protect and to assist. When the system is temporarily out of whack, then it must step in and fill a void and take care of people during this transitional period, and that's exactly what we are doing today.

[Q] Playboy: How do you intend to fight the severe unemployment we now are facing?

[A] Simon: We have to attack the twin-headed monster of inflation and recession, making darn sure we don't exacerbate the recession by attacking inflation too hard, or attack recession with so much gusto that we experience renewed inflation down the road, because then we will come back with an even higher rate of unemployment.

[Q] Playboy: You're talking about fighting unemployment on a long-term basis. What needs to be done right now?

[A] Simon: Well, we're seeing an expansionary budget policy at this point. The Federal Reserve is also quite actively easing monetary policy. This is helping bring interest rates down and causing a reflow of funds into the thrift institutions, thus spurring recovery of the hard-hit housing industry. As the inflation rate comes down, consumer confidence--and spending--should begin to pick up.

[Q] Playboy: We were asking about unemployment, not prices.

[A] Simon: High inflation brings high unemployment.

[Q] Playboy: What's your feeling about creating public-service jobs to fight unemployment?

[A] Simon: I think that's extremely important, along with unemployment insurance. Economic policies, other than being practical and effective, have to be compassionate and humane. We have to make sure that those who bear a disproportionate burden during our economic malaise, such as the unemployed, are taken care of. Even so, we should keep in mind that 85 percent of the jobs in this country are provided by the private sector. This is why it is so important to get the over-all economy moving again if we are really going to reduce heavy unemployment.

[Q] Playboy: Some people feel that the unemployment statistics, high as they are, do not reflect reality; that there's a lot of so-called hidden unemployment--people who have given up any hope of finding work and are no longer eligible for unemployment benefits.

[A] Simon: Well, there are also those who would argue, and perhaps correctly, that a fair portion of the unemployment rolls is made up of people who are never looking seriously for jobs.

[Q] Playboy: What do you consider a tolerable rate of unemployment?

[A] Simon: That's hard to pin down to a specific figure, but it should certainly be far lower than the present level.

[Q] Playboy: How many people does each percentage point in the unemployment figures represent?

[A] Simon: About 900,000. You have to recognize it's going to take time to get back to four percent, which is the full-employment goal. And if we have another severe bout with inflation, we'll have even higher unemployment. What we're suggesting is not a trade-off between inflation and unemployment. We're dealing with inflation and recession, so we have to deal not with one in the absence of the other but with both simultaneously. Certainly, there is a need for stimulation in this economy today, but we have to be very cautious that this stimulation isn't overdone.

[Q] Playboy: The higher cost of energy has been an important factor in both inflation and unemployment. A basic question: Do we still have an energy crisis?

[A] Simon: We certainly do. In my judgment, the difference between what we produce and what we consume represents the magnitude of the problem. And the difference is about 6,500,000 barrels of oil a day and growing. We have to close that gap.

[Q] Playboy: The Ford Administration obviously believes it can close the gap by imposing oil tariffs, which would raise gasoline prices ten or twenty cents a gallon. Obviously, Congress doesn't agree. Why wouldn't rationing work just as well?

[A] Simon: We examined that option. But as a way of life, rationing is inconsistent with our system and with the spirit of the American public. Even in times of emergency, rationing has never worked fairly or efficiently. Who's to decide which persons need more and which need less of gasoline or petroleum products? Every family, every car and motorbike, every store, school and manufacturer--everything and everybody--would have to obtain a permit. Allocations would have to be changed every time someone was born or died or moved or got married, every time a business was started, merged or sold. And some Government official would have to approve it. What would the bureaucracy do about a poor family that heats a small, poorly insulated house with oil, while a wealthy neighbor heats a large, well-insulated home with gas? Or the Montana rancher who drives 600 miles a month versus the Manhattan apartment dweller who drives under 100 miles? Or the family that moves from New York to California and uses several months' coupons in making the trip? Remember, one out of every five families moves every year. And how do we cope with the collusion, counterfeiting and black-market activities that would inevitably develop? In short, I refuse to believe the American people are willing to trade their basic freedoms--in perpetuity--for ten or twenty cents a gallon.

[Q] Playboy: But what about the poor? By pricing oil and gasoline beyond their reach, aren't you imposing a form of rationing by cost, rather than by coupon?

[A] Simon: First of all, the President's program would rebate more money to lower-income groups than their average increase in energy expenditure. Second, and more important, given the choice between more Government involvement in rationing and allocation programs and relying on cost to reduce consumption, we chose the latter.

[Q] Playboy: Other ways have been suggested to reduce oil prices. For instance, Senator Philip Hart has proposed a system whereby an agency of the Government accepts sealed bids from exporting countries----

[A] Simon: The best way to get the price of oil down is not to create another mechanism but to apply stiff conservative measures through the market system so that the demand falls. That's what's happened elsewhere in the world. In most countries, people pay stiff taxes that raise gasoline prices to between $1.50 and $2.25 a gallon. So they consume less, and that shows up in the smaller cars they buy and in the relatively smaller proportion of refinery capacity devoted to making gasoline--18 percent in Europe versus 42 to 47 percent in the United States. If the world as a whole, with the United States leading the way, consumes less fuel, then prices will come down. There's a world surplus of oil now, and it will grow larger as we conserve more.

[Q] Playboy: What will energy conservation do to economic growth?

[A] Simon: It depends on how much is consumed. Eliminating waste would have no impact on economic growth; it's when you begin to slice away at the muscle rather than the fat that you weaken economic growth. I believe we can conserve a great deal of energy, but it will take time. There's a short-run period during which we can reduce demand, as we have in the past couple of years, just through changes in our normal living habits. But the longer run involves manufacturing and buying more efficient automobiles; developing more efficient building standards for air conditioning, heating and light in all our buildings. My favorite example is the World Trade Center in New York City; it uses as much energy as the city of Schenectady. All these things are going to have to change.

[Q] Playboy: You mentioned more efficient automobiles. Aside from higher taxes on fuel, do you advocate some form of tax that would discourage the use of big gas-guzzling machines?

[A] Simon: Our automobile industry is experiencing-severe difficulty today. Workers in the automobile business make big cars as well as little cars, and anything that the Government does to this industry would have an economic impact that would be deleterious, to put it mildly. Americans still love their big cars--I think the 1973 oil embargo showed how much they love them--but they are going to have to pay higher gas prices to operate them. That should be sufficient to force the auto industry to give the American people more efficient automobiles. There's no doubt that the incentive is there to make the Cadillac smaller and more efficient. And that, as I suggest, is going on right now. But I don't want to see the Government intrude into the market place, and this is the sad thing to me--the direction in which the United States is going, with people demanding more Government and more Government, and not realizing they're giving up their freedoms. Every time Government creates another agency or another regulatory body, it is removing a freedom from the American people, and it is a danger that is very real.

[Q] Playboy: So the Administration doesn't believe that one solution to the energy crisis is to impose taxes on big, inefficient automobiles.

[A] Simon: Not at this point in time. no.

[Q] Playboy: But the Government is financing the development of alternate sources of energy?

[A] Simon: Of course. Private capital is not always sufficient to exploit new resources. Oil shale, for instance, should be exploited, and we can provide seed money for companies to build pilot plants. And, of course, solar energy needs a lot of research and development. We have a ten-billion-dollar program devoted not only to solar energy but to fission and fusion and all the other renewable energy resources. But that, too, requires tremendous Government participation--the investment of huge amounts of money that will pay off only in the far future. Geothermal energy is limited by geography. The city of San Francisco now gets three quarters of its electricity from geothermal sources, but it has access to wells and geological formations that don't exist on the East Coast or even in the Midwest to a great degree.

[Q] Playboy: What about other programs to encourage more efficient energy use? Would the Administration advocate breaking up the highway trust fund, so that that money could be spent on more efficient transportation methods, such as railroads and buses?

[A] Simon: Well, of course, the Government is already very active in the area of mass transit, and I believe we're becoming more so. The highway trust fund is another one of those special-interest constituencies that have been built up over the years; that is a good reason why people ought, fundamentally, to oppose the trust-fund approach. It remains long after it's needed in Government and just promotes the welfare of a special group of people.

[Q] Playboy: Would you like to see it end?

[A] Simon: I would like to see the end of all the impediments that cost the consumer literally billions and billions of dollars and that contribute to distortions, shortages and inflation. But, at the same time, I'm a pragmatist in recognizing the political difficulties. When a proposal is made by the Administration to attack a special interest, there's usually great apathy on the part of the American people. It's the special interests that make their weight felt in Washington. So we very, very rarely succeed.

[Q] Playboy: Let's turn to another kind of political difficulty. Many Americans believe the price hikes by the oil-exporting nations were entirely political. What's your opinion?

[A] Simon: The quadrupling of the price of oil has absolutely no relationship to economic reality, no relationship to the cost of production or alternate sources of energy. It represents the desires of a cartel to take advantage of a temporary--and I stress temporary--shortage of energy supplies in the world while additional supplies are being developed. Its effect on the lesser developed countries has been devastating. Every country that is forced to spend more money for oil is going to have much less money for economic growth, food and other necessities. So it's going to impede growth in every economy in the world.

[Q] Playboy: But government officials in Iran and Saudi Arabia, among others, insist that oil was underpriced and that only now are prices on a par with other energy sources.

[A] Simon: Our Government believes that alternative sources of energy can be produced and supplied to the consumer at prices considerably below the current price of OPEC oil. Unfortunately, it will take several years to develop enough alternatives to replace significant quantities of OPEC oil.

[A] In addition, the price of oil has far outstripped the price increases in other commodities. Prices in industrial countries may have doubled in the past 20 years, but the price of OPEC oil is now five times what it was 20 years ago. And equally important to the price level is the fact that the increases have occurred in a very short time frame. This has aggravated inflation around the world, distorted economies and created international payment problems. Such problems actually make high oil prices unreasonable for both consumers and producers, because there will be no real benefits to the producing nations if their short-term high prices damage the world's economy.

[Q] Playboy: In a recent interview, Secretary of State Kissinger hinted at the possibility of military action if the oil-producing nations were to try to strangle the industrialized nations of the West. Would you go that far?

[A] Simon: Well, I read that interview and, you know, it all depends on the way a question is asked. The notion of military intervention never entered my mind as a means of working out the problems that we have with the oil producers. I believe many other solutions exist that fall short of military intervention.

[Q] Playboy: Last year you caused a Middle East furor of your own with your comments about the shah of Iran, didn't you?

[A] Simon: I was misquoted in the press as calling the shah "reckless and irresponsible." What I said was that the shah's comments--and I underline comments--were reckless and irresponsible.

[Q] Playboy: At another point, you were quoted as referring to him as "a nut."

[A] Simon: Well, the reporters asked me a (concluded on page 171)Playboy Interview(continued from page 76) question about my planned trip to the Middle East: "How are you going to be able to talk to the shah about the price of oil?" And I said, he's a nut about oil prices."

[Q] Playboy: Perhaps the problem was that the shah did not understand American slang?

[A] Simon: Oh, I think he does now.

[Q] Playboy: After your Middle East trip, you predicted that the price of oil would drop to about six to eight dollars a barrel. It is now more than $11. Do you still feel the prices will come down?

[A] Simon: Why, of course, they're going to come down. It's not a matter of whether prices will come down, it's when! And no one knows when. Unfortunately, when I make a statement like that and a reduction isn't reported in the next day's newspapers, everyone gets worked up and assumes it won't happen. The fact is, that's a political as well as an economic question. The economics of a cartel, the politics of the entire Middle East and the Arab-Israeli problem--all of these are intertwined in this very complex area and will require very delicate negotiations. It's in the best interests of the producers as well as the consumers to have lower oil prices so they can have an assurance of a long-term market. So they'll come down. They cannot sustain the oil prices at this level for a prolonged period of time, given the economic damage that it's going to do to the nations of the world.

[Q] Playboy: Do you feel that the goal of Project Independence, which would make us free from dependence on any foreign sources for energy requirements ten years from now, is still realistic?

[A] Simon: Of course it's realistic. We're blessed with a superabundance of natural resources in this country: so we have the ability for self-sufficiency. That doesn't mean that we're not going to import oil. We've always imported oil. But I presume we would not deplete our reserves the way we did the last time.

[Q] Playboy: Why not establish a Federal oil-and-gas corporation to test the feasibility of new methods and perhaps to set up a sort of yardstick?

[A] Simon: I think the fellow who proposed the Federal Oil and Gas Corporation had a marvelous sense of humor, because if you look at its acronym, it's FOGCO. And any person who makes a suggestion that the Federal Government can do better than our great free-enterprise system--well, he and I part company immediately, both philosophically and realistically. The Federal Government does almost everything that it attempts in a most inefficient and wasteful fashion. Government is a menace. We have more government than we need, more government than most people want and certainly more government than anybody's willing to pay for.

[Q] Playboy: Well, at this point, early in 1975, what do you foresee happening over the next year--as best you can predict it?

[A] Simon: I'm glad you added that last part. We see the first half of the year as a period of negative growth, with the economy bottoming out this summer and then starting an upturn. This upturn will continue in the fourth quarter and into 1976, with a diminution in interest rates, which will help restore consumer confidence. This, of course, is based on the assumption that we don't do anything as silly as Government has done in the past--such as overstimulating the economy. That would lead us down the same road we've traveled so many times, where the Government presents the American people with more bills to pay for its irresponsible policies. We refused to pay these bills in the past, and each succeeding time they came due, the amounts were larger and larger. But, see, this is the central problem: We hardly ever do anything in Government for the long-run good of the country. Most everything we do in Washington is aimed at the next election; that's the long run here, and that's too bad. Government can do better, and it's up to an enlightened American public to see that it does.

[Q] Playboy: You've been under quite a lot of pressure in Washington for a couple of years now. How has it affected you?

[A] Simon: I've got a few burns and bruises to show for it. And I suppose the past two years must surely be equivalent to ten years in any other field. But I must say, I wouldn't have missed out on all of this, and I think the country would be better off if more people left the private sector to help fight these battles in Washington. Some people say I work too hard, but I frankly don't know any other way of coping with the many problems that cross my desk. Some have also said I'm too hard on my associates, but it's simply that I'm impatient with inefficiency--people already get plenty of that from their Government. Obviously, we Americans expect an awful lot from their public leaders; we harass them and blast them or we set them up on pedestals, pretending they're not like other mortals. Even so, some survive the ordeal and manage to do a real job. One of those, I might add, is President Ford. Another President, Harry Truman, summed it up by saying, "If you can't stand the heat, you should stay out of the kitchen." Well, I think I can--at least I have so far. And I'm going to stay in there, fighting for sensible Government policies with all my strength. The people have every right to expect nothing less.