
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, January 30, 1994                   TAG: 9402010241
SECTION: EDITORIAL                    PAGE: B3   EDITION: METRO 
SOURCE: ROBERT RENO
DATELINE:                                 LENGTH: Medium

OIL CHECK

LAST SUMMER, Federal Reserve Chairman Alan Greenspan was warning Congress that the outlook for inflation was grim, and Sen. David Boren, D-Okla., was bawling that increasing the gasoline tax would do everything but end life on the planet as we know it.

Boren's obstinate opposition to the president's deficit-reduction package, in dutiful subservience to the oil interests of his state, very nearly killed it and did succeed in emasculating it considerably. And Greenspan's testimony about the ``disappointing'' inflation outlook succeeded in keeping markets jittery ever since, in expectation of a monetary tightening by the Fed.

I remember wondering at the time if they both didn't seem a little out of their minds. Greenspan appeared perversely impervious to signs that inflation was behaving well. And Boren seemed hysterically committed to the idea that a small increase in gas taxes would wreck the economy, even in the face of evidence that the federal deficit, if unchecked, would do so a lot sooner.

Well, it is only fair to the two gentlemen to take a look at how things turned out.

The government reported this week that consumer price inflation for 1993 was 2.7 percent, the lowest rate in seven years. This brought the ongoing inflation performance for the past three years to the most moderate level experienced since the 1960s. The outlook for 1994, given even more favorable performances in wholesale prices, is if anything better. Inflation in the price of finished goods was about as close to zero as it could get in 1993, it was reported last week. So much for Dr. Greenspan's pessimism. So much for the judgment of the hawks on the Federal Reserve Board who would have pressed the anti-inflation panic button last year.

As for the gas tax, it turned out to be the largest tax increase in history that Americans never paid. Because that, in effect, is what happened. The world oil glut and the collapse of OPEC's control of prices, already widely in evidence as Congress dithered over deficit reduction, came along and drove down gasoline prices by a greater margin than Congress increased them. Americans are paying less for gasoline than they did before the deficit- reduction bill was passed. The softness of world demand suggests that weak gas prices will persist for the foreseeable future.

If you recall all the posturing and swooning by Boren and others over the rather piddling 4.3-cents-per-gallon increase, it is particularly distressing, even tragic, to think Congress might have passed a 10-cent gas tax and reduced the deficit far more convincingly without any increase in real (inflation-adjusted) prices at the pump.

Makes you shiver, doesn't it, to see the narrow margins by which the United States arrived at - or stumbled upon - a reasonably sane economic policy last year? Deficit reduction passed by the narrowest of margins and might well have gone down the drain. And the Federal Reserve came within a frog's hair of tightening monetary policy to fight an inflation menace that, it turns out, didn't exist.

Either eventuality could have sent interest rates soaring and choked off what little momentum the economy now seems to be enjoying.

\ Robert Reno writes for Newsday.

\ L.A. Times-Washington Post News Service

by CNB