The Economy According to Reagan
WEINTRAUB, SIDNEY
FALSE PREMISES ON INFLAnON The Economy According to RCflgRTl BY SIDNEY WEINTRAUB Economists are so often chided for their errors that I cannot resist quoting myself ("The Liberal Blinkers Against...
...There has been much brave talk about how they will eventually foster greater tax revenues...
...One man's waste is another man's job...
...One need hardly be a prophet to declare that if Reagan accomplishes nothing against inflation and unemployment, his support will be eroded...
...The Democrats might well support this in theory, whether or not they disagree over details...
...The big "savings" Reagan foresees are to be achieved by dismembering programs in the Departments of Energy, Education, Welfare, and Housing...
...Incredibly, this has been tolerated almost as a national pastime...
...The open question is whether in a year or two he will be sufficiently flexible to reverse his course and adopt innovative measures...
...Reagan's approach offers little that is encouraging...
...But the reality is that the inflation spectacle has been a remarkably nonpartisan production since 1968, and our stagflation malaise of unemployment and inflation will persist under the initial policies promised by President Reagan...
...No candidate, to my knowledge, has ever advocated waste, but its identification is in the eyes of the beholder...
...Curiously enough, though, the Kemp-Roth proposals, eschewing an emphasis on budget balancing in favor of economic "stimulation, converge philosophically with tip...
...The reference was to public works to quell unemployment...
...If it is to be President Reagan, wisdom commends devising some legislative options that look beyond his incumbency...
...But, ideologically this runs counter to the monetarist positions of most Reagan advisers, who hold strong preconceptions on the proper use of the tax system...
...Such dreams should be taken with a full sack of salt...
...Senator Robert Dole has even suggested indexing tax cuts to the rate of inflation...
...At the moment our good wishes must go to President Reagan in the hope that he can find the way...
...A deficit, anathema to the more rabid Reagan legions, will mock Republican campaign pledges...
...when compelled to voice a constructive opinion, they respond inflexibly with a stale advocacy of noxious price and wage controls...
...The contrary is more likely, given the conception that income escalation and distribution is outside the Chief Executive's domain...
...The tilt toward business that is a virtual certainty after the "supply-side" sloganeering during the campaign will not be very helpful either...
...Those whose increases are smaller, or who are unemployed, are engulfed by the price tide...
...Keynes was sympathetic, and out of the furor the "multiplier theory" of spreading jobs was born...
...He has an ominous example in the United Kingdom...
...Despite the campaign rhetoric and the public's lack of sophistication on the subject, government outlays are really prisoners of inflation, and not the culprits Reagan imagines them to be...
...He understood that whereas unemployment socks a relatively small percentage of workers, inflation hits the entire labor force...
...But for the liberals to benefit from such a situation, they must themselves do more than simply pay lip-service in castigating the inflation menace...
...After all the noise and fuss, Peter will do what Paul is checked from doing, and any apparent national savings are bound to be an exaggeration...
...No wonder a frustrated electorate rejected Jimmy Carter, whose sorry battle against rising prices made the paltry records of Richard Nixon and Gerald Ford shine in comparison...
...On inflation the liberals wear blinders, preferring not to see...
...shows almost no discernment of the cause of voter disenchantment...
...A decade of fresh professional discussion has passed them by...
...He garnered 51 per cent of the popular vote, while Carter and John Anderson together commanded 48 per cent...
...Their budgets will be lopped and supplanted by grants to the state and local governments that will assume their functions...
...Because of the current heavy amortization and interest charges, obsolete equipment can compete favorably with the most advanced labor-saving designs...
...A tax break for business would not foster modernization nearly as much as lowering prices in order to precipitate a drop in interest rates...
...Reagan begins with an abhorrence of waste...
...Margaret Thatcher won an election last year on the economic distress theme, only to see her monetary and budgetary measures send the price bloat from the 9 per cent under James Callaghan and Denis Healey's wage policies to a whopping 20 per cent before a recent slight descent...
...the liberal community...
...The Democrats, in merely half an emulation of the New Deal, have stubbornly insisted that unemployment is the sole scourge, when in fact it was only one of FDR's targets...
...The declining value of the dollar strips everyone of purchasing power as viciously and indiscriminately as any theft, but on a much vaster scale...
...Taxpayers would relish this amendment, but public outrage over inflation would be neutralized—a mixed blessing—and balancing the budget would become still more remote...
...I am reminded, though, that in the 1920s the question was asked in England: "Can Lloyd George do it...
...Thatcher is no longer riding a wave of popularity...
...Although for the sake of the country I would prefer to be proven wrong, it would be unduly optimistic to conclude that the Presidentelect's commitment to freer enterprise will check the ravages of the price boom...
...Without a slackening in pay increases inflation will stay with us...
...The coming military buildup will be no exception...
...Proponents of supply-side economics are being duped by their own propaganda's obliviousness to the main component in the inflation equation—interest rates...
...Even those lucky enough to win a 20 per cent pay boost feel mulcted when prices soar by 12 per cent, quickly eroding their money gain...
...Can Reagan do it...
...The quest for a balanced budget will collide with the new Administration's tax-cutting objectives, too...
...So long as this remains the case, productivity will improve at a pace too slow to halt an inflationary surge...
...A balanced budget will remain jam tomorrow, and never jam today...
...The possibility of linking tax cuts to income moderation, as under my tip —a tax-based incomes policy—would seem obvious...
...Still, recalling the origin of the stagflation crisis in the Nixon-Ford years, one can't help being skeptical...
...An active bout of plant construction would immediately boost inflation higher, prompting the Federal Reserve to raise interest rates, and plant investment would suddenly be prohibitive: Congress acts, the Fed reacts...
...If 1963 price levels magically returned, the budget would be slashed by more than half...
...Similarly, Congressman Kemp and others contemplate various tax incentives for urban revitalization and restoration of blighted "war zones...
...As of now I am an unabashed Missourian...
...Presumably the hope continues to be that the tax cuts plus the rising unemployment will make labor agreeable to smaller pay hikes...
...Reagan supporters read this relationship backward, and it is hard to shake the zealots from their distorted interpretation...
...Reagan would have us believe that "unleashing" business will spur plant modernization, lift productivity and thus slow the rate of inflation...
...Lavish defense spending, never cheap, will be very costly indeed in our inflationary climate...
...politicians deplore it, while rejecting serious policies to stop it...
...The Federal budget balloons as a consequence of spiraling prices, it does not cause them...
...Not in a stagflation economy it won't...
...His inflation retardation suggestions sound all too familiar—creating unemployment in an economy with a growing work force by capping government expenditure, and the tight monetary policies that have failed so consistently and signally in the past...
...FALSE PREMISES ON INFLAnON The Economy According to RCflgRTl BY SIDNEY WEINTRAUB Economists are so often chided for their errors that I cannot resist quoting myself ("The Liberal Blinkers Against Inflation," NL, July 14): "Inflation may lead Americans to turn back the clock with Ronald Reagan...
...He invariably also advanced the vision of "a price level that would not vary from generation to generation...
...Otherwise, the country is doomed to mere Presidential shuffles as the miseries of stagflation remain a constant in our national life...
...My assessment, alas, was correct, and it still holds...
...It has been perversely myopic of liberals to underplay dollar value in courting voters, for it is the one pocketbook issue that contaminates all others...
...If private enterprise can accomplish the job, three cheers for President Reagan—it would be a great achievement...
...Reagan is likely to make the reduction in personal income tax proportionate rather than progressive, thus benefiting the upper income brackets to a greater extent than those who need the break most...
...If the Kemp-Roth recommendations are enacted, the three annual 10 per cent tax cuts will devastate government income...
...Continuing stagflation could easily bring about a shift of 3 percentage points and turn the conservative wave into a onetime thing...
...Whatever the hoopla about "revising our priorities," genuine shrinkage in the Federal budget will conflict with the magnitude of Reagan's proposed Pentagon expenditures...
Vol. 63 • November 1980 • No. 21
