The Reagan Regress

...KEMP IN MOTION The Reagan "R,e§pressBY sidney wentraub The budget message Ronald Reagan delivered to ajomt session of Congress last month ended his brief postinaugural honeymoon jaunt with the defenders of Capitol Hill His tone was grim, hisapproach nearly defiant—the performance of a man schooled in the theater and now at home in politics Affection for the new President was manifest, but the Democratic side of the aisle was ideologically tweaked to a brawl by the proposed tax i uls and the swipes at the Great Society progiams they have long embraced In the competitive spirit of our democracy, the President has set his public relations legions to work to nail down his objectives Ultimately, he will probably achieve a significant number of them In many explicit and more implicit ways, the President curtsied to Franklin D Roosevelt, paying him the flattery of imitation But the Reagan inhibited vista is an absolute turnaround trom the Roosevelt grand vision that saw government as a steering wheel providing direction to the enterprise svs-tem Reagan veers trom big back to small government, interpreting his mandate as a command to shed old initiatives and to stand adamant against new ones Private enterprise, which came tumbling down in 1929, and has faltered many times since, has his faith He refuses to think it may fail in the days ahead A contingency plan is never uttered (the Eisenhower people were better in this respect) Thus while the manner may be FDR's, the theology smacks more of William McKinley or Warren Gamaliel Harding, Lyndon Johnson's Great Society is Reagan's peeve That is the momentous ideological shift The faith is touching, especially since the day after it was expressed the Ford Motor Company announced the biggest loss to date for an American corporation in a single year, $1 55 billion It is hard to detect Horatio Alger success stories at GM, Ford, Chrvsler, United States Steel, the TMI facility...

...Hooker Chemical, many electronic firms, the banks who lent large sums to Iran and Idi Amin's Uganda, or the Wall Street brokerage dropouts The SiDis^ WtiNtmiB pro/essor of eio-nomiisat the l'm\er\u\ ol Pennsylvania, /v the author ot Capitalism's Unemployment and Inflation Crisis and kevnes, Kevnesians, and Monetarists President says this will change once we get government "off their backs," and the faie of more than aWhite House incumbent rests on the judgment One wonders how space shots would have fared, or communications and weather satellites, or nuclear development, or fheTVA, or air travel and airports if Reagan'sphilosophy had prevailed at an earlier date Railroads would probably have been condemned as land giveaways All of these wonders of mankind have cost government hundreds of billions of dollars None of them could have been completed on enterprise principles , f or they involved massive expenditures well beyond any firm, or consortium of firms, and their income returns were both too remote and too iffy to meet the demands of the bottom line Social Security9 Unemployment insurance9 Deposit insurance7 We would be without them, just as we will have to make-do without reasonable health care except for the wealthy A national health program, urban renewal, a modern transportation network—on which Eisenhower showed vision—and a hastemng of new energy sources—on which Reagan said virtually nothing—will remain on the deferred agenda, shoved under the bed during the Reagan years We are in for a Rip Van Winkle slumberland in communal spheres where the pithy Gal-braith observation of "private affluence and public squalor" will be an entrenched aphorism For in communal areas the enterprise system is simply not capable of taking a longer view Correctly, the President early on in his budget speech spoke of " the punishing inflation" at "double-digit figures for two years in a row," and "interest rates at absurd levels of more than 20 per cent" while "almost eight million Americans are out of work " This tolls the stagflation fiasco that presumably the President wants to set right (Shades of FL'R on one-third of a nation "ill-clad, ill-fed, ill-housed ") Unfortunately, it is hard to see much if anything in the Reagan program to redress our economic horrors The Reagan "plan"—an anomalous word for a nonplanner?is aimed at reducing the growth in government spending and taxing, reforming and eliminating regulations which are unnecessary and counterproductive, and encouraging a consistent monetary policy aimed at maintaining the value of the currency " There followed a wild figure of creating 13 million new jobs if the plan were "enacted m full " Manifestly, the President assumes labor force growth and automatic full employment from something as straightforward as expenditure cuts, although they will destroy jobs, and tax cuts, although they will probably be eaten up in higher energy prices, airline fares, postage, and the like The number, and the theory, as we shall see later, appear to be pure hyperbole, an affliction Presidents are prone to in maiden addresses On taxes, the President outlined a " 10 per cent across-the-board cut every year for three years in the tax rates for all individual taxpayers," to begin on July 1 This is undiluted Kemp-Roth, deferred slightly to imply 5 per cent for this calendar year Some sample effects appear in the table below Low-bracket groups will scream unfair Upperbrack-ets will shout not enough now In any event, the rate scale will be more regressive, because of the property income treatment, and for most of the under $25,000 taxpayers the welcome savings will vanish in inflation smoke President estimated that firms would haveabout $ 10 billion more cash for investment Standing alone this seems a big sum It would have looked like pretty small potatoes if the President had informed his audience that retained business gross earnings, including depreciation, were already at $333 billion in 1980 The Reagan plan is shocking when it is examined in terms of fighting inflation and restoring jobs There is nothing for 1981-82 on the former, and next to nothing on the latter Income tax cuts are to lift disposable consumer income by $6 4 billion for 1981 compared to present tax laws, and add $44 2 billion in 1982 These numbers look very precise, but they are mere estimates, subject to daily revisions (I will forgo the extensions to 1986 because they amount to true crystal-ball gazing ) Again, this year's tax relief, and next year's bounty, are likely to be mbbled away sharply with the price hikes coming in spite of the President's assurance that his plan is balm against inflation The increased real consumer spending this year, with 10 months still to go, will mean little in the way of job expansion The sums are nearly offset m the projected $4 4 billion Federal expenditure cut, leading largely to a job standnumbers Governments must make estimates, but we do not have to hang on their veracity Congressman Jack French Kemp of New York is never daunted by these uncertainties He already sees the millen-mm, alleging a mystic—the mistier the merner—supply side economics that will have the tax cuts working production miracles All of this, in an inflation context, is pure hokum until he reveals his hand on the production-pay scramble and outlines the nature of the associated Federal Reserve maneuvers His remarks are sparse as he goes off on a quarterback dodge to expound the great victory of the "Kennedy tax cut " Kemp has become fond of the Kennedy allusion We must be prepared for a future JFK candidate asking us to get the country moving again, and urging that we should "never fear to negotiate but never negotiate out of fear " While Kemp may one day run as a Repubh-crat, he now runs ragged on history Citing the Kennedy tax cut, he displays an extraordinary talent for ignoring the Kennedy-Johnson guideposts on prices and wages that until 1968 gave us a practically stable price level This freed the Federal Reserve to tolerate interest rates in the 4-7 per cent range in those charming Camelot days There is another inconvenient fact that the Congressman omits Federal expenditures rose by 80 per cent from 1961-69 in money terms, and 44 per cent in real terms, for simple yearly averages of 9 and 5 per cent in the respective categories Reagan, in contrast, proposes an increase under 40 per cent for 1981 -86 in money terms (about 6 6 per cent per annum) and ml or negative amounts in the real terms on which jobs depend The tax cut talk of the Congressman classes as so much malarkey It goes unchallenged because of Kemp's athletic gift for TV fast talk, TV panels are paralyzed by his deft non-sequiturs On expenditures, one might further note that in his budget speech the President proposed cutting the Carter government outlays by $4 4, $41 4, and $79 7 billion over the current and next two fiscal years Within a week, an unexpected White House economic briefing was held to explain that "a re-esti-mation of the numbers" had found that the second figure would have to be up-ped $3 billion-$6 billion if spending for 1982 was not to exceed the announced target The years beyond, and the absolute numbers, need not be pursued, they are correct to two decimal points only in the government's ephemeral ledger President Reagan has nonetheless written an intriguing lesson on inflation and, even more, on stagflation Cut Federal outlays, and taxes, and the world will be upright again He still has to explain why in 1933, our year of greatest budget imbalance, with expenditures 130 per cent above tax receipts, prices fell by nearly 25 per cent compared to 1929 The economic scenario is clear only in the White House A deficit on the 1933 scale, with the present level of government revenues, would require not the Reagan $655 billion outlay but $1 38 trillion Maybe trom his economic perspective we need this huge expenditure to reduce the price lex el' President Reagan has confused himself and the nation with the thesis that the financial size ot government is also the dimension ot the inflation problem The two are dimly related, and rarely overlap The magnificent delusion is destined to befuddle the country for a while longer Our on-going domestic distress, however, may aid mm m the struggle against inflation The subdued Chrysler pay settlement, andthemalaiseatFord, General Motors and other firms may contribute to lower pay hikes The result would be an incomes policy by the backdoor, foisted on us by our maladroit past economic policies, that would redound to Reagan's advantage He would then be in a position to claim a budget triumph, albeit for entirely wrong reasons The President, meanwhile, has indicated that he will restrict this year's Civil Service pay boosts to 4 8 per cent I neglect, for space reasons, the targeted 83 program cuts and the regulatory paring These will be aired in controversy and reveal the contrasting ideological slants between the two parties The President is unlikely to come out a total victor on these Near the close of his speech, the President delivered a remarkable passage that has received scant attention He said "The taxing power of Government must be used to provide revenues for legitimate government programs It must not be used to regulate the economy or bring about social change We've tried that and surely must be able to see it doesn't work ' Casey Stengle, that immortal sage, would have said "Mazing " What is Kemp-Roth all about9 Taxes on whiskey or gambling'' What is the purpose of the investment writeoffs'5 Just what are "legitimate" purposes' What point is there to the whole Reagan plan, other than to bring about social, economic and political change7 The President begs the vital question This confusion will yet save the Democratic Party from having to surface with anv new ideas The conservative wave will be a ripple unless it rids itself ot such muddles Chantablv we can suspect that the President has two different speech-vv inters, one tor the plan and another against plans altogether Thev reallv ought to meet...