Reagan's Recession Rodeo
WEINTRAUB, SIDNEY
73^705139245^66014 BUDGET BUNGLING Reagan's Recession ^jQ^JgQ BY SIDNEY WEINTRAUB Four months Aoo, I dubbed the President Deficit Ronnie and noted that after a lifetime of railing at shortfalls...
...Treasury Secretary Regan, whose separation from Merrill Lynch has proved to be a heavy burden for the country, has been on an intermittent 18-month jag??now assailing the Federal Reserve for keeping money too tight, now castigating it for being too lax...
...In our misspent 18 months with Reagan, investment has been the weak member of the equation...
...Notice, the emphasis is on profits, not jobs...
...By holding the economy on a tight money leash, it prevents interest rates from descending to the norms the Reagan zealots overpromis-ed...
...Unfortunately, the economy is not in a funny state: Too many people are being hurt, some 3 million having been stripped of their jobs...
...We don't need a posse of economists to search out the source of our investment failure...
...We would be wiser to emulate the baseball manager playing one game at a time, hoping that new wisdom will prevail tomorrow...
...Seers who cannot foresee stock market prices this afternoon are already quaking about $150-$200 billion deficits in 1984 and 1985??avoiding the present for the hereafter, a subject better left to the theologians...
...The relationship between deficits and profits is, however, only sure and secure when investment in the sense of new capital formation is maintained...
...we won't get into 1984 until we bridge the interval before it...
...and the misguided minions??that the effective money supply consists of money times velocity, and that no power on earth can hold it steady...
...They may do a little better (for they hardly can do worse) next year...
...that monetary supplies are too "erratic...
...This is the mighty qualifier to the profit potency of deficits??for both Republican and Democratic regimes...
...If the number could be restored to the over 2 million units of the late 1970s, there would be a direct augmentation of $80 billion in income and roughly $200 billion, directly and indirectly, through the ramifications of the construction activity...
...Wall Streeters and Washington po-liticos mutter that they can "live with" a $100 billion deficit...
...His recession rodeo makes them look more glamorous and appealing with each passing day...
...By now, though, the Administration caretakers??who don't take care...
...It is enough to inspire nostalgia for the activist Hoover years...
...The result has been a tottering economy...
...We can in clear conscience bypass the gory details, because this tidy number is apt to bear scant resemblance to reality between October 1,1982 and September 30,1983...
...The latest charade is over the "final resolution" of the budget impasse that made such diverting theater and provided jaunty headline histrionics for the President...
...73^705139245^66014 BUDGET BUNGLING Reagan's Recession ^jQ^JgQ BY SIDNEY WEINTRAUB Four months Aoo, I dubbed the President Deficit Ronnie and noted that after a lifetime of railing at shortfalls he was destined to be crowned King of Debt Mountain ("The Budget: Guns Up, People Down," NL, February 22...
...Yet higher profits could over time contribute to a healthier investment climate and eventually improve the job picture...
...This brings us to the inner contradiction of Reaganomics that is undermining perceptions of recovery and a major restoration of jobs: The tight money policies uttered in countless platitudes by an uninformed President and his equally underequipped Secretary of Treasury, Donald T. Regan, have ushered in recession and are likely to condemn us to hard times...
...But on the follies that pose as current policies any recovery is likely to be weak, and soon aborted...
...As the TV commercial would say: "He urnned it...
...Without any urging Sprinkel will utter a predictable beef??a wanned over tidbit from his mentor, Milton Friedman...
...If automobile sales increased by around 5 million for the year, the income effect would be about $75 billion...
...So our gruesome economic record grinds on...
...Maybe even taxes will rise in the interim...
...What he is most unlikely to reveal is that ultimately he will create over 50 per cent of the total debt...
...The Regan-Sprinkel duo are now floating a trial balloon to trim the superficial independence of the Federal Reserve, perhaps by putting the Treasury Secretary on its Board of Governors as an or officio member, or by reserving to the President the power to make the Fed chairman's term coterminous with his own...
...The budget compromise will merely shift the battleground to specific expenditure programs once the elusive totals are set...
...In the hunt for a recession scapegoat he has been coaxed by his undersecretary, Beryl Sprinkel...
...We are being exposed to the maxim that if you can't predict accurately, predict often...
...Eyewash would have dripped about "making the Federal Reserve an engine of inflation...
...The only mature question concerns its implications for the economy...
...Still, there are weekly forecasts of recovery next quarter, deferred then to the next few months...
...The capital goods shortfall is the sacrifical lamb exacted by the relentless high interest monetary policies bearing the label "Made at the Federal Reserve...
...Despite the reflex views of doom, and Reagan's budget-balancing bent, the large deficit is the best thing the President has going for him in the way of recovery...
...By assuring that the deficits will be mountainous under Debt King Ronnie, and that heavy Treasury requirements for funds will ensue, the Fed has set money markets aquiver with fears of the demand for funds becoming so huge that interest rates will be suspended at record heights, brief abatements notwithstanding...
...We will all survive...
...The Reagan ideology is surfeited with the calloused opinion that lower and middle income groups must go through the wringer of unemployment, bankruptcies, plant closings, and interest rates that frustrate home buyers and small businesses...
...And "this President" is the sponsor of a balanced-budget constitutional amendment...
...Originally devised to avert panics, the Fed has shown a zeal for inducing them...
...In housing we are producing under 1 million units per annum...
...Recently, as the economy's troubles have become apparent to the Loudest and Most Frequent Predictor, Regan has been protesting the Fed's clamp...
...In other words, the weekly numbers (awaited with bated breath on Wall Street) do not follow an undeviating line...
...Ideas, alas, are barred from the Reagan Administration, where tax cuts for the rich constitute a policy...
...The essential macroeconomic arithmetic is not difficult to grasp: Should investment plummet by, say, $30 billion, and the deficit mount by $25 billion, profits will tail off by $5 billion...
...In his next television spectacular, replete with misleading charts, Reagan is certain to gain more distance on his image of the debt being equal to a pile of $1 bills stretching 67 miles into the sky...
...Bear in mind the Reagan people were of f by over 100 per cent for the present fiscal year...
...Add in some more industrial plant and equipment and the economy would be awash in prosperity, with a surging GNP reporting a new American "miracle...
...More to the point, any administration change in the composition of the Federal Reserve will scarcely matter...
...Reagan has heaved one leg higher in the stagflation swamp, escaping some inflation, while having the other foot mired deeper in the unemployment bog...
...Perhaps Bob Hope is the chief architect of Reagan's economic policy...
...have demonstrated that they have the right collection of "experts" to maintain the shambles for the full Reagan term...
...After all, it is comedy masquerading as serious drama...
...So longaswerelyoninflation policy for an inflation antidote we will persistently suffer either slow growth or recession, with joblessness being a chronic blot on capitalism...
...In those two sectors alone we have the main manifestations of the current recession...
...Some of us yearn for the Age of Affluence, whose achievements he constantly misrepresents...
...We refuse to face up to the awkward fact that only an incomes policy, involving a nonmonetary view of inflation, can relieve us of our ongoing plight...
...It just never occurs to Sprinkel...
...In the case of the budget, it is enough to look down to September 1983...
...By substituting pennies he can even get over 100 times the mileage...
...Its magnitude is bound to shore up business profits...
...Republicans have been known to sense political and economic tides, too, albeit often belatedly, prolonging the anguish...
...Wall Streeters know it well...
...Stuffing the Federal Reserve will do nothing to rectify our maddening situation...
...A high deficit, moreover, is not a physical disaster, like a devastating earthquake or a nuclear blast...
...Both Regan and Sprinkel would have shrieked in anguish at this sort of proposal emanating from a Democratic regime...
...One absurdity that our spellbinder President could easily spare us are his homilies on correcting the misdeeds of the last 40 years...
...Of course they can??and quite comfortably, while the unemployed suffer...
...surely Hope could have designed the tax cuts, the subject of countless quips...
...After denouncing everyone who doubted his distorted finger-painting masterpiece tracking out a $91 billion deficit, and judged by others as closer to $125 billion (or more), the President has struck a statesmanlike pose in agreeing to a Congressional compromise said to be in the $ 105 billion range...
Vol. 65 • June 1982 • No. 13
