The Budget Burlesque
WEINTRAUB, SIDNEY
LOOKING TO FISCAL 84 The Budget Burlesque by sdney weintraub The Reagan budget is a bit of slapstick consistent with the Grade B—or worse—vacuities that political money and TV cosmetics foist...
...Even bad principles, until renounced, should govern action...
...To justify the disposition to give heavy discount to Reagan's theatrics one need merely cite the record...
...This is the Catch-22 of Reagan's trusting his inflation fortune cookies to the Fed's tender thoughtless mercies...
...As for Reagan's deep solicitude over the "double-taxation" of the stockholder, it should be noted that corporate taxes will be about 6 per cent of 1984 revenues compared to over 16 per cent a decade back...
...Enter some chicanery and the numerical exactitude is a paper mirage...
...The ultimate issue is squarely one of price—that is, the interest rate that future borrowing will command...
...A rarely perceived fact is that as deficits recede profits will suffer unless the deficits are replaced about dollar for dollar with private investment...
...That leaves remarkably little ground for maneuver—except in socking the poor...
...The President is reported "ready to compromise" although, in his public poses, the word is anathema as he stem-winds on defense, on his tax cut, and on his zeal to trim Social Security...
...For 1984 the number on the sound track is about $190 billion...
...As private investment finance supplants deficit finance there is no reason for interest rates to collapse with any thud...
...Unless the Fed relaxes its stance, the interest rock will scarcely budge, and expansion in the private sector will only grind ahead grudgingly...
...Swollen inflationary magnitudes also foster skepticism over the budget "forecasts...
...This would crimp the recovery pace by intercepting the purchases that make the market economy function...
...The news media always pounce on the Budget Message because it has an aura of hard news...
...Included are the early warning signals of GNP, employment and the price level, plus some outlay estimates...
...While it remains incumbent upon a President to issue a budget to reveal his ideological preconceptions and sense of priorities, on both the outlay and revenue sides a sizeable feasibility margin would condone variants reflecting contesting scenarios...
...Ponder Reagan's record and the good advice is to simply pick a number at random...
...Budget disputes make good theater and puff up Reagan's movie instincts in exposing a luminous 1800 vision...
...To elate Treasury Secretary Donald T. Regan and Economic Council Chairman Martin Feldstein, the budget handout was replete with resonant passages on the need for "private incentives to stimulate saving and productive investment," while bemoaning that personal savings were, until recently, "stagnant...
...Intellectually, the Reagan rounders show a magnificent obtuseness that impedes their disentangling loanable funds for investment from savings...
...Big cuts are precluded, and if the tax route were taken the Treasury would not offer so much as a thank you note to taxpayers...
...Secondly, given an arms build-up of some $240 billion out of a total outlay of $850 billion, wecan either cut, tax, or borrow...
...Suppose a robust recovery set in, swelling the Reagan tax coffers and occluding some of the deficit bilge...
...Sophisticates will retort that borrowing places an interest toll on future generations, conveniently forgetting that the same process bestows interest rate receipts...
...Disseminated in late January, to be implemented on October 1, and to run until the following September 30, the printout is dipped in con, basted with political theology, and dusted with a speck of economic forecasting to impart an air of respectability...
...For 1982 the tycoons were sure at $28 billion...
...In the early 1950s, when the GNP was in the $300 billion zone, a 5 per cent projection error might upset the deficit calculation by $3 billion or $4 billion...
...The savings genuflection is a disguised incantation against consumer buying, and a hurdle to recovery...
...Of course, there will always be some former Treasury Secretary to pontificate that we'll "go broke," making it sound like a nuclear blast...
...Now, with the budget following the election returns, there is fresh life in the old dogma...
...No growing business could ever show a profit under such contorted accounting...
...Prior to 1977, when the fiscal year began on July 1, the exercise was a mite more convincing...
...Quotes should be mailed to all the unemployed, reminding them that by not saving (out of nil income) they are inflicting misery on those making do on six- and seven-digit incomes...
...Government stimulus can therefore only come from the final phase of the tax cut, yet this is apt to be diluted by tax benefits targeted to enlarge personal savings...
...In the underemployment economy savings follow from investment, and not the other way around (despite the banking industry's self-serving propaganda sheets...
...Image-making invites evasions...
...For fiscal 1983 the show-and-tell game began at $92 billion...
...Some of us thought the savings and investment tango was resolved about a half-century back, from Keynes, in the Great Depression...
...A quick thaw was granted the military, who would gain 10 per cent over the inflation hike...
...The hackneyed "saving" nostalgia is malign mush...
...The child-like Reagan credo hardly holds promise as a vigorous recovery recipe...
...Monetary policy will prove the Achilles heel for the Reagan economy, just as it was for the Nixon-Ford-Carter regimes...
...There is also something presumptuous in the argument that we know how to "shift the burden" to the future, and that our kids will be too dumb to use the same techniques...
...In borrowing, money is raised to a large degree from the same people...
...The final fact: $100 billion...
...With our GNP spinning off in a $3.5 trillion cycle next year, a corresponding mild blunder could mean a deficit swing on the order of $50 billion...
...The President has a knack of portraying the adornment of the rich as a charitable gesture...
...Obviously, the "fresh" idea never penetrated the skull of the young, well-heeled Council Chairman who knows that America's redemption will come when Social Security is abolished...
...Result: $53 billion...
...LOOKING TO FISCAL 84 The Budget Burlesque by sdney weintraub The Reagan budget is a bit of slapstick consistent with the Grade B—or worse—vacuities that political money and TV cosmetics foist on us...
...A White House prescription for slow economic growth by sabotaging the vital public sector, the flawed freeze shows that Reagan's faith in private sector miracles survives intact...
...Yet under the best of auspices its numbers have become quite spurious...
...The compressed ice-pack will be the cold noose around human programs, which must await the promised trickle-down treacle by the Smiling Compassionate Communicator...
...Our silent piper has not been in savings but in investment, especially in housing...
...Carter figures going awry by about $20 billion...
...In fiscal 1981 the gung-ho gang initially foresaw a $ 16 billion deficit...
...The Reaganttes have screeched over the mountainous deficits where their man's rhetoric and performance are strangers...
...Financial oracles cite a $200 billion deficit as sure interest rate poison...
...To think, Mr...
...Surely the analogy between deficits and business losses is plumb foolish, because government lumps capital items indiscriminately with operation costs...
...About 80 per cent of our gross savings is attributable to corporations...
...And they acquire government notes that make them feel richer than if they were taxed...
...Even then there was the old saw about "the President proposes and Congress disposes...
...A"freeze" was announced in outlays for fiscal 1984, but "de-icing" is more accurate since outlays would rise by the predicted inflation pace...
...Factually, the fears about personal savings have concealed the tax handout that is subverting our progressive income tax system...
...But the money market equation also includes Federal Reserve policy in its grotesque 1,000 year war on inflation...
...Our national fascination with the budget show, however, deters us from unshackling our monetary handcuffs...
...Democrats have been beating the drum for a jobs-creation bill in the $5 billion range that could add, directly and indirectly, some 750,000 jobs...
...By adopting an incomes policy, and forcing a reckoning with the Federal Reserve in underwriting a several per cent drop in mortgage rates, they could restore America and put labor markets awash in millions of jobs...
...Increase taxes now...
...Thus the Reagan figures defy credulity when tendered as ordained fact...
...The present surmise is closer to $200 billion...
...Assuming true dedication, the latitude for error abounds...
...Under the warped "analysis" we have had Kemp-Roth geared to the rich, IRAs, Keoughs, All Savers, and an announced plan to exempt the amassing of college tuition (for the yet unborn...
...Smiley Nice Guy poked fun at the Sidney Weintraub, a regular contributor to the NL, is Professor of Economics at the University of Pennsylvania...
...Investment awaits on the former, not the latter...
...Exact" plans, even with honorable intentions, are a public put-on...
...Commendable as it is, the plan smacks too much of a New Deal revival meeting...
...There is no lack of urgent national and private needs...
...Personal savings, ensuing mainly from the well-to-do, approximate 20 per cent of the total...
...The more important point, though, is that much of the deficit firestorm misses the mark...
Vol. 66 • February 1983 • No. 3
