Reagan's Anemic Economic Recovery

...I think not A cowed generation of analysts was brought up on the fairy tale that the stock market goes this way and that way, now up, now down, but mostly sideways, and when the Dow Jones hits 1,000, it is time to dive into the bomb shelters Overlooked entirely was the fact that m the interval from 1968 to about 1982 there were fairly uninterrupted upward blips in interest rates, zooming to historic records The trend has now been reversed, slowly yet irresistibly In addition, because of the very Federal deficits that Wall Streeters bemoan, profits are almost certain to reflect a brighter picture during the course of the year In the changed environment the "steady Eddies" of the 1970s have been torn from their bearings, and their historic-hysteric charts have misled them The recovery itself, meanwhile, shows obvious blemishes that will blunt its momentum and thrust The Administration has vowed to ride shotgun to inhibit government spending, except for the military Better than one-fifth of the body economic—consisting of consumption, investment (or new plant and equipment), and government outlay—has been placed on the chopping block This alone seems destined to stunt recovery, since signs are still lacking that the contrived gap will be filled by a rapid gyration in the investment sector and, given the heavy unemployment, help can hardly come from the consumption sector There is another infrequently assessed effect of the government reducing traditional programs as it increases military spending A $15 billion defense outlay, say for the MX missile, will create fewer jobs than the same sum spent on public housing, welfare payments, roads, hospitals, etc The reason for this is that the profit margins on defense bucks are more lavish—or to tell it like it unhappily is, the monopoly profits attributes bulk far larger, with much more of the government largesse sustaining fatcats in the style to which they have become accustomed The diversion within the government, therefore, will produce disproportionately fewer jobs than did the previous distribution Despite the studied official obtuseness on the point, it is the sum of government deficits and private investment that comprises practically the entire mainstay of personal and business savings and, only in an ever so slightly lesser degree, of gross business profits Thus if government outlay is further suppressed, and if the White House takes fright and compresses the deficit, the logical candidate to absorb the spending slack left by this Lilliputian vision would be private investment But with idle capacity in steel, autos, machinery, textiles, indeed Literally everywhere, it would take a blithe brave spirit to forecast a hearty recovery at current interest levels It is doubtful that silicon chips and DNA are ripe for dramatic investment strides and big job creation endeavors Firms in the former industry are already abandoning domestic patches for the salubrious low-wage enclaves in Taiwan, Korea and elsewhere Of course, housing is suffering from a crying shortfall It will have difficulty moving in giant steps, though, without a dip in mortgage rates from the 14 per cent brackets down to single-digit numbers With an ample housing program our economy would be awash in jobs All that would be required is a push ot about another 1-1 5 million units per annum—in other words, a return to past peaks or slightly beyond There would be a direct GNP gain of % 100-$ 150 billion, and an indirect windfall of about $300 billion—without straining our capacity Remarkable new skills would not be needed, nor would we read so much frothy nonsense about "restructuring" the labor force and "sunset" industries Most of the sunset industries would display a new vitality in a full employment economy Moreover, rebuilding America's homes and transport system, and mopping up our toxic wastes, should easily provide the full employment spur—and happily wipe away the fantasies of a future whose dimensions no economist today can discern Every one of our cities reveal "bomb damage " Let Japan produce the autos We need no tariff protection to make our country a decent place to live in, with civilized amenities President Reagan, replete with platitudes on what America cannot afford, is most unlikely to grasp the way out of our weak and abortive recovery As for the half-dozen announced Democratic Presidential aspirants, it must be said that they have taken pains to hide any great economic insight in their vapid TV gurgles Front-runner Mondale seems only to have learned that Reagan traded some of the Carter inflation for a patent on unemployment Colorado's Senator Gary Hart, who in the past has indicated some understanding of the economic prerequisites, has been silent about them The other Democratic candidates, whatever their compassion, scarcely seem to be an improvement over the present incumbent in this area Reagan has put his seal on the crude and cruel way of stamping out inflation transform it into unemployment and trample on the job victims The Democrats have vet to show much more enlightenment None of this bodes well for bringing about a change in our ingrained monetary doctrines ^et those doctrines are a sure-tire recipe tor a constrained recovers which, if it goes too tar, will again arouse inflation alarms—and then bango to housing, investment, and even the stock market exuberance Sidney Weintraub, professor or economics at the University of Pennsylvania, is the author of Capitalism's Unemployment and Inflation Crisis and Reynes Reynesians, and Monetarists...

...A GRADE B PERFORMANCE Reagan's Anemic Economic Recovery BY SIDNEY WEINTRAUB President Reagan's economic recovery performance, at least what we have seen of it so far, is of a piece with his success in negotiating a nuclear arms agreement, or securing troop withdrawals and peace in the Middle East The most recent data (April 20) show a 3 1 per cent growth rate in the first quarter of 1983 That is nearly 25 per cent below the "promised " 4 per cent figure brandished by the Department of Commerce a month earlier The error on the side of overoptimism is not unexpected from an administration that has been bemusing us with tall tales of an unparalleled future boom ever since it assumed office in January 1981 Indeed, one of the notable improvements in recent months has been a fairly self-imposed silence by Treasury Secretary Donald T Regan and that accomplished quarterback and economic fumbler, Congressman Jack Kemp (R -N Y ) They deserve some commendation for being among the news desaparecidos, though it is known that the quarterback's play book of jungle economics envisages returning the discussion to the McKinley-Bryan era via a diversionary pass for a gold standard and associated types of twaddle Obviously the 3 1 per cent first quarter "recovery" is welcome, certainly as compared to a recession pullback Nonetheless, if we are ever to achieve the productivity gains of 2-3 per cent that marked our historic glory days, tack on about 1 2 per cent for labor force accretions, and make an annual 2-3 per cent dent in our outrageous (and understated) 10 3 per cent unemployment, we will have to plunge ahead at about an annual 6-7 per cent growth pace Not only is the present recovery that brings such a glow to the President's visage about half as high as an honorable target would have it According to present conjectures our road speed is unlikely to improve, leading to the somber conclusion that the Administration-touted boom is pure press agentry Certainly it evades unemployment rates that are uncomfortably close to approaching 15 per cent when the statistical tabulation is guided more by sensible judgment than bureaucratic counting rules conforming to archaic definitions It is even possible to invoke the smug "authority" of Presidential economic adviser Martin S Feldstein—he of the silver spoon—that it will take approximately five years to "shave" unemployment by about 3 per cent Some shave Some wait Yet complacency about the job misfortunes of others rides tall in the Reagan saddle The President is said to retain a popularity, not least for his quips and the tax cuts for his rich friends Maybe we did elect Bob Hope after all' The view of an anemic recovery and a shallow top-out is not uncommon Predictions, to be sure, are always hazardous, and econometricians do escape their astrology predilections by rushing out very frequently with a fresh set of numbers to erase their most recent projections As Wall Street sages put it, if you can't predict accurately, predict often Still, there are deeper reasons to doubt that Reagan will not be a modern reincarnation of Merlin as an economic magician, despite his addiction to empty slogans and sleight-of-hand banalities It may be well first to disparage what many are hailing as a grand omen, namely, the fuss in Wall Street and the mushroom cloud of stock market prices No doubt this is a long-delayed and pleasant tiding to patient owners of stock, and they must not be denied some exhilarating moments for gloating over the ultimate confirmation of their wisdom A rising stock market, however, does not translate very quickly or surely into production and jobs Higher stock market prices, under the same earnings scenarios, are fully equivalent to lower interest rates on new issues of equity securities But it is a long way to Tipper-ary Firms may save a bit by refinancing more costly bond obligations, and some of the proceeds may even be funnelled into new plant expansion The process will take time, though, and any widespread contagion is dubious As matters stand, a few new technology industries may ride a financing bonanza, with mainly minor job gains compared to the situation at our giant corporations For while the stock market blast can create a more optimistic ambience for businesses contemplating new plant capacity, the execution is bound to await a more robust time when operations press on higher and more stable peaks It would also be imperative that interest rates fall beyond their petty flirtations with single-digit numbers True, capital gains in the stock market tends to spur luxury consumer buying, by Texans at Neiman-Marcus and New Yorkers at Bergdorf-Goodman, or at expensive boutiques But the economic significance of this is apt to prove a proverbial drip in the oversized bucket So it is possible to be rather underwhelmed by the record Dow Jones averages as a recovery flare A capital spending stampede to build new factories and underwrite full employment is an unlikely counterpart to the bull market, despite the inferences of Merrill Lynch's jingles I have sometimes muttered, to the incredulity of audiences, that the economy would scarcely be affected if the stock market opened for only an hour or two every other month or so That would save a lot of newsprint and divert newsmen to reporting business news Stock market activities are usually given exaggerated status, and too many players in the Wall Street game enjoy exalted status plus pay scales no less distorted than in the athletic and entertainment fields—without exhibiting equal dexterity or providing us with as much laughter Simply stated, the stock market is an overrated institution possessing aspects of a casino, as Keynes long ago observed It is definitely not the economy, and often has little relevance where most working blokes dwell Is the present stock market eruption surprising...