Stockman’s Replacement Faces Deficit Dilemma : FTC’s Miller Nominated as Budget Chief

James C. Miller III, the Federal Trade Commission chairman who was formally nominated Friday to be President Reagan’s new budget director, faces a dilemma that ultimately defeated all the efforts of his brilliant, workaholic predecessor, David A. Stockman:

Despite the most radical effort in decades to shrink the size of the federal government, the Reagan Administration is running a government that now absorbs a bigger share of the nation’s economy than at any time since World War II. And there is no end in sight.

With $200-billion annual deficits still stretching “as far as the eye can see,” as Stockman once put it, budget officials and outside analysts are growing more and more pessimistic about the prospects of narrowing the budget gap to an acceptable level until the nation is faced with the prospect of a profound economic crisis.

‘Untenable Situation’

The new director of the Office of Management and Budget is “entering an untenable situation to confront an intractable problem,” said John L. Palmer of the Urban Institute. “In the absence of an obvious and immediate economic crisis, it will be hard to get anyone to face the entremely painful political decisions that must be made.”

Added a top OMB official: “We gave it our best shot, and we came awfully close to the radical surgery that would permanently alter the budget situation. But if we couldn’t get it this year, I don’t see any reason why we’ll be able to in any future year.”

Stockman, mounting a last-ditch effort this year to rein in defense and domestic spending programs, found himself overwhelmed by the intractability of a political system that was unwilling to accept his prescription for “radical surgery.”

In a private speech at the New York Stock Exchange last month, Stockman bluntly stated: “Our books as a nation are wildly, dangerously, intractably out of balance, a condition that is fundamentally threatening to our economic and political health at home and our leadership and strength abroad.”

Political Division

But despite the seriousness of the threat, he reluctantly concluded that “political division and policy conflict . . . within government is so intense that it is nearly impossible to see where the political will and consensus will come from that is necessary to enact any plan big enough to balance the books, or even substantially close the gap.”

What makes the deficit so intractable, many economists believe, is that its adverse effects--the slow growth that results from high interest rates--become apparent only over a long period of time.

“The probability of some outside event forcing people’s hand anytime soon is very low,” argued Charles E. Schultze, former chairman of President Jimmy Carter’s Council of Economic Advisers. “On the other hand, if we keep piling up national debt at this rate every year for three more years, I can’t see why anyone would want to be elected President in 1988. They won’t have any choice but to accept a very large tax increase.”

John Makin, director of fiscal policy studies at the American Enterprise Institute, said the new budget director initially may be able to do little more than “bang his head against the wall.” But he added that he believes continued erosion in the strength of the U.S. economy will “make clearer than ever the implications of five years of inaction on the deficit.”

‘Pray for a Recession’

“If I were in Miller’s place,” Makin noted wryly, “I’d pray for a recession.”

Makin said Miller, who was a resident scholar at the American Enterprise Institute in the late 1970s, “is a new guy without a lot of baggage who can take the bad news to the President.”

Miller, who has brief experience in OMB as director of its deregulatory efforts early in Reagan’s first term, will bring to his new job an easygoing manner that has disarmed many skeptics of his laissez faire economic theories. But he has also clashed repeatedly with critics in Congress over FTC policies, as well as former FTC chief Michael Pertschuk, who once complained that Miller was changing the agency into “trust-trusters, not trust-busters.”

Stockman Relieved

The future tasks involved in implementing Reagan Administration plans will not be Miller’s alone. White House Chief of Staff Donald T. Regan is believed to be planning more central control of budget and economic policy decisions in his West Wing office rather than being upstaged by a rival at OMB.

And Stockman seems understandably relieved to be leaving behind the trench warfare that is likely to face his successor in the next three years of budget battles.

“I never knew I had so many well-wishers until I decided to leave,” Stockman joked shortly after announcing his plans to resign. “Now I know why they write obituaries.”