Soviets’ Economy Is Sick--and Ours? : Reagan’s Smugness at Kremlin’s Problems Is Out of Place

President Reagan is exuding confidence that, because of the overriding Soviet need to deal with a sick economy, Mikhail S. Gorbachev badly wants an arms-control agreement and will make major compromises to get one. Ergo, the United States can afford to hang tough in the strategic arms-control talks with Moscow.

So far the American President has managed to ignore the fact that the U.S. economy is sick, too, and that this reality limits how much this country can prudently spend for defense in the years ahead.

“It appears that Gorbachev has made the domestic economy his top priority,” an Administration official said over the weekend. “Economic reform will make such demands on resources that they can ill afford a renewed arms race.”

The President himself is confident “that we’re going to make more progress than probably has been made in a number of years because of some of the problems that are concerning the general secretary (Gorbachev) at this time.”

Most Western analysts agree that reenergizing the lackluster Soviet economy is Gorbachev’s No. 1 priority and that he wants an arms-control agreement to avoid the necessity of an expensive, all-out “Star Wars” competition. But there are two good reasons that the compulsive talkers in the White House should shush their public elaborations of this theme:

One is that the Kremlin leaders have their pride, too. If there is anything that could drive them into an obstreperous resistance to compromise, it is resentment at the crowing by U.S. officials that they have the Soviets over a barrel, and that the Kremlin has no choice but to make a deal.

The other is the need for a little humility on the Administration’s side, given what’s happening to the U.S. economy and the growing congressional inclination to zap the President’s favorite arms programs.

It is true that our economic problems are not as serious as the Soviets’ because the U.S. economy is stagnating at a much higher level. But that is small comfort.

Since Reagan became President in 1981, the so-called misery index--the combination of inflation and unemployment--has plummeted to the lowest level in more than 10 years. That’s the good news.

The bad news is that in fundamental ways that are important to this country’s future, possibly the near future, the Reagan era has proved an economic disaster.

When Ronald Reagan used to make those speeches for General Electric before he became governor of California, he warmed conservative hearts by talking of the evils of deficit spending and the virtues of fiscal responsibility. Somewhere along the way he forgot his own rhetoric.

When Reagan moved into the White House, the United States had managed to pile up a national debt of a thousand billion dollars in its 200 years of nationhood. Thanks to an astonishing ballooning of annual budget deficits, the national debt has soared by another thousand billion dollars in only 5 1/2 years of the Reagan presidency.

Meanwhile, the nation’s trade deficit, the margin by which we buy more from foreigners than we manage to sell to them, has soared to more than $150 billion a year. The practical meaning of this is that we are not paying our way in the world; to the extent that we are maintaining our standard of living, it is by borrowing the money from Japan and such places as Taiwan and Hong Kong.

Anytime a country’s debt is growing faster than its gross national product, and this in a time of seeming prosperity, it has a problem. The people will pay in the form of higher taxes if Washington faces the problem squarely, or ultimate inflation of possibly ruinous proportions if it doesn’t.

At the beginning of this year economists saw a bright light at the end of the tunnel because of lower oil prices, a favorable readjustment of the dollar versus other currencies and lower interest rates. But the predicted upturn in economic activity hasn’t happened.

The gross national product, after growing a respectable 3.8% in the first quarter, grew at an annual rate of only six-tenths of 1% in the second quarter--the worst performance in nearly four years--and economists are increasingly pessimistic about the future.

The abrupt fall in energy prices proved to have a downside as domestic oil drilling plummeted and banks with large portfolios of energy loans found themselves in trouble. Worst of all has been the failure of the trade balance to turn around.

Spending for imported goods by both consumers and business has continued to mount, while the anticipated export boom has failed to materialize. The manufacturing sector is still in the doldrums. Even agriculture and high technology, the areas that have been depended on to chalk up trade surpluses to offset the deficits created by such old-fashioned industries as autos and steel, are in deep trouble.

The Administration keeps a stiff upper lip and predicts that a robust recovery is just around the corner. Let’s hope so. If the official optimists are wrong and the budding economic crisis worsens over the long term, you have to wonder what will happen not only to overall U.S. living standards but also to this country’s defense capability.

Reagan came into office preaching the need for beefing up the U.S. side of the military balance, and he was right. But he has grievously undercut his own case by steadfastly refusing to recognize that if a strong military is worth having, it is worth paying for.

You can make a case for lower taxes or higher military spending, but in a time of huge budget deficits it is rationally impossible to be for both at once.

When the President berates Congress for undercutting U.S. negotiating strength by voting to restrain spending for Star Wars, chemical arms, nuclear testing and other programs, he has a point. But he brought it on himself by refusing to listen to warnings from friends on Capitol Hill that, without additional revenues, the big budget deficit made restraints on defense programs mandatory.

As things stand, the Soviets are probably much more aware of their own economic weaknesses than ours. But that may not be true a year from now--a point that the White House people should remember as they approach the arms-control negotiations and a prospective summit meeting with smug talk of having the Russians between a rock and a hard place.