Now Back to the Anemic Economy : Reagan Isn’t Among Those Proposing Responsible Action

Speaker of the House Jim Wright won’t win any man-of-the-year awards for his proposal to impose $17 billion to $20 billion in new taxes on stock transactions, and to require high-income Americans to give back part of the tax break voted by Congress last year.

Yet the Texas Democrat, in trying to get a handle on the massive federal budget deficit, is merely exercising the kind of responsible leadership that should be coming from President Reagan.

Even as Reagan was striving to salvage his beleaguered presidency in a televised address a few evenings ago, the Joint Congressional Economic Committee was frantically trying to draw attention to the country’s perilous economic situation.

“We are skating on thin ice,” warned Sen. Paul Sarbanes (D-Md.), chairman of the committee. Republican members of the committee disagreed, but the facts do not support their optimism.

The fact that the warning from the committee attracted so little public attention illustrates one of the debilitating effects of the Iran- contra scandal: By taking up so much newspaper space and television time, the controversy unavoidably squeezes out a lot of news that should be getting more attention.

Despite his diminished standing with the people, the President could help mightily to arouse the public to the dangers facing the U.S. economy and the need for corrective measures--some of them painful--to get the country back on the track.

He is unlikely to do it. He will be preoccupied with rebuilding his tarnished presidential image. And working out a nuclear-missile reduction pact with Moscow will have a higher priority than telling the people things about the economy that many don’t want to hear.

Beyond that, the President shows scant evidence of recognizing that the economy is in trouble. He likes to remind us that inflation is at the lowest rate in 25 years, that interest rates are way down and that 13 million jobs have been created on his watch. And it’s true.

Unfortunately, there is a less cheerful set of facts. Inflation is picking up. About 8 million Americans remain jobless. New jobs created are overwhelmingly in the service sector, where average earnings are lower than in manufacturing. Factory orders are anemic. All in all, there is serious doubt as to the nation’s ability to generate a healthy rate of growth in the years ahead.

As the Joint Economic Committee pointed out, the U.S. economy has been living on borrowed money for the past five years and is now in a precarious position.

The federal budget deficit reached a record $221 billion in fiscal 1986, raising the national debt to more than $2 trillion--double the level when Reagan took office. The revenue shortfall will come in at about $173 billion this year. And even if the goals set by the Gramm-Rudman law are met, which is doubtful, the deficit in fiscal 1988 will still exceed $100 billion. And that isn’t the half of it.

If you throw in private debt--the amount owed by business and individuals--the total American debt as of now comes to nearly $9 trillion, more than double the level in 1980. This means that private and governmental debt together have been growing much faster than the economy.

The flesh-and-blood results are disturbing. About 1,500 banks are on the federal regulators’ list of financially troubled institutions. Farmers are going broke in droves. Foreclosures are up in places like Texas and Colorado, where the construction of office buildings and apartment complexes has far outrun market demand.

In 1985 the New York Stock Exchange concluded that the health of U.S. corporations was endangered by excessive debt, much of it engendered by loans for takeovers that contributed nothing to the nation’s productive capacity. The situation is not getting any better.

Consumer spending, although far from robust, has been going up faster than personal income. The American people’s headlong plunge into greater debt makes up the difference. (Personal bankruptcies were up 70% during the last two years.)

Then throw in the U.S. trade deficit. This country bought $132 billion more from abroad than it managed to sell in 1985. Last year the trade gap mushroomed to $175 billion. Things may improve this year, but it is hard to see how the deficit can be brought under $100 billion anytime soon.

Just the interest payments on accumulated debt--at federal, corporate and personal levels--will act as a brake on economic activity for years to come.

Traditionally, slowdowns in the U.S. economy could be countered by pump priming in the form of increases in federal spending, or lower interest rates and increases in the money supply.

In the present situation, however, deficit spending is already so high that an even larger ocean of red ink could trigger a loss of international confidence in the American economy, with a resultant flight of the foreign capital that has been financing the U.S. budget deficit. Higher interest rates and tight money could counter that, but at the cost of depressing the U.S. economy and making it even less competitive.

In a perfect world, Japan and West Germany would help by pumping up their economies, thereby increasing demand for U.S. exports. But so far they are resisting such pressures on the understandable ground that, since the fundamental problem is the big U.S. budget deficit, it’s up to Americans to get their own house in order.

So we come full circle to the need for some combination of higher taxes and spending restraints to bring the deficit in the federal budget under control.

Economists warn that, since we have become hooked on living beyond our means, going cold turkey on the budget could throw the country into recession. They needn’t worry.

Reagan himself has described the federal budget deficit as “outrageous,” and last week the White House was mulling over the possibility of a budget “summit” as a means of rebuilding political momentum.

But there is no reason to believe that the President is prepared to abandon his heartfelt but ridiculous belief that the federal government’s income and outgo could be brought into balance if only the “big spenders” were willing to reduce non-military outlays.

The social safety net--the complex of Social Security benefits, medical care for the aged, job retraining and the like--is in tatters already. Investments in education, science, pollution control and the transportation network are at rock bottom.

Military spending can be restrained, but only to a point. That leaves increased tax revenues, together with the spending cuts that are feasible, as the only practical way of reducing the federal deficit.

Reagan is probably too set in his ways to take a leadership role in telling it like it is to the American people. The least that he should do in this case is to stay out of the way and let Jim Wright and other responsible members of Congress do the best that they can.