Heller Feared That America Is Fashioning a Lean Legacy
Increased taxes seemed more inevitable than death to Walter Heller. The 71-year-old former adviser to Presidents, economist of Keynesian expansionist philosophy, died earlier this week, a fiscal middle-of-the-roader who thought that only greater revenues could pull the nation out of economic riptides--and that the longer a decision was delayed, the harsher the adjustment would be.
Although he was friendly with both budget director James C. Miller III and Beryl W. Sprinkel, chairman of the President’s Council of Economic Advisers, Heller regarded the fiscal policies of the Reagan Administration as aberrant Keynesianism, pump-priming run amok. “I’m not ridiculing the expansionary economic policies of the ‘80s,” he said 10 days before he died, in a lengthy interview for a coming Times series. “I am ridiculing the self-deception. What’s so ironic is that these dedicated supply-siders have pulled off the biggest demand-side stimulus in history, coupling the biggest defense buildup in peacetime history with the biggest tax cut in all history. It was bound to produce the biggest deficits in all (American) history. We’ve gone on a tremendous consumer binge, and future generations will pay the piper.”
Imports, he worried, have become a major factor in maintaining the American standard of living, while paying for them has become a major problem: “If we continue, say, to have a trillion-dollar overseas debt and have to pay a minimum of $60 billion to $70 billion a year in debt service, that would put us into a bind. You’ve got to give up goods and services to service that debt, and that would put a crimp in our flexibility in domestic policy. No question about it.”
The chairman of the President’s Council of Economic Advisers from 1960 to 1964, Heller to a large extent viewed events of the 1980s as the final unraveling of his own carefully crafted policies of stimulated, balanced growth--policies that had created halcyon days when everything had seemed possible in the best of all possible economic worlds.
“The contrast is really very great indeed,” Heller said. In the John F. Kennedy and early Lyndon B. Johnson years, inflation averaged less than 1.5% per year, the federal budget deficit was less than $5 billion, the unemployment rate was below 6% and declining, and interest rates were in the 5% range. Corporate profits doubled. “In the ‘60s we were enhancing private investment and consumption by vigorous growth in real GNP and a decline in the claim of the military on the economy. This time it’s the other way around. The larger part of the growth has been diverted to growth in the military. Real growth was in the 4.3%-a-year range. In the ‘80s we’ll be lucky if we average even 2.5% a year--that’s even less than in the ‘70s. We weren’t piling up a lot of domestic and international debts for the future to pay. It was a different world.”
Heller insisted that international cooperation is the key to an ordered global economy, and that the United States cannot expect to solve its economic difficulties until the federal government puts its budget in order. If a President were to go to an economic summit meeting able to demonstrate that this nation was heading back toward a sound fiscal policy, then other nations could be pressured, gently, to manage their economies in ways to produce a more favorable U.S. balance of trade.
Will taxes have to be raised to accomplish this goal? “Absolutely,” he said. He would not want to monkey with the 1986 income-tax revision, which he considered an extraordinarily good measure. “I would start with the excise taxes. With the sin taxes. Mr. Reagan doesn’t seem to object to user fees--I like the term abuser fees-- for liquor and tobacco, and I wish he could be talked into that.” An increase in gasoline taxes could be justified, as well as placing Social Security income on the same footing as regular income. “You could get quite a lot from that.”
Two misconceptions, he thought, hindered U.S. policy. One is that economic activism is wedded to big government, and the other is that improvements in the living standards of one segment of the population come out of the well-being of another. To the contrary, Heller pointed out, the reduction in the American poverty population from about 33% in 1947 to 11% in 1971, and its rise to 15% during the Reagan Administration, occurred without changes in the proportionate incomes of the affluent or the poor. Throughout, the lowest 20% of the population had 5% of total personal income and the top 20% had 40% of income.
Heller might be considered an economic environmentalist, troubled about how the self-indulgent fiscal depredations of today are generating havoc for tomorrow. “I’m worried about the lean legacy we’re leaving for our future--in the long run there is no way we can endure a deficit in our current account year after year without reducing the standard of living that we otherwise might have had.”
He was selective about issues but concerned about everything: “I don’t want you to think I’m not worried about all problems.” He was also a cautious optimist: “The old cliche, economic growth lifts all the boats, lifted a lot of people out of poverty but didn’t much change the distribution of income. And so I’m hoping we can lift the output, the standard of living of the whole world.”
