Reagan Defends Economic Policies in Upbeat Report

The Reagan Administration on Friday presented Congress with a detailed defense of its seven-year stewardship of the American economy and predicted slower growth but no recession in the wake of last October’s stock market crash.

In the last formal economic report to Congress by President Reagan, chief White House economic adviser Beryl Sprinkel focused on the upbeat and sharply rebutted frequent criticisms of Reagan-era economic policy.

The report challenged the claim that the nation’s persistent trade and budget deficits will lead to years of lower living standards, arguing instead that improvement is well under way and should continue. It also discounted organized labor’s contention that “de-industrialization” has lowered the quality of American jobs.

“Disaster does not loom in our future,” Sprinkel said in a White House briefing held in conjunction with the release of the economic assessment. “Fortunately, the market system suffered minimal damage” when it plummeted 508 points in the crash of Oct. 19.

Sprinkel, chairman of the President’s Council of Economic Advisers, and his staff forecast 2.4% growth in 1988, down from 3.8% in 1987. They predicted continued 5.8% civilian unemployment and moderate consumer price inflation of 4.3%.

Also foreseeing similar recession-free growth into the 1990s, the report is likely to be dismissed by Democrats in Congress as yet another “rosy scenario” from an Administration that has regularly forecast better results than the economy later produced.

However, Sprinkel’s latest view is only slightly more optimistic than the consensus of private economists, most of whom expect no recession before 1989 and see steady growth of 2% or slightly less with continued moderate inflation this year.

Sprinkel, a perennial critic of Federal Reserve policies, went out of his way to praise as “exemplary” Fed Chairman Alan Greenspan’s speedy move to loosen the money supply after the October crash to cushion the shock to the financial system.

Credit Tightened

To be sure, Sprinkel’s report did note that Greenspan may have “underestimated the risks to adequate economic growth” at the end of last year when the Fed, after the market panic subsided, resumed tightening credit. But Sprinkel relented with the observation that “more recently, declining interest rates and increased money growth suggest that the Federal Reserve has been more supportive of economic growth.”

The report, in defending the Administration’s handling of the spiraling trade deficits this decade, conceded that the deficits would place a major and unsustainable burden of foreign debt on the economy if they were to continue unchecked. But it emphasized the momentum of a turnaround in inflation-adjusted terms that began in mid-1986.

The nation is “now adjusting in a serious way” and the trade deficit “never will be the drag on the standard of living others predict,” Sprinkel said.

Deficit Improved

The key statistics, Sprinkel’s report says, are these:

- The “real” trade deficit, in 1982 dollars adjusted for inflation, improved $30.9 billion from mid-1986 through last year.

- At the same time, domestic consumption, which had grown far faster than the gross national product for four years after the end of the 1981-82 recession, began to grow more slowly than the GNP.

- During the same period, total employment grew steadily, adding 15 million jobs since the 1982 recession.

- Even though manufacturing employment continued to decline, final sales of manufactured goods in 1987 accounted for 43% of the GNP--”the same share as in 1965.”

On the issue of the huge growth in employment since 1981, which organized labor has sought to depict as consisting of low-paying “service” jobs replacing traditional assembly-line jobs, Sprinkel’s report summarized a series of recent surveys by the Bureau of Labor Statistics that have attacked that claim.

“Nearly two-thirds of the new employment growth has been in managerial, professional, technical, sales or precision-production occupations,” the report says, while jobs growth “has been less vigorous in lower-paying, low-skilled occupations and part-time work.”