Low Savings Rate Seen as Main U.S. Problem : Congress’ Joint Economic Panel Says Economy Has Performed Well, Concedes Social Failures

In another sign that the confrontational years of Ronald Reagan are over, both Democrats and Republicans on Congress’ Joint Economic Committee Tuesday accepted for the first time since 1980 a common statement on the strengths and weaknesses of the U.S. economy.

Democrats acknowledged that the economy has performed fairly well in the 1980s in sustaining growth with modest inflation. Republicans conceded that such major problems as poverty, homelessness and inadequate public education have been allowed to fester during the Reagan years.

Lawmakers agreed that the nation’s chief economic problem is a low savings rate that has been aggravated by the outsized federal deficit. But they remained sharply divided over measures to close the gap between anemic domestic savings and the higher investments needed to increase U.S. competitiveness in a global economy.

The top Republican on the panel, Sen. William V. Roth Jr. of Delaware, told reporters that Congress should restore individual retirement accounts to all taxpayers in an effort to spur savings and investment.

But the Democratic chairman, Rep. Lee H. Hamilton of Indiana, said that the “top economic priority” should be balancing the federal budget, because that would stop lawmakers from proposing new tax breaks that would decrease revenues.

In separate sections, the Republicans on the panel argued that less government intervention and lower federal spending are the best ways to foster continued growth, but Democrats emphasized the threat of a large trade deficit and urged greater federal spending on public works, education and other social priorities.

Resort to Generalities

To paper over such differences, the lawmakers resorted to a host of vague generalities rather than specific policy recommendations in their joint report. For example, although condemning “uncomfortably large deficits,” the report did little more than acknowledge that “the hard choices remain.”

Lawmakers’ reaction to last Friday’s budget agreement between the White House and congressional leaders was symptomatic of their approach.

“Personally, I am very disturbed by the number of budgetary games that are played in that agreement,” Hamilton said. “I think that we are eroding the strength of the American economy as we put off the question of serious deficit reduction.”

But Hamilton nonetheless endorsed the budget package as “the best agreement that can be reached.”

In addition, panel members displayed considerable ambivalence about the role played by the Federal Reserve in keeping inflation under control.

Sen. Steve Symms (R-Ida.) worried that the Fed makes inflation worse when it pushes up interest rates in response to inflation signals.

“That may not have the effect of being non-inflationary,” he said, “but have just the opposite effect as it increases the cost of doing business and pushes the price index up.”

There was one reminder of the era when the panel was sharply split between Democrats, who attacked Reagan’s economic policies, and Republicans, who defended them.

Sen. Paul S. Sarbanes (D-Md.), a former chairman of the committee, signed the joint report but described it in a separate statement as betraying “an inappropriate sense of complacency. . . . I believe we face economic weaknesses of such magnitude as to warrant remedial action. . . . The present recovery has been long-lived, but longevity is not necessarily a good indicator of success.”