It is nice to live in Ronald Reagan`s economy in 1986. The stock market is up, oil prices are falling, the dollar is coming down from its peaks, inflation seems licked, no recession is in sight and everything seems upbeat. But yet, yet . . . there`s a nervousness around. It`s difficult to explain or get a handle on, but it`s there. Maybe it`s a kind of tension that always exists in a modern, complex economy; maybe it`s just the nature of capitalism itself.
Perhaps it`s the knowledge that there are too many consumers in debt, too many banks that have made bad loans to poverty-stricken nations, or too many companies that have gotten themselves in hock through mergers or heavy borrowing.
Perhaps it`s the fact that young people are having a difficult time matching their parents in pay or position at a comparable time in their lives, or the fact that urban poverty seems to be as intractable as ever.
Perhaps it`s the nation`s slipping competitiveness internationally and the permanent loss of markets by some of our best firms.
The anxiety is there, all right. Rapidly falling prices create both opportunities and problems; some people are hurt and others are helped. But there is a way to soothe this edginess.
The rapid fall in oil prices and the dollar give the nation a unique opportunity to take action to cut the budget deficit this year. This deficit is not the source of all our economic ills, but a good many of them would go away if it were tamed.
Timing is everything. Barry Bosworth, a senior economist at the Brookings Institution, noted that action on the deficit is best taken at the peak of an economic expansion, not later, when it could help bring on a recession.
Normally, he said, a rapid fall in the value of the dollar would be inflationary, but this time around the drop in oil prices fortuitously offsets the rise in other prices. So worries about the plummeting dollar are minimized.
In addition, the fall in oil prices acts like a tax cut on the economy, offsetting any depressing effects on purchasing power that would be caused by making dramatic cuts in the deficit.
Also, Bosworth points out, the oil-price decline gives the Japanese more of an opportunity to stimulate their economy, which, over the long run, should reduce Japan`s $50 billion-a-year trade surplus with the U.S.
”All this is very good news,” he said. ”Now is the time to act. It`s not the time to say, `Everything is good. What`s the problem?` ”
Which is precisely the reason for the nervousness. The glut of good news already is eroding the determination of Congress to do something about the deficit. A court decision knocking out a key provision of the Gramm-Rudman-Hollings balanced budget act reduces the pressure to act.
There`s a feel-good atmosphere in this town, promoted by Reagan`s incorrigible optimism. With the news so good, many feel, why should Congress take all these painful steps to cut the deficit? The deficit, they say, is an overrated economic problem.
Bosworth said it is crucial to get the deficit down in order to push national savings up. The savings rate, one of the keys to our long-term economic health, is near an all-time low. The budget deficit itself, like a voracious Pac-Man, eats up the pool of national savings.
The administration tried to increase national savings in 1981 by reducing taxes, but the evidence indicates that this plan did not work, because it left the nation with massive doses of red ink in its accounts.
We have managed to finance this deficit by drawing billions of dollars of foreign money into the U.S.–money that will have to be paid back with interest. This will affect the standard of living of future generations.
If Congress is lulled to sleep by feel-good economics and does nothing about the deficit this year, 1987 may bring slower economic growth and greater risks. One reason the markets are doing so well is that they anticipate major action on the deficit this year. Failure to do this would only turn this nagging anxiety into pessimism.
The Reagan administration is going to ask Congress to change a $2 billion agricultural export subsidy program, because most of the subsidies would go to the Soviet Union.
That`s the word from White House aides, who say that Congress probably didn`t realize what it was doing when it approved the plan as part of the farm bill. The aim of the plan is to get rid of farm surpluses by offering foreign buyers extra grain for free when they make a purchase.
”A lot of other countries, especially in Europe, subsidize so much so that it`s hard to get rid of all the grain without going to the Soviet Union,” said one aide.
