Trend of the economy

By , senior economics correspondent, The Christian Science Monitor

A paradox is beginning to emerge over the economic recovery program that President Reagan is trying to put into place for the United States: * A great many people believe that the program may turn out to benefit the nation as a whole.

* But relatively few people, apart from true believers inside the administration, believe the President can achieve all of his specific goals.

This contradiction may or may not turn out to be a political liability for Mr. Reagan in 1984 and for Republican candidates in the 1982 congressional elections.

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Suppose, for example, that the economy, spurred in part by ample Reagan tax and spending cuts, performs fairly well over the next few years.

Inflation edges down, so do interest rates. Unemployment, now 7 percent, does not grow and possibly dips a bit. Economic growth quickens and productivity begins to climb.

Most analysts would call such results a success story, especially if the real income of millions of American families stops shrinking and begins to grow.

Such a scenario seems quite possible, barring war, oil shocks, or other offshore events beyond US control. Even so, Reagan could miss some of his specific targets by a country mile.

On July 15 the White House issued a midyear review of the US economy, including projections for the years through 1986. Take calendar 1984, the year the President's first term ends:

Consumer prices are expected to rise 5.2 percent. The jobless rate is down to 6.2 percent. Economic growth runs at a brisk 4.5 percent and the interest rate on 91-day Treasury bills is a modest 6.8 percent.

Most striking is Reagan's projection that the federal budget, which may be nearly $60 billion in the red this year, will be half a billion dollars in the black in 1984.

These targets imply that over the next three years inflation will drop sharply, interest rates will plummet nearly 10 points, and the budget will make a dramatic turnaround despite rapidly growing defense outlays.

"If," says Charles L. Schultze of the Brookings Institution, "the President has a good strong economy, with inflation reasonably low, he could have a budget deficit coming out of his ears and it would not hurt him."

"Conversely," adds the former chief economic adviser to President Carter, "if he has a large deficit in a stagnant economy, he has problems."

Reagan appears to push himself further out on a limb through what he says. He insists that US defense spending will climb by 7 percent yearly in real terms. He says also that the 1982 budget deficit will be $42.5 billion and no more. "We are not changing our ideas about the deficit at all," he said.

Then he goes back to the ranch to cut wood and clear brush, leaving his economic team with what must be a bleak feeling. Key White House aides believe the shortfall will necessarily grow, unless the 1982 budget is cut again this fall. Beyond 1982, at least $75 billion worth of spending must be sliced from the 1983 and 1984 budgets to achieve balance by the end of Reagan's first term.

Where will the cuts come from? "Defense and social security: Those are the options," said a top administration official. Cuts of the magnitude needed no longer can be found in other government programs, most of which have already been pruned.

A national debate, crackling with the fire of emotion, will erupt when the White House proposes its next round of budget cuts. The President may or may not get what he wants. But this should not obscure the fact that broad agreement exists within both political parties that the cornerstone of the Reagan program -- deep tax and budget cuts -- was needed and timely.

"We [Democrats] did not give proper attention to economic problems in the 1970s," says Rep. James R. Jones (D) of Oklahoma, chairman of the House Budget Committee. "The excesses of the Great Society programs must be corrected."

House Speaker Thomas P. O'Neill Jr. (D) of Massachusetts contends that the "correction" -- i.e., deep inroads into social programs -- hurts the poor and vulnerable.

So far, however, American public opinion appears to support Reagan on his broad economic objectives. This support is echoed by mainstream Democrats. "Both parties," says Mr. Jones, "have to gravitate toward the middle. Both parties must be perceived as doing what is best for the country."

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