Reaganomics report card

By , Staff writer of The Christian Science Monitor

Ronald Reagan struck political gold in 1980 when he asked Americans, ''Are you better off today than you were four years ago?'' The resounding negative reply helped catapult him into the presidency.

Today - three years and a solid dose of Reaganomics later - the question is posed anew: ''Are you better off today than you were three years ago?'' As he prepares to confront this election campaign, President Reagan is confident that most Americans are answering in the affirmative.

At this juncture they seem to be. According to the Survey Research Center of the University of Michigan, which polls 700 individuals every month to track public sentiment, the average American's outlook for his own economic prospects and those of the nation is brighter than it has been for a decade.

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Whether the majority of Americans are actually better off or not is open to question, studies show. But the fact is they feel they are.

''There is a widespread perception that the President has moved the economy and is successful on his own terms,'' says presidential scholar Thomas E. Cronin of Colorado College, ''and that perception is what is important.''

The reasons for the upbeat mood are self-evident. Inflation is down from a debilitating rate of 13.3 percent in 1979 to less than 4 percent last year. Unemployment has dropped from a high rate of 10.7 percent in late 1982 to 8.2 percent. Retail sales are exuberant. And, while this is a consumption-driven, not investment-led, recovery, capital spending also is picking up more strongly than it has after previous recessions. The US economy, in short, is on the move.

Also encouraging to economists is a ''new sense of realism'' on the part of management and labor.

Because of growing domestic and foreign competition, businesses are making better investment decisions and even unionized employees have accepted a need for restraint in wage demands and for changes in work practices to ensure future jobs. If such attitudes persist, analysts say, it will be easier to avoid another burst of inflation.

How much credit supply-side Reaganomics can take for the economic gains so far is a matter of viewpoint. Many economists argue that the recovery - paradoxically - is the result more of Keynesian than Reaganite policies: The government through its budget policy of tax cuts and hefty spending is stimulating a consumption boom. Some experts say that the administration's fiscal policies exacerbated the recession by producing huge budget deficits that have kept interest rates high. They note that the President's policies did not produce either the surge in private savings or the business investment that he had promised in the 1980 campaign.

''The Fed knocked inflation down, but the economy is barely back to where we started from,'' says economist Barry Bosworth of the Brookings Institution.

''We're better off because the government is worse off,'' comments Stephen Wayne, a political scientist at George Washington University. ''We're spending, not saving. If interest rates go up and industry doesn't modernize, it will be at the expense of our children tomorrow.''

Others have modified earlier judgments. ''Last year the majority of economists wrote off Reaganomics,'' says Edward Yardeni, chief economist at Prudential-Bache in New York. ''But now that we have weathered the pain, most have to admit that what looked to be a failure looks smarter this year. There is a lot of debate over supply-side vs. Keynesian theories, but the bottom line for the individual is that the inflation spiral has been stopped and after-tax incomes are improving. Taking the aggregate of all consumers, Americans are better off.''

The improving economic indicators tell only part of the story, however. Dr. Yardeni and others point to problems that could have serious social and economic consequences for the nation. During the Reagan presidency the United States has seen:

* The biggest budget deficits in the nation's history, threatening a slowdown in the growth of capital stock and loss of America's competitiveness abroad.

* An unemployment rate which, even if it continues to fall, could still be higher than it was at the end of the Carter administration. The number of long-term unemployed, moreover, has risen.

* A growing inequality between the upper and lower income levels of society.

* An increased burden of hardship on America's poor, especially the working poor.

The administration maintains that the President's policies are improving the standard of living of the average American because of the dramatic drop in inflation. While it is difficult to sort out available data, and much research is still in progress on the social impact of Reaganomics, independent studies do not seem to bear out the administration's contention.

The nonprofit Center on Budget and Policy Priorities, for instance, finds that only the high-income groups are ''better off'' in real terms.

''Some people are better off and many are worse off,'' says Robert Greenstein , director of the center. ''In general the wealthier you are the better off you are. There is no question that those with high incomes gained by the tax changes in 1981 while bearing no share of the sacrifice in the budget cuts. The poorest segments bore the brunt of the cuts and got so little from them that their tax burden is now greater.''

Because wages have come down as well as prices, says Mr. Greenstein, the average American family - earning between $10,000 and $25,000 - has had virtually no gain in real purchasing power. Greenstein cites official Commerce Department data showing that purchasing power has grown at an annual rate of only 1.2 percent since Reagan took office.

''This means that even when the Reagan tax cut is figured in, real after-tax purchasing power has grown at a slower rate under Reagan than under every other president for the past 30 years,'' he says. ''And if the figure is 1.2 percent for everyone, it is lower for the poorer groups and higher for the upper-income groups.''

Similar conclusions are reached by the bipartisan Congressional Budget Office. It has estimated that, as a result of the 1981 and 1982 budget cuts and tax changes, households with incomes of less than $10,000 - about 22 percent of all households - will suffer a net loss of $20.5 billion in cash and in-kind benefits over the four years from 1982 through 1985. Households with incomes of more than $80,000 - the wealthiest 1.2 percent of all households - will gain $64 billion in after-tax income in this period. Another research organization, the Urban Institute, finds that there has been no net change in the living standards of the average family in the past five years. Looking at the period from 1979 to 1984, it concludes that, if the economic recovery continues, the disposable income of the average family in 1984 will stand at $20,807. This is $700 (or 3.5 percent) more than when Reagan took office but $460 less than it was in 1979 (calculated in constant dollars).

The institute's study also finds that inequality within the income distribution grew significantly during this period. Thus, average disposable income among the poorest one-fifth of families will have fallen from $7,546 in 1979 to $6,833 in 1984 (adjusted for inflation), a decline of 9.4 percent. Among the richest one-fifth of families, the study says, it will have fallen from $39, 348 to $39,158, a drop of only 0.5 percent.

But neither the widening income gap nor the lack of net growth in family incomes is attributed solely or even primarily to policies of the Reagan administration. Frank Levy and Richard C. Michel, authors of the Urban Institute study, say the trends began in 1979 with the fall of the Shah of Iran and a new round of price increases by the members of the Organization of Petroleum Exporting Countries. Reagan's policies have been less important than the entire cycle of oil price inflation, deep recession, and recovery during which family incomes showed no net gain. The same was true in the period 1973-79, which also was marked by a sharp oil price increase and a surge of inflation followed by recession and recovery.

''The point is that there are influences outside any president's control,'' says Mr. Levy, an economist at the University of Maryland. ''In the old days, before the 1973 oil price increase, five years would have brought you a 15 percent growth in average incomes. Where we felt most critical of Reagan was in all his glorious predictions for supply-side economics and in thinking you could fine-tune the economy and start a boom. Life is not like that.''

But if the President could not do much about the level of income, he could influence the income distribution, the authors add. The tax and spending cuts of 1981 and '82, especially the relative decline in welfare and food stamp benefits , aggravated the trend of growing inequality, they say. So did changes in the tax structure. According to the study, average taxes for the richest 20 percent of families will have dropped from 31.6 percent of income in 1979 to 31.1 percent in '84. On the other hand, average taxes for the poorest 20 percent of families - including increased federal income taxes, federal payroll tax, and state sales taxes - will have grown from 9.7 percent of income in 1979 to 11.9 percent in '84.

It is figures such as these that reinforce the public perception that the President's policies have unfairly favored affluent Americans. And, while the Reagan budget cuts by no means have gutted the government's basic safety net, they have fallen disproportionately on the poor and helped swell the poverty ranks.

According to the Census Bureau, the number of Americans classified as poor rose from about 24 million in 1978 to more than 34 million in 1982, or 15 percent of the population. Hunger, while its magnitude is in dispute, is a growing federal concern.

What the long-term social impact of the widening income gap will be remains to be seen.

''We are a heterogenous society and growth is very important socially and politically as a means of avoiding social conflicts,'' comments Mr. Bosworth. ''We have dealt with poverty by giving the poor a greater share of the growth dividend. But when the economy stopped growing we began fighting over the shares.''

''You have to be concerned about a polarization of society,'' comments Dr. Yardeni. ''Over the last couple of years the country has become more cohesive as we have put Vietnam behind us, so it would be unfortunate if we had another period of social and political divisiveness.''

In fairness to the administration, Dr. Yardeni and others note that the results are not all in yet. As the economy expands and *ob opportunities open up , it is possible that the trend toward greater inequality will be reversed.

Dominating assessments of Reagan's record, however, are the unprecedented budget deficits, for which both he and Congress are held responsible. Jimmy Carter when President was assailed for pushing up the deficits to the $30 billion or $40 billion range. Under Reagan, the deficit - caused largely by the surge in defense spending - shot up to $200 billion, and some estimate that the deficits will go even higher unless the administration and Congress act in time to bring them down.

While given credit for supporting the Federal Reserve Board's anti-inflationary monetary policy, Reagan is faulted for pursuing a fiscal policy (sharply raising spending and cutting taxes) in conflict with it. The result, it is felt, was a deeper recession and a greater burden on the American people than was necessary to wring out the high inflation rate.

''Reagan has remarkable political savvy and runs his own show,'' says a Princeton University scholar, ''but in the course of running it he has had a dead ear for policy analysis and asking the hard questions about whether his policies will work. He gives no sense that he has doubts about getting into such deficits.''

Today the concern is that, as the economy expands, the money available for private investment will shrink as the government borrows heavily just to pay the interest on its gargantuan debt.

Mr. Bosworth notes that the government used to consume about 1 percent of the gross national product, the dollar value of the nation's total output of goods and services, to cover its deficits. Now the deficits have increased to about 3 or 4 percent of GNP. So there will be increased competition for the remaining savings pool.

''Instead of increasing capital formation there will be less of it,'' Mr. Bosworth says, ''and future generations will not be well served. Where net investment in the US used to be 7 percent of GNP, it is now about 3 percent, which means we are just barely replacing capital stock, not adding to it.

''So give Reagan credit for supporting monetary policy to bring down inflation but bad marks on fiscal policy. You have to pay for what you spend,'' he says.

Economist Alan Greenspan, chairman of the Council of Economic Advisers under President Ford, voices concern that because of high interest rates much of current investment is going into products of short-lived duration.

''We are cutting out the long-lived assets, and they are not being replaced, '' he says.

The global economy also is feeling the effects of America's failure to control its deficits. High US interest rates, fueled by the deficits, have added to the debt-servicing burdens of developing countries and of Western industrial nations, affecting economic growth throughout the world. Moreover, America's ability to compete abroad is being eroded. The high interest rates, though they have come down from the all-time high in 1980, have driven up the value of the dollar and priced many American goods and services out of markets abroad. The US trade deficit for 1983 was about $70 billion. Presidential economic adviser Martin S. Feldstein warns that with such deficits the recovery is a lopsided one , in which firms that produce goods for export face declining sales. Also, the growing trade deficits mean more imports competing with the products of domestic firms, with resulting pressures for tough protectionist measures.

Such clinical economic analyses tend to preoccupy bankers, financial advisers , and corporate executives more than they do the average American, however.

Though the US economy may be barely back to where it was when the recession started, the momentum is a forward one and there is optimism in the air. Many individuals, even if they have lost ground over the past several years, tend to be cheered that a recovery is under way.

''Reagan has succeeded in convincing a lot of the public that the price paid for recession was not his fault,'' says Mr. Greenstein. ''When you're in a period when things are getting worse there's a lot of fear. With things now getting better, he has sold the idea that because of his policies we are on the road to solid recovery.''

Next: Getting government ''off the backs of the people.''

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