As election dust settles, tests of policy return to center stage; THE ECONOMY
If one thing, more than any other carried President Reagan to his landslide victory, it was probably was the ''pocketbook factor'' - the widespread sense of economic well-being throughout the United States on election day.Skip to next paragraph
Subscribe Today to the Monitor
The biggest component of the pocketbook factor: lower inflation, thus more buying power.
True, interest rates were still high. But only borrowers are affected by these, and borrowing has never been universally regarded as wholesome in America. The budget deficit was a big worry - but this problem seemed intangible to many voters. And although unemployment was still considerable, thousands of new jobs had been created in Mr. Reagan's first term.
The pocketbook was not the only factor in the Reagan win. A month before the election, a Citicorp analysis of the ''misery index'' (unemployment plus inflation) noted that ''if gut economic issues were all that this election is about, the Reagan-Bush ticket would win with about 51 percent of the popular vote.'' At 59 percent, Reagan got pocketbook-plus.
What of America's economic future?
Prosperity should stay on track at least during the opening months of the second Reagan term, most economists agree. The consensus for late 1984 and early '85: Expect low inflation and falling interest rates, but beware of an economic slowdown, maybe even a recession, next year. Further ahead in the Reagan years, however, those intangible federal deficits may get worse, and a weakening dollar could reignite inflation.
''The economy is slowing down,'' says Martin Feldstein, the most recent chairman of Reagan's Council of Economic Advisers (CEA) and now back at Harvard University. ''People will have to face up to the fact that we're not going to grow our way out'' of the deficit problem.
Tax reform, many agree, will be widely discussed in the coming weeks and months. But a major revamping may elude Washington. There are just too many constituencies that would be hurt by an across-the-board flat tax (a simpler tax that eliminates most deductions and charges virtually the same rate to all taxpayers in an income group).
Nearer at hand, a slide in interest rates appears to be encouraging America's financial markets even more than the prospect of four more years of the Reagan administration. One indication of that slide appeared Wednesday, when several major US banks lowered their prime rates from the prevailing 12 percent to 11.75 percent.
On election eve, the Dow Jones industrial average jumped 12.59 points; on election day it rose 14.91 points. It was not doing so well at this writing Wednesday, however.
The markets' strength appears linked more to receding interest rates (stocks look better when money-market rates fall) than to a perception of better days for corporate America under a reelected Reagan. In fact, in the near term, many economists say, the US appears in for a slowdown, if not a mild recession. Neither would be great for corporate America's profits.
Murray L. Weidenbaum, who was chairman of the CEA early in Reagan's first term and is now at Washington University in St. Louis, contends that ''1985 will not be as good as '84.''
A slowdown is already apparent, he says, and economic growth in '85 will be only half that of '84.