Former Reagan adviser spots economic troubles
William A. Niskanen Jr., until last week the sole remaining member of President Reagan's Council of Economic Advisers (CEA), says there may be trouble ahead for the United States economy on inflation, interest rates, and the health of the savings-and-loan industry. In an hour-long interview Friday, his last day in office, Mr. Niskanen also defended Japan's overall performance in the trade area. President Reagan sent negotiators to Japan Friday to seek additional concessions in telecommunications trade talks. Yesterday Japanese Prime Minister Yasuhiro Nakasone discussed a full range of trade issues with one of the American envoys, National Security Council staff member Gaston Sigur.Skip to next paragraph
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``Japan for the most part has been an innocent victim of this whole trade issue,'' Niskanen said. Despite some formal and informal trade restraints that are ``terribly frustrating'' and should be addressed, Japan still has ``the freest market of any of the summit countries, including the US,'' in terms of tarriffs and formal quotas, he added.
On the domestic economy, some of Niskanen's remarks depart a bit from official administration positions:
Due to weakness in the overall trade sector, Niskanen says, US economic growth in the first quarter of 1985 ``could be'' even slower than the sluggish 2.1 percent pace forecast in the government's initial estimate. Most private forecasters are saying the government's ``flash'' gross national product estimate will be revised up, not down. Niskanen adds that the growth slowdown will be a ``one-quarter wonder,'' with no change needed in the administration's GNP forecast for the year.
On a more optimistic note, Niskanen said the US manufacturing sector ``is a good bit stronger'' than current data would suggest, with a strong dollar hiding major improvements in competitiveness.
On taxes, Niskanen said that unless Congress this year enacts total budget savings close to the $51 billion level the administration proposed, ``I don't think there is any way to hold off a tax increase and a great temptation to reinflate.'' Presidential spokesman Larry Speakes said Friday that Mr. Reagan stands ``in concrete which will not crack'' against a tax increase.
The administration's inflation forecast for 1985 will likely be revised down slightly in April from the current 4.3 percent, to 4.1 percent. But ``there is some risk'' in that forecast, he admitted. If the recent drop in the dollar is a permanent rather than a temporary phenomenon, consumer prices could be rising at a 5 to 6 percent rate by the year's end, he said.
A sharp decline in the dollar that could trigger inflationary pressures ``is not likely'' unless US fiscal policy changes greatly, he says. A sharp drop could be triggered ``if it becomes clear that the sort of things that affected Ohio [savings and loans] are likely to affect other elements of the financial community.'' He warned that the S&L industry ``is still very weak,'' with net worth ``very close to zero,'' if accounting standards that apply to nonfinancial corporations are used.