What to do

THE American stock market had its worst day ever (up to then) on Oct. 16. It was more than enough to trip world markets. All of them, on the following Monday, Oct. 19, became bottomless. Now, two weeks later, the big question is about who is going to do what to repair the damage and prevent a radical decline in the supply of investment capital from becoming an economic recession.

So far there is no adequate or satisfying answer to the question.

The only specific action President Reagan has taken has been to authorize several of his White House aides to sit down with budget people from the Senate and House and see what they can suggest about ways to reduce the American budget deficit.

Six such meetings have taken place. The most radical idea so far is a possible squeeze on cost-of-living adjustments (COLAs) for government and military pensioners. But also, they have talked about trimming the deficit by somewhere around $25 billion.

The deficit has been running at about $200 billion a year. So, too, has the trade deficit. The current budget deficit will be down for temporary reasons to about $150 billion.

A cut of $25 billion would be a token concession to the need for action. By itself it would do little to build confidence that the United States expects and intends to pay its bills, meet its obligations to others, and restore the soundness of the dollar.

The world is yearning for a sign from Washington of determination to do whatever is necessary to regain its credit.

There are several things the President could do at once to assure everyone that he knows the situation is dangerous and intends to do what must be done.

He could bring back Paul Volcker. He could supplement that by moving George Shultz over from the State Department to an emergency job as budget-cutting coordinator. Mr. Shultz has been both director of the budget and secretary of the Treasury. He is the most respected and trusted member of the Cabinet. He and Mr. Volcker together could do things.

Second, the President could ask Congress for a quick, emergency raise in the gasoline tax. Americans have paid $1.50 for gasoline. They are now paying a dollar. They could go to $1.25 without serious pain or damage to the economy.

Third, he could set a real goal for the joint committee now working on deficit reduction. A program calling for trimming the deficit by $50 billion next year, and progressively more thereafter, would impress people.

To make it truly convincing, the program must include both raising more revenue and reducing the entitlements that are a major cause of the inflexibility in, and the growth of, the federal deficit. The President has excluded social security from consideration. But should he allow a 4 percent cost-of-living raise in social security payments for next year?

Social security is Washington's most sacred cow. But need the cow be fed an extra 4 percent come January, when the President claims that inflation is under control? Recipients below the poverty line could be allowed their ``COLA'' come January, but should all of us get a raise that itself recognizes the existence of inflation, and will, if granted, contribute to more inflation?

The essential ingredients for a fair budget-cutting program exist. The Democrats should give up entitlements in proportion to a willingness by Republicans to raise taxes. The two must be balanced. The minimum goal should be $50 billion.

If the President would launch and sponsor such a program, and push hard for it, the Western economic world would breathe more comfortably.