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Wall Street and Washington

November 12, 1987



Kudos to Robert R. Bowie for his perceptive article ``How not to lead,'' Oct. 30. The recent catastrophic events on Wall Street have been a rude awakening to us all. For the average layperson with no profound knowledge of how things were really building up, this has been an eye-opening experience indeed. We now have no choice but to reevaluate our thinking about the Reagan administration.

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The message of this debacle is loud and clear: When you buy prosperity at any price you purchase financial disaster on the installment plan.

Mr. Reagan has apparently been laboring under the self-delusion that he can achieve financial well-being without commensurate sacrifices. Such a glib philosophy of style rather than substance has lulled the American people into a false sense of security. Unfortunately, the bill always comes due somewhere down the road; and the longer the delay, the higher the bill.

Is there any government in all of world history that has been able to achieve prosperity without an adequate program of taxation? Let's face it: Taxes are the essence and the very lifeblood of a sound national economy. Spencer Brien Mendota, Ill.

Mr. Bowie blames Reaganomics and high deficits for the recent crash in stock prices. To solve the problem, he recommends raising taxes and cutting the deficit $40 billion to $50 billion in the coming year. This is a puzzling analysis from a macroeconomic point of view. Mr. Reagan's highest deficits were between 1983 and 1986, when the bull market boomed and interest rates fell. This year the deficit fell by 33 percent and the stock market fell right with it. These facts do not support Bowie's claim that ``the deficit and its implications were a major cause of the stock market collapse.''

It certainly seems more likely that the crash was a response to the September jump in interest rates, which are controlled by the Federal Reserve Board. After ``Black Monday,'' the Fed announced it would loosen the monetary belt in an effort to keep interest rates down.

Raising taxes and slashing federal spending is an interesting approach to warding off a possible recession. Whether doing so would ``restore confidence'' or not, it shows all the signs of a misguided panic and could easily create a recession all its own. Rod Schenker Evanston, Ill.