Ike & Nixon Advisers Review US Economy

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PRESIDENT BUSH, in his State of the Union message Tuesday, called the recession a temporary interruption of the ``largest peacetime economic expansion in history.'' Two former presidential economic advisers, Paul McCracken and Raymond Saulnier, agree. ``The outlook for the economy is not as bad as it is cracked up to be,'' says Dr. Saulnier, who was chairman of the Council of Economic Advisers from late 1956 to early 1960 under President Eisenhower.

Dr. McCracken, who was President Nixon's top economic adviser from 1969 to 1971 (``before Watergate'') says: ``We have a pretty good chance that this is not going to be much more than a conventional recession.'' He figures the slump should be comparable with the previous seven postwar recessions, with national output dipping 1 percent to 1.5 percent and lasting about 12 months. ``We are not in a never-ending downward spiral.''

That view got some statistical backing Wednesday when the government's main forecasting gauge, the index of leading indicators, posted its first slight gain in six months in December. Saulnier says he would have been more impressed if the index had not been decidedly influenced by higher stocks prices.

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Both Saulnier and McCracken are economics professors ``emiritus'' - a Latin term originally meaning honorably discharged from the Roman army. Both have seen a goodly number of State of the Union messages, a few times from close up in the House chamber.

After viewing Mr. Bush on television, McCracken observed: ``He was more presidential than I had seen him before.'' Decades ago, McCracken lunched on occasion with Bush in Washington.

Based on telephone interviews, here are some of their observations on the state of the union:

The budget deficit remains serious.

``I am still very much concerned about the budget and the obvious political disinclination from either end of Pennsylvania Avenue to do anything about it,'' says McCracken of the University of Michigan.

A deficit of perhaps $325 billion in the current fiscal year will add about $25 billion to interest charges per year on the federal debt, he notes.

The nation's financial institutions are in trouble.

Bush spoke of ``a banking reform plan to bring America's financial system into the 21st century.'' There have been reports that the reform, when announced in detail shortly, will allow greater freedom for banks to branch around the country, permit nonfinancial institutions to own banks, and open up the investment banking and brokerage businesses to banks.

``That's giving them [banks and savings and loan institutions] a dose of the stuff that already got them into trouble,'' says Saulnier of Barnard College. These financial institutions ``abused'' new powers in the 1980s.

There is little money available for new domestic programs.

``The president and Congress aren't going to have much elbow room to do anything,'' says McCracken. ``But that might be an advantage.'' It might force the Bush administration and the Congress to search for alternative means for dealing with social issues rather than throwing money at them.

Bush outlined proposals he said would ``put more power and opportunity in the hands of the individual.'' Their aim is to stimulate self-help and free-market enterprise at minimal cost to the government. Bush proposed the creation of tax-free enterprise zones in inner cities, tenant control and ownership of public housing projects, and vouchers that would enable parents to choose the schools their children attend.

McCracken sees a national consensus developing that education must be improved. But he doubts that giving educators more money will do much in that regard. ``I don't think a monopoly in education will work any better than a monopoly in building cars,'' he says. Thus he likes the Bush proposal for giving parents more choice in the education of their children. ``It is quite conceivable we could handle this education problem without any more money if you deal with these structural problems.''

More choice, he admits, could mean using government money via vouchers to support parochial schools. ``In all these issues, considerations are always multidimensional,'' he says.

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