Argument begins over 'risks' in Reagan economic, energy policies

Some experts perceive risks in Ronald Reagan's economic and energy policies -- even if Congress gives the President substantially what he wants in the way of tax and budget cuts.

Among the risks, as these specialists see them:

* No apparent leverage exists in the Reagan policies to moderate wage increases, now climbing at a 10 percent or higher pace -- far more than productivity warrants.

"Wage contracts rising 10 percent or more," says Federal Reserve Board chairman Paul A. Volcker, "are not consistent with bringing down inflation."

* Mr. Reagan's sought-after 10 percent personal income tax cut may stimulate consumer spending more than the White House thinks, thus feeding inflation.

"The fact that [the tax cut] authors call them supply-side cuts," says economist Herbert Stein, "doesn't change the fact that citizens will have more money to spend."

Much of that money, in Mr. Stein's view, will be spent on consumer goods, rather than saved or invested, as the White House hopes.

* Oil industry sources doubt that US firms will come up with enough more domestic crude to reduce imports substantially, despite Mr. Reagan's decontrol of crude oil prices.

"The decline in domestic crude oil production which began in 1971," said the Petroleum Industry Research Foundation Inc. in a recent report, "will continue through the 1980s, according to present indications."

Price decontrol and higher world oil prices, the report says, will reduce the rate of decline, but not eliminate it.

"By 1990," it says, "total domestic crude oil production will be 1 million barrels daily below [1979's] 8.6 million barrels daily."

"Looking out over the next 10 years," said a senior oil industry executive, "very few geologists are predicting any increase in domestic oil production."

One who did -- Michel T. Halbouty, chairman of Reagan's transition energy task force -- no longer plays an official role in the Reagan administration.

Mr. Halbouty's earlier prediction that "we can produce our way out" of dependence on foreign oil is disputed by most experts in the US oil industry.

Marginally, however, President Reagan's decontrol of crude oil prices may temporarily boost output, because producers no longer will gain from holding oil in the ground.

The Reagan economic team -- led by Treasury Secretary Donald T. Regan and budget director David A. Stockman -- has answers for doubts raised by critics of the President's policies.

What the administration is doing, Mr. Stockman concedes, "is indeed big, indeed sweeping, and a fundamental departure" from policies of the past 20 years.

"But," he adds, "there simply is no alternative if we are to revive the great engine of the economy."

Stockman, Secretary Regan, and other administration officials admit that millions of lower-income Americans may spend their tax savings and that such spending would be inflationary, if there were no extra goods and services to soak up the money.

But, they say, high-income Americans -- whose tax cuts will be more substantial -- will tend to save or invest their extra dollars, providing more capital for industry to plow back into modernization and production.

Industry, under the Reagan plan, will be allowed to write off more quickly the cost of new buildings and equipment. Putting all this together, White House officials foresee a spurt in economic activity, higher output of goods per worker, greater incentive to work among Americans, and shrinking budget deficits as prosperity generates more tax dollars.

Inflation should fall, President Reagan believes, as Americans understand that their government's budgets will be balanced and that the Federal Reserve Board will keep the money supply in check.

If, through enhanced productivity, workers turn out more goods, wages could rise with less inflationary danger. And as inflation falls, pressure would subside for "catch-up" wage hikes.

Although Halbouty's optimism on greater oil output no longer holds sway, Reagan's plan to reduce dependence on foreign oil still stresses increased energy production at home.

Reagan and his advisers, by decontrolling the price of crude and abolishing cumbersome allocation rules, hope to avoid -- or at least minimize -- gasoline lines, in case of future shortage.

Elements of Reagan's program include additional oil and natural gas output to the extent possible, greater mining of coal, and accelerated building of nuclear power plants under "safe" conditions.

This would involve, among other things, opening federal lands to exploration, possible revision of the Clean Air Act, and a phasing out of the windfall profits tax on oil companies.

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