Trend of the economy
Washington — How much should government meddle in the marketplace to shield citizens and firms from the buffeting of economic storms? Listen to the "hands off" litany coming from top Reagan administration officials and the answer of the White House seems clear.
"A government policy of not supporting, not protecting, any particular industry is important," says White House economic adviser Murray Weidenbaum. "To intervene is counterproductive."
"You begin to concede to one interest group," intones Budget Director David A. Stockman, "and another rises to make demands."
This sounds like a seamless fabric of nonintervention that Reagan officials have begun to weave. But holes have started to appear.
In at least two cases -- foreign tobacco and Japanese cars -- the administration either has obtained, or recommends, a limitation on imports.
The reasons, on the surface, sound valid. Tobacco from overseas competes with domestic flue-cured varietes. US taxpayers face a potential loss of $123 million or more under the federal price-support program if American growers cannot sell their crops.
Unless import quotas are established, warns the Department of Agriculture, the federal budget may suffer a drain -- the last thing the White House wants.
"The limitation on Japanese car shipments," says Commerce Secretary Malcolm Baldrige, "was designed to give the US auto industry two or three years of running room. I do not think the restrictions will be extended."
May not. Meanwhile, American car buyers will pay more for Japanese automobiles and possibly for US-made models as well.
When Ronald Reagan came to the White House, the US already shielded domestic industries in two key areas -- textiles and steel -- by blocking out some foreign imports.
"Steel, textiles, and Japanese cars," says Mr. Weidenbaum, "are three exceptions to a good general rule of free trade. I would hope that in the Reagan administration there will be very few exceptions."
Trade issues are more or less up front and in the public eye. Americans at large may be less aware of controversies swirling backstage over other areas of potential government intervetion.
"President Reagan," says Treasury Secretary Donald T. Regan "is absolutely opposed to wage and price controls, except in national emergency."
We won't impose wage and price controls," declares Bill Brock, top White House trade negotiator, "we will not jawbone. If firms raise their prices too high, the marketplace will take care of them."
But what about wage settlements, still rising at about the 10 percent mark, when fringe benefits and cost-of-living adjustments are counted in?
The Carter administration's effort to moderate wages through voluntary guidelines did little to stem the upward rush of wage inflation. Indeed, when he resigned as administrator of the Carter program, Barry P. Bosworth acknowledged that the guidelines had become largely irrelevant.
"Most economists," says Mr. Bosworth, "would say that to get wage inflation down, you must have either a severe recession or wage and price controls."
Reagan officials deny this, climing that an expanding economy, based on rising productivity and falling inflation, will bring wage settlements into line.
"If the Reagan administration is successfully to keep hands off collective bargaining," says White House adviser Weidenbaum, "it must do two things -- reduce inflation and reduce inflationary expectations."
Workers, in other words, will stop pressing for inflationary wage increases if they lose their fear that inflation will outpace them in the future.
So far a combination of factors -- Reagan's hands-off signal on wages, plus the fact that White House tax and buget policies are not yet in place -- push the major burden of fighting inflation onto the Federal Reserve Board.
The Fed, by curbing credit to cool off the economy, causes interest rates and unemployment to climb. White House officials concede that the jobless rate may rise as the year goes on.
"The unemployment rate for the second half of 1981," says Weidenbaum, "will be higher than in the first half," as declining production and sales impel employers to reduce labor rolls.
"It is not right," says Mr. Bosworth, "for the Federal Reserve Board to have to make judgments about how many people, or which ones, should be unemployed. Such decisions for society belong properly to the White House and Congress."
Currently, for example soaring interest rates especially hurt the construction and auto industries, dictating high unemployment in these key fields.
The White House, in the view of Bosworth and other experts, can afford to pursue a policy of total nonintervention in wages and prices only by passing the buck to the Fed, or by ensuring that inflation does indeed fall.
On the last point judgment still is out, with many economists warning that a major tax cut -- such as the President is pushing through Congress -- could reign ite inflationary fires.