Feldstein: economic climate may warm up in time for '84 election
Washington — President Reagan is leaning more toward running again simply because his economic advisers are telling him the economy will be visibly improving by the fall of 1984 - and that it will be an economic climate that could well bring about his reelection.
The new chairman of Mr. Reagan's Council of Economic Advisers, Martin Feldstein, painted this kind of an economic scenario in an exchange with reporters at breakfast recently:
Can you look ahead and tell us what the economy is going to look like in the fall of 1984? Is there a possibility it will be looking very good at that time?
Well, let me describe it and you can tell me how good it is. It is now 1984. The inflation rate is continuing to come down. It is in the fives and sixes. Opposed to the 12s and 13s that it was in 1980.
The unemployment rate while still high still is coming down. Economic recovery clearly is here. Housing sales, auto sales, consumer spending are all up. Now, remember this is 1984, don't quote the wrong time on me. All the attributes of an economic recovery are in place. The growth rate is, say, 4 percent.
Only 4 percent?
We don't want it too high, lest it start up inflation again.
A pretty good year for Reagan to run again?
(Laughing) I'll leave that to your judgment.
Few days before Dr. Feldstein's appearance, President Carter's designer of domestic legislation, Stuart Eizenstat, met with this same breakfast group. He also said that he saw the economy improving just in time to help Reagan in 1984.
On other and related subjects Dr. Feldstein had this to say:
How would you describe your philosophy? Are you a conservative?
I don't know what the word ''conservative'' means. . . . I don't like labels. For a while I knew what it meant to be a supply sider. And I knew I was a supply sider. And that meant I was interested in increasing capacity, savings, and investment incentives.
But that word eventually came to mean such a wide range of things that I've tried to duck that label. Certainly my economic interests have been in creating capacity. They have been in making better use of resources. They have focused on economic growth.
Let's try it another way. If you were asked to name three or four economists you identify with most readily, whose views you would accept most readily, who would they be?
I wonder if there is anyone I always agree with. Probably not. I frequently find myself agreeing with people like Arthur Burns, Milton Freedman, and Herb Stein, to put them in alphabetical order. I don't always find myself agreeing with them.
When you come into an administration like this isn't the first question you have to ask yourself whether you are comfortable with this President? Are you comfortable with this President?
Yes, I am comfortable with this President.
Some of us don't know precisely where the President stands on economics. Therefore if you are comfortable with him, maybe you could enlighten us a bit on the President's economic views?
What I see his position as - and what I see the administration having done for two years - is very much along the lines that I cited when I indicated my own interests. That is, there is a focus on providing incentives and increasing capacity. There have been a whole series of tax changes designed to encourage more savings and direct savings toward productive plant equipment; also there have been policies to bring down the rate of inflation; also policies to reduce the size of government where it has grown unnecessarily.
There is a growing perception in this town that if supply-side economics hasn't failed it seems to have not succeeded. What do you say to that?
I think the problem is that two things are being done at once. One was to provide a series of supply-side stimuli for savings and investment. And the other was to bring down the rate of inflation. The first set of policies are long-term policies that take a long time to work. The anti-inflationary policies slow the economy. And the two are working at cross purposes. And sometimes that is not surprising. And it is not inappropriate.
Presidents often don't really rely on the judgment of their economic advisers. What is the function then of an economic adviser?
I think my function is to provide the President with economic advice on lots of issues. There are certainly many issues that have economic components. I know it is always easy to make jokes about economists.
Were you implying earlier that in the application of supply-side economics, which you say you favor, the administration has somehow gone wrong?
No, I think the administration's policies were the right policies. I think some of the rhetoric that got associated with the supply-side concept were extreme. I think that the policies of bringing down the tax rates, the policies of targeting tax cuts, the savings incentives, the policies of accelerating depreciation in order to encourage more of our capital to go into plant and equipment: I thought all those policies were just right, the kind of supply-side policies I favor. The term ''supply side'' after a while became associated with the notion that you could have tax cuts that would produce more revenue, ideas I never found myself at all comfortable with.
When will the recovery begin?
. . . I think that conditions are there for a recovery to begin: I am optimistic that a recovery will begin; but I am being very careful not to say that a recovery has begun. I would be very, very surprised if the recovery began in the third and fourth quarter of 1983 and much less surprised if it began in the first and second quarter.
Are you looking at the global economic picture when you set your policies?
A very good question. We are looking very much at what is happening elsewhere in the world. There is no question that there is a general slowdown in the world. And what's more relevant to the US, there's a contraction of imports elsewhere in the world. And part of that is in response to the problems of overborrowing in an inflationary period . . . This contraction of imports is going to have a downward pressure on the American economy.
When you are talking about things getting better in 1983 and 1984 are you talking just about the US - or about the rest of the world, too? There is interdependence. And I wouldn't say that we are independent from the rest of the world. But we can lead the world in terms of the timing of recovery.