The reviving economy - how much credit goes to Reagan?

''President Reagan has certain views which do not change, but the application of those views is adaptable.'' Thus economist Herbert Stein, a former presidential adviser, summarizes the increasing pragmatism that motivates White House economic policy - up to a point.

The point at which pragmatism stops, in some critics' view, is the President's refusal either to scale back defense spending or to promote an early and hefty tax boost.

Down the road these bedrocks of Reagan conviction - the ''views that do not change'' - seem likely to engage the White House in a monumental tussle with Congress.

For the moment, however, the administration basks in the emerging signs of economic recovery and claims that Reaganomics finally is beginning to work.

Every president takes, and gets, credit for good economic news and blame when things go wrong - whether or not his policies played a major role either way.

The important thing is not who gets credit, but that the battered US economy is beginning to emerge from the deepest recession since World War II.

Still the question arises: Can President Reagan fairly take credit for ending the slump and planting the seeds of recovery?

''The unique feature of Reaganomics - the big tax cuts - did not contribute either to reduction of inflation or to the recovery,'' says Dr. Stein.

The tax cuts, according to Stein, now a senior fellow of the American Enterprise Institute, did not achieve the goal expected by the administration - an increase in savings and investment, which in turn would have spurred recovery and a greater flow of tax revenues.

Instead, the sharp drop in US Treasury income, coupled with a steady increase in government outlays since Mr. Reagan took office, results in growing deficits, now mounting toward $200 billion a year.

Stein, unlike many of the President's critics, would not cut back on defense outlays. ''But we now need a tax increase for the long-term purpose of reducing deficits and increasing the capital stock,'' he contends.

''What the President can take credit for,'' says Stein, ''is in a sense negative. He did not pressure the Fed to pump up the money supply when the recession deepened.''

Most experts agree that prime credit for squeezing inflation out of the US economic system and laying the groundwork for recovery belongs to the Federal Reserve Board and its restrictive monetary policy.

One could say, according to Stein, that ''one aspect of Reaganomics is working,'' in that the President - though he did not originate the Fed's anti-inflation policy - supported the Fed.

In past administrations, White House pressure often was exerted on the Fed to speed up recovery and bring down unemployment by loosening up on the money supply.

Two questions arise about the emerging recovery - its durability and its strength. On the latter, the consensus holds that the recovery will be slower than normal after a recession, partly because neither consumers norUFquote'The unique feature of Reaganomics, the big tax cuts, did not contribute . . . to the recovery.'

financial managers appear to have great confidence about the future.

This shows up in three areas - retail sales, capital investment plans by corporations, and high real interest rates.

''The unhappy surprise of the early 1983 data is the reluctance of consumers to boost their spending,'' says Otto Eckstein of Data Resources Inc. Automobile sales are flat and ''other consumer outlays,'' says Eckstein, ''are increasing at about a 2 percent rate.''

Corporate leaders plan only modest capital spending, at least until idle plant capacity, shut down by the long recession, is put back to work.

The financial markets, with an eye on burgeoning federal deficits, are keeping interest rates high relative to inflation - too high to spark a brisk recovery.

You've read  of  free articles. Subscribe to continue.
QR Code to The reviving economy - how much credit goes to Reagan?
Read this article in
QR Code to Subscription page
Start your subscription today