'84 economy: good for US, overseas - and Reagan's prospects
In political economy, exact prediction is never possible. But here is how you should bet if you have respect for the evidence now available: 1. Next year will be a second year of United States expansion. Our production index will grow. Family incomes and expenditures will be rising. Business sales and profits will reach new record levels.
2. The overstrong American dollar will weaken against the yen and mark. That will help our exporters become more competitive in world trade, and help our domestic producers defend their markets against the continuing inroads by foreign competitors. This should slow down the political bandwagon for protective quotas and tariffs a bit. But deficits in the US current balance of trade will persist and protectionism will continue to threaten the world division of labor.
3. Interest rates a year from now are more likely to be somewhat up than somewhat down. Those who know Paul Volcker - and who remember his predecessors at the Federal Reserve, William McChesney Martin Jr. and Arthur F. Burns - will not fall for the argument that in an election year the Federal Reserve is bound to keep interest rates low and declining. As ever, it is the housing industry that will feel most the obstacle of expensive mortgage rates and hard-to-get financing. The dream of returning to 2 million housing starts will remain that - just an unattainable dream.
4. Available evidence gives no strong clue as to the trend of American inflation next year. I side with the important minority of experts who are apprehensive that what was a 4 percent inflation rate in 1983 will be a 5 or 6 percent annual rate in 1984. This would not be good news, but neither would it be an outcome that would alarm foreign and native investors and commentators.
5. Calendar year 1984 will see a colossal deficit - one of unprecedented size in relation to total gross national product in the second year of a vigorous recovery.
6. Jobs will be easier to find than they were in 1982, when the unemployment rate was 10.5 percent. Still, it will be the case on New Year's Eve 1984 that more than 7 percent of the labor force will be unemployed. For young people, black and Hispanic Americans, and those with limited educations and skills, good jobs at good pay will be hard to find and keep.
Accurate prediction in politics is even more impossible than in economics. Still, this is what the evidence suggests.
Everything on the economic side that was working against Jimmy Carter's reelection in 1980 - high and growing unemployment six months before the election, accelerating inflation - will be in reverse, working for Ronald Reagan in 1984. As far as the economic factor is politically decisive, the outlook is for another Reagan landslide. A president's landslide does not guarantee for his party a sweep of both houses of Congress. But other things being equal, if the economic horoscope for 1984 works itself out as the rosy extrapolations suggest, that cannot be good news for the Democratic Party.
Let me make clear that these dramatic forecasts are not prompted by any admiration for Reagan Republicanism. On the contrary. I think the history books will indict Reaganomics for its heartless indifference toward the poor and unfortunate, and for its reckless structural deficit that will crowd out future investments.
My task here is to interpret the odds based on evidence. Elsewhere I shall editorialize aplenty on the better way to run the economic machine.
A good 1984 for America will rub off favorably on the industrialized and developing nations abroad. Rising incomes here mean strong orders for those who export to us. Food, fiber, and metal prices will be stronger if the US economy is strong than if it is weak.
Ominous as a Reagan landslide would be for a world citizenry fearful of him as a reckless Teddy Roosevelt waving big nuclear sticks, it is a paradox that the danger of American protectionism would probably be lessened by a decisive victory that brought with it effective presidential control of Congress.
In their heart of hearts, politicians of both parties sense that the average American's standard of living will be lowered rather than preserved by widespread protectionism. But the Democratic candidates know that their union constituents do not understand this (and are naturally more concerned for their well-paid jobs than for the average real wage); officeholders in both parties find it hard to resist demands for protection when their election fortunes are threatened by determined pressure groups.
To those who forget that the future is longer than the present, the immediate world outlook is more cheerful than it has been since the deccde began. But for those who look ahead to the problems that 1985 will inherit, there are still plenty of causes for worry. That, I am sure, is why the conservative economic adviser to President Reagan, Prof. Martin Feldstein, was impelled to speak out against the magnitude of the structural deficit.