Two roads diverged in a yellow wood, And sorry I could not travel both ... I took the one less traveled by,
And that has made all the difference.
Herbert Stein was chairman of the President's Council of Economic Advisers under Richard Nixon. Now a senior fellow at the American Enterprise Institute, he writes in AEI's monthly Economist that looking at the record isn't quite as easy as the politicians make it sound.
For one thing, he notes, if one is to look at the record, he must note negative developments as well as positive ones. He must also have some theory of the causes of economic change. And perhaps most important, ''There must be a prediction of the consequences of the policies followed during the period being observed.''
''All of this means,'' he writes, ''only that looking at the record is a speculative and controversial matter.''
He writes that the total growth in the economy, as measured by the GNP, has been the strongest of any of the postwar cycles during the first six quarters of this recovery, but only by a hair. In any case, this administration's emphasis on the strong recovery is a superficial judgment on its policies.
Productivity has been a concern to economists. There has been a healthy increase in it during this business cycle. That increase, however, has only been in line with other postwar recoveries, except for the one after the 1974 recession, when productivity was disappointing.
Mr. Stein takes note of the hefty increases in capital spending during this expansion. If one includes all kinds of spending - plant and equipment, housing, and business inventories - investment as a percentage of GNP is higher at this stage of the expansion than in any previous postwar recovery. This has taken place, however, in the face of a record rate of foreign funds flowing into the US.
''Thus, while we have been building up capital in the United States at a rapid rate, we have been running down our capital owned abroad, or increasing our debts to the rest of the world, at a rapid rate.''
If one takes these two factors together, Stein says, ''The increase in the capital owned by Americans has been a little smaller, in relation to GNP, than at this stage of earlier recoveries.''
These points and several others he makes indicate how interwoven economic events are and how difficult it is to reach definitive judgments on one policy vs. another - especially when only one policy could be followed. As in the Robert Frost lines quoted above, we will never know about the road not taken.
Where does Stein come out on all this? About where most mainstream economists would be. He gives the President high marks for the progress against inflation. While the fight against inflation did begin under President Carter, he notes that ''only in the Reagan administration did the policy become painful, and the Reagan administration deserves credit for standing by the Federal Reserve in those difficult days.''
He also places responsibility for the size of the deficit on Mr. Reagan. But he writes that in the real political world of Washington, the likely alternative to the large deficit would have been ''a smaller defense increase, fewer of precisely those corporate and upper-income tax cuts that hold the most promise of increasing productivity, and fewer cuts in nondefense expenditures.'' His own choice, between those two alternatives, is the Reagan deficit.
Stein concludes by giving Reagan & Co. substantial credit for the progress against inflation and for redirecting the budget toward more national-defense expenditures. On the fairness issue, he only notes the subjectivity of judgment; but as a conservative economist, he is not uncomfortable with the degree of shift in the burden of taxation that has occurred under Mr. Reagan. Whether the Reagan tax changes will result in greater productivity and higher long-term growth is not yet known. That, in the end, may be the most important judgment on the Reagan economic policy.
One might summarize that the jury is out on the effect of Reaganomics.
In the next two weeks, as both candidates appeal to their constituencies, keep in mind that economic policy changes do take a long time to work themselves out. Also keep in mind that whoever is elected on Nov. 6, the federal deficit is going to have to be dealt with in 1985.