Picking on Paul Volcker

LITTLE wonder that the US stock and bond markets are skittish. The dollar keeps descending. Washington and Tokyo talk of a possible trade war. The US trade deficit widens. America's inflation rate inches upward. Japan's economy pokes along in slow gear and West German exports face tougher times. In short, spring squalls are testing the world economy right now, requiring firm hands at the helm.

Fortunately, there is time for appropriate action, both within the US and overseas. The world remains in a period of economic expansion, although modest. Moreover, the number of key players required to keep the global economy on course is small and, thus, manageable. The key to continued expansion remains largely in the hands of Washington, Bonn, and Tokyo.

This is no time for passivity. President Reagan should do what he can do best: be a national consensus-builder on the crucial budget/deficit issue.

To an extent, the White House appears to be moving toward compromise - though in a contentious fashion. Take, for instance, the issue of a modest tax hike. At first, the official policy was that there could be no tax increase. Now the word is that there can be no broad-based tax increase. Mr. Reagan should take the lead in seeking a quick resolution of the budget issue, accepting a modest tax hike in the $20 billion range now under discussion in Congress, a hold on military spending, and some cuts in domestic spending.

Japan and West Germany, meanwhile, need to move ahead with stimulus packages.

What would be particularly unwelcome at this juncture would be for the Reagan administration to look for scapegoats in the economic area. Budget Director James C. Miller III says that he is merely speaking for himself and not the White House in warning the Federal Reserve Board not to raise interest rates to help stabilize the dollar, lest such a tightening of the money supply trigger a recession. Perhaps Miller is speaking only for himself. Or perhaps the White House is sending a clear signal to Federal Reserve Board Chairman Paul Volcker to get aboard the administration's economic game plan before this summer, when Volcker's term expires. So far, the administration has not said it will reappoint him.

But if Mr. Reagan wants to stabilize the economy, he should make a deal with Congress on the budget and deficit, instead of picking on Volcker.

Obviously, the Fed - now largely comprised of White House appointees - has to be concerned about overreacting on the dollar. Overtightening could lead to difficulties. At the same time, any further dollar slide would be counterproductive. Treasury Secretary James Baker III concedes as much. Nor would rising inflation be in the nation's interest.

The deeper issue right now is not Mr. Volcker, or the Fed, though both will play a crucial role in the nation's economic affairs in the months ahead. The economic challenge comes back to the White House, where it belongs. It's time for Mr. Reagan to again take a drive up to Capitol Hill - either in fact or symbolically - but this time in search of a national consensus on the budget and deficit. Such a conciliatory act would go far to calm financial markets, in the US and abroad.

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