Rating Bush Economic Policy: Hot Air!

`ONCE the do-nothing President Reagan retires, the pragmatic President Bush will begin to get a handle on the budget deficit and the balance-of-payments deficit.'' Remember those cheery Wall Street predictions? How do they score two months into the Bush presidency?

Alas, the realists are proving to be right. The election-period hot air is revealing itself to be only hot air.

1.The Bush plan for a flexible freeze of budget expenditures, aimed at avoiding new taxes, is getting nowhere. Neither party in Congress takes it seriously.

2.The Bush proposal to cut the capital-gains tax rate down to 15 percent looks dead in the water. Over the President's four-year term, it figures to be a revenue loser, not a budget balancer. The other plans to coax out higher private savings and promote productivity miracles - for example, reactivating individual retirement account (IRA) privileges to free the fruits of long-term savings from taxation - could be afforded only if the Bush lips could bring themselves to say: ``Let's put in value-added and other taxes on the masses of consumers, so that we can afford to motivate abstemious savers.''

In short, the Bush program is so far d'ej`a vu, the Reagan program all over again. However, I see no convincing signs that the public is blaming George Bush for anything, any more than they blamed Ronald Reagan, the ``Teflon'' president.

The public couldn't care less about growing public debts and growing foreign ownership of American assets. Full employment is here and the economic expansion rolls on.

Indeed, the economy is overheating. Prices, and even wages, are starting to accelerate again.

The authorities at the Federal Reserve are beginning to have nightmares over the return of inflation.

The older hands at the 12 regional Fed banks have been nervous for many months now. Even the Reagan appointees to the Federal Reserve Board in Washington are starting to disbelieve their palaver about supply-side growth that will balance the budget and clamp down on prices.

Wall Street dumps its bonds and stocks when good job news hits the newspapers. New zip in OPEC oil prices or in the wholesale price index wipes out all that bond portfolios have been able to earn since last summer.

Homeowners with variable-rate mortgages are beginning to pay 12 percent a year or more. Nor is the end apparently yet in sight.

I am not a pessimist about a near-term American or global recession. But that does not mean that I go along with the desperate optimists who keep reassuring themselves that the hard-money medicine of the Fed is nicely slowing down the economy so that by early or late summer victory over inflation will be clearly apparent and interest rates can fall to produce a boom in long-term bonds. THE evidence suggests there is at best a one-fifth probability of such a comfortable soft landing by year's end.

I fear the odds are even that we are in for a period of some new stagflation.

At the same time that some companies and industries are beginning to slow down or even to decline, the price and wage indexes will be reporting more inflation. Such a period of stagflation would be uncomfortable.

The question foreigners will naturally ask is whether the Federal Reserve is almost sure to overreact to the stagflation and create a 1990 United States recession. That is what Arthur Burns, the Fed chairman in 1974 under President Ford, did. Can Alan Greenspan, Arthur Burns's prot'eg'e, avoid the Burns fate? Can Greenspan earn for himself in the history books the high grades that they awarded to Paul Volcker for fighting down the late-1970s stagflation and initiating in mid-1982 the long American recovery?

As yet, I come out with fairly sanguine expectations. Here are my three sources of comfort:

Europe and the Pacific Basin look to be in pretty good shape. And we benefit.

The Bush team is certainly, on the average, not as incompetent as the Reagan team was, nor is it as ideological.

So far, the American perils from stagflation seem much less than they were in the Nixon-Ford-Carter days.

George Bush is certainly no Franklin Roosevelt or John Kennedy, but also he is certainly no Herbert Hoover.