In recent days it has begun to dawn on conservatives in Congress that unless there is a change in tax policy to bring in more revenue, there may not be enough money to go around to sustain the whopping increase in the Reagan defense program--which is supposed to total $1.5 trillion through fiscal 1986.
This is a very rational fear: A projection given a panel of Congress' Joint Economic Committee (JEC) by George F. Brown Jr., vice president of Data Resources Inc., raises serious questions about the program. His questions contrast sharply with bland assurances by the Reagan administration that the economy can absorb defense-spending increases without serious inflationary pressures.
Adding up all of the planned purchases for the expanded defense program, and using the administration's own economic projections, Brown shows the cost in terms of the annual federal deficit as follows: Fiscal 1982--$69.9 billion Fiscal 1983--$78.9 billion Fiscal 1984--$81.7 billion Fiscal 1985--$76.2 billion Fiscal 1986--$66.2 billion
As might be expected from this cumulative red ink total of $372.8 billion, added to a national debt which has just passed the $1 trillion mark, Brown predicts the continuation of double-digit interest rates over this period, as reflected in these average bank prime lending rates: Fiscal 1982--18.7 percent Fiscal 1983--16.0 percent Fiscal 1984--14.1 percent Fiscal 1985--14.5 percent Fiscal 1986--13.4 percent
Administration officials, notably Economic Council Chairman Murray L. Weidenbaum, have been saying that the defense buildup can easily be absorbed by the economy. Weidenbaum points out that the Pentagon budget is less, as a percentage of Gross National Product, than it was during the Vietnam war. Weidenbaum sees no serious bottlenecks in materiel or manpower. "This program does not suggest a headlong militarization of the economy, or a runaway budget for defense," he told the JEC on Oct. 7.
Brown's testimony, on the other hand, suggests that the comparison with Vietnam is mostly meaningless: The swollen defense budget as proposed by Reagan will present enormous problems for the economy--and not just in terms of creating financial market pressures. The question arises whether the nation has the physical resources--even if it had the money--to produce the staggering amounts of equipment represented by $1.5 trillion. In other words, is it do-able?
M. Kathryn Eickhoff of Townsend-Greenspan, and president of the National Association of Business Economists, said in a speech here Sept. 24 that what the economy desperately needs to meet competition from abroad--notably from Japan and some of the more advanced developing countries--is an expansion and modernization of civilian factory capacity. But that will have to compete for funds with Reagan's huge planned expansion of defense production.
Can America's factories and labor force handle both jobs? Says Eickhoff: "The pollution controls introduced in the early 1970s, combined with increased energy costs, rendered many manufacturing facilities noneconomic and forced them to close. In particular, foundries all across the country have shut down in the last decade, as have small-machine-tool plants.
"Accordingly, the question must be raised, and soon, whether the capacity exists to achieve the defense buildup desired . . . I do not think we really know where problems will emerge. Only as orders are placed will the extent of potential bottlenecks and shortages of capacity become apparent."
Brown supplies some clues on where the pinch will come. Looking at the top 50 industries that would be affected to build a 600-ship Navy, as well as countless new sophisticated aircraft, guns, missiles, ordnance and supporting equipment, he ticks off the potential bottlenecks that Weidenbaum and others in the administration so far have refused to acknowledge.
He showed that by 1986 the expanded military program demands an output increase of more than 40 percent (in real terms) over the highest production ever achieved in many critical areas. For example, what's needed is a 67 percent surge in electronic computing equipment; 60 percent in semi-conductors; 58 percent in telephone and telegraphic equipment, and more than 40 percent in aircraft, aircraft engines, guided missiles, electronic components, communications equipment (except for radio and TV), primary aluminum, aluminum rolling and drawing facilities, and electric measuring instruments. (And that is not the full list by any means.)
Remember, these are increases needed not over current levels, but the fiscal 1986 output required over the previous high record in each case. To reach such a grand plateau, Brown says, there would have to be an unprecedented surge in productivity--and a commitment of investment funds to the military buildup. The drain of materials and manpower from other pursuits is self-evident.
What happens to the kind of rebuilding job necessary in Detroit? Will there be funds available for housing? And at what level of interest rates? The lesson is clear: Once again, the nation is being shoved, pell-mell, down the "guns and butter" route. Experience tells us that the one certain thing to expect is shortages and inflation. If we must have this military buildup, the 1981 tax give-away bill has to be changed. Or, the grandiose plans of Pentagon hawks must be brought back to earth. One or the other--not both. And now is the time, not later, for Congress to do something about it.