Two distinguished chief economic advisers to former Presidents, one Republican and one Democratic, yesterday agreed that the economy faces a recession year that makes President Carter's goal of holding the budget deficit for fiscal 1980 to $30 billion unrealistic.
Speaking at the National Press Club, Alan Greenspan, chairman of the Council of Economic Advisers under Gerald Ford, said that the deficit "will be closer to $50 billion than $30 billion," probably leading Carter to resort to a modest tax cut to stimulate the economy.
Arthur M. Okun, CEA head for Lyndon Johnson, predicted that the deficit would "most likely be about $40 billion, and that would be entirely appropriate" in the circumstances. Okun said that the deficit could be held to $30 billion only if the administration achieves a "soft landing" from this year's expected economic downturn, but the odds, he calculated, are 2 to 1 against a "soft landing."
Although their appearance was billed as a debate by the three sponsors -- Sigma Delta Chi (the professional journalism society), the Economists Club and the Press Club -- Okun and Greenspan essentially agreed on the nature of economic problems facing the country.
Greenspan, who spoke second, said "if I could edit two or three paragraphs out of Art's speech, I would be delighted to give it myself."
However, their views diverged on how to solve current problems. Okun stressed both the need for and the promise of Carter's voluntary wageprice policy, which he said "has been greeted with more skepticism than it deserves."
The Brookings Senior Fellow, who helped to originate the wage insurance proposal Carter will shortly send to Congress, said he saw it as the opening wedge for a mandatory tax-based incomes policy, which would use the tax system to reward those who comply with guidelines, and punish those who don't.
But Greenspan, president of Town-send-Greenspan Co. of New York, focused instead on the need to squeeze back excessive credit in the economy. "If we come to grips with our financial problems," he said, "we have the capacity to bring inflation down to a modest level by the early 1980s. If we do that, we don't need other programs."
The "dominant element" in the 1979 economy, Greenspan said, is a vast amount of mortgage credit expansion, which is certain to start shrinking. "What we are looking at," he suggested, "is a mortgage-based recession" which could be a good deal worse" than mild if housing prices actually turn down.
Okun agreed that "we've got to take some cooling off in home-building. So far, we've done too good a job in insulating the home building industry (from the effects of a tight money policy)".
Both Okun and Greenspan were optimistic on the possibility that there will be less inflationary pressure from wages this year than many other economists have guessed. Okun said that "we may not get 3-year, 22.5 percent agreements" -- the compounded result of exact compliance with a 7 percent guidelines -- but that settlements shouldn't be much above that.
Greenspan said that recent wage gains have in fact been modest, and there is "no reason" to anticipate acceleration. "There may even be a way of getting a Teamsters contract within the wage guideline," he said. "It may not be in the real world, but at least in the rhetoric."
Both men flatly rejected as impractical California Gov. Jerry Brown's recent proposal for a constitutional amendment requiring a balanced Federal budget deficit. "It would be a throwback to the days of (former President) McKinley, if not to the cave man," Okun said in response to a question from the audience. If ever tried, he said "Jerry Brown should be in charge of implementing it and a special post created for that purpose."
Greenspan, smiling, observed that Brown "is a Democrat, you know." But he added that he reluctantly was coming to the conclusion that a constitutional amendment restricting expenditures may be the only effective way of restraining Federal expenditures.