Ronald Reagan, so we're told, is the darling of the business community. Not only will the former actor curb inflation (if he makes it into the Oval Office) by tightening the reins on government spending, but he'll dish out a slew of tax incentives to business to encourage increased capital investment. And that, in turn, should improve productivity . . . and tone down inflation even further.
Sounds great, exept the talk of a Reagan-business romance may be a lot of hot air.
This surprising conclusion emerges from a just-completed survey of 42 leading business economists -- representing the likes of Morgan Guaranty Trust, Du Pont, the Conference Board, Bank of America and Goldman Sachs.
It was conducted by Blue Chip Economic Indicators of Sedona, Ariz., an economic forecasting service headed by Robert J. Eggert, one-time chief economist of RCA. And it points up some sharp differences between Reagan and business.
On a scale of 1 to 10 -- with 10 being the highest grade -- Reagan managed to achieve a mediocre rating of only 5.4. And of the 42 economists polled, a surprisingly large number -- 30 of them -- rated Reagan only fair to very poor.
This showing, you may be astonished to learn, is only slightly better than Jimmy Carter's dismal ratings. The same economists polled just a month earlier, came up with a puny 4.7 reading for the president -- with 34 of the ratings in the fair-to-very-poor category.
Why such a bum showing for Reagan?
His program of a 10 percent cut in personal income taxes in 1981, '82 and '83 is regarded as excessive -- one that could easily ignite a new and much higher outbreak in inflation. (Eggert figures it would produce 15 percent-plus inflation rates).
Reagan was too vague in spelling out how he would reduce growth in government spending by 7 percent to 10 percent by 1985. As one participant in the Blue Chip survey remarked: "It reminded him of all the wonderful unfulfilled promises of government spending reductions that Carter made when he ran for president in '76."
Reagan's promise of "a sound, stable and predictable monetary policy" is viewed as unrealistic, since such policy is not under the president's control but is rather a function of Federal Reserve action. "Just blue-sky talk" is the way Eggert puts it.
The respondents in the Blue Chip survey also rapped the Reagan-Bush economic program for what they felt it failed to include.
For starters, there was no specific suggestions for encouraging personal investing investment and savings (such as expanded dividend and interest tax incentives).
The Reagan-knockers also thought the presidential contender should have addressed himself to balancing the budget first (which would help lessen inflation) before embarking on any personal tax cuts.
Granted, Reagan (like Carter) is pushihng for tax incentives for business -- which the economists heartily endorse. But there's widespread belief among the group that Reagan didn't go far enough by encouraging expanded investments in both research and innovation (efforts which improve productivity and, in turn, help reduce inflation).
As Eggert summed up the economic assessment of Reagan: "He's just not that much better than Carter . . . . "
Incidentally, if you're looking for any major near-term relief in inflation -- forget it.
That's the bleak word from the economists in the survey. They see the consumer price index averaging around 13.3 percent for all of 1980, followed by another gain of 9.8 percent in 1981. Significantly, a third of the economists predict a 10-percent-plus inflation rate next year.
Why, you might wonder, are we in for a continuing high inflation rate in the face of the prospects of just a sluggish economic recovery? (The Blue Chip consenus, which has had a remarkable record the past three years in calling the economy, is projecting a mere 0.9 percent rebound in real gross national product for 1981.)
The reasons for those continued biting inflation figures next year, as detailed by Eggert, are:
(1)Wage hikes on the order of 9 percent to 10 percent; (2) a tiny productivity improvement of maybe just 1 percent; (3) another surge in food prices of around 10 percent to 12 percent, and (4) a further jump in the cost of services -- from hospitals to babysitters -- of at least 11 percent.
As Eggert explains it, "1981 should be a year of stagflation -- high interest rates, high inflation and virtually no economic growth."
Some economists suggest that 1981 could be stronger than anticipated economically, but Eggert doesn't belive it. He figures that real capital spending (factoring in inflation) will be off about 5 percent next year. The chief reasons: businessmen's worries about the vigor of consumer spending and continuing high costs of money. Further, Eggert says the consumer, worried about inflation, will pull in his horns; also, he's gone so deeply into debt over the past year or so, he'll want to put aside some bucks for repairing his balance sheet.
The economists in the Blue Chip poll have been reasonably good at calling the stock market. And so they were asked where they thought the Dow was headed. For the short term, their outlook isn't very exciting. In six months, they see the Dow at around 965 (about where it was at press time). sLooking 12 months down the road, though, they expect about 1,050 reading. And 18 months out: 1,105.
In terms of individual stock categories, the group sees oil-field service and equipment companies in the top spot, followed by medical services, banks (notably from the Southwest), gold (namely North American securities) and the brokerage business.
And the five worst: steel, air transportation, savings and loan associations, textiles and electric utilities.