Looking beyond the Reagan administration's expected initial victory in the congressional battle over federal spending cuts, Office of Management and Budget Dirctor David Stockman said today that the real "hand-to-hand combat" will take place over the next few months in what he termed a "once-in-a-generation debate."
The "false premises" that have led to yearly increases in federal spending will face the first fundamental challenge in more than a decade as the White House seeks to reverse a 50-year trend toward a "vast, unwieldy and mindless" government bureaucracy, he said.
Stockman also emphasized to newspaper business executives here his defense of the administration's view that budget cuts associated with tax cuts and higher defense spending still will produce a balanced budget.
This is possible because the federal government's share of gross national product will decline from a current level of about 23 percent to 19 percent by 1984 or 1985, he said, while defense spending will expand to a smaller portion of GNP than it was prior to the Vietnam war buildup in the 1960s.
In his address to the American Newspaper Publishers Association convention here, Stockman also urged the publishers to make certain that a partisan struggle over specific budget cuts "be held to a high standard" of balanced press coverage. He said the debate will be contentious.
Stockman asserted that this approach will be difficult because the battle represents a "clash of new ideas and old assumptions," with the latter benefiting from established special-interest-group pressure and a "political culture of the status quo" in Washington.
Another "hidden bias" of Washington bureaucrats and their supporters is an assumption that the public sector can do a better job of creating economic advance at the expense of the private sector, he argued.
But such is not the case, the budget director said, citing statistics showing that productivity and wages increased during the 1960s -- a period of primarily private-sector expansion -- but not during an era of mainly government expansion in the 1970s.
Backing up his appeal for the press to question closely the stated assumptions in the ongoing budget debate, Stockman referred to a recent Congressional Budget Office report that forecast an adverse impact on 20 million low-income Americans if President Reagan's budget cuts in social programs are approved.
Stockman's own analysis of these relatively poor Americans -- who he said live in 16 1/2 million households -- is that 15 percent would have a real increase in spendable income, 34 percent would face no net change, 47 percent would retain between 95 percent and 99 percent of current benefits, and "at worst 4 percent of the families would suffer a significant adverse shift." But of this group of 650,000 U.S. families, some 60 percent have total incomes over the poverty level, he claims.
Current disruptions in the financial markets and a renewed surge of interest rates toward record levels will have a far bigger adverse impact on poor Americans than proposed cuts in federal programs, the budget director stated flatly.
And the next few months could be a dangerous period if supporters of the various spending programs such as Amtrak, Legal Services, milk subsidies and arts endowments concentrate on their own "trees" and overlook the overall budget "forest," he continued.
Each argument in favor of restoring specific program funds should be accompanied by a plan to finance such outlays without increasing taxes, he urged. Otherwise, the government will continue to "fuel financial disorder that's beginning to erode the basic capacity of our economy to grow," according to Stockman.
The administration program of disciplining federal spending so that the private economy may grow and create jobs indicates that not all of the arguments about equity, morality and social justice are on the side of what Stockman called the "welfare state bureaucracy," he said.
In answer to a question, Stockman ruled out any changes in the method of computing cost-of-living figures. While high mortgage costs tend to overstate the consumer price index when the economy is deteriorating and interest rates are soaring, the CPI also understates the real rate when inflation subsides and it will serve "no useful purpose to cut off the end of the measuring stick," he said.
The way to cope with an exploding cost of living is to stabilize financial markets and turn around inflationary pressures, Stockman asserted.
Stockman also emphasized that the administration and Congress must work this year to develop a program of changing Social Security to prevent the threat of insolvency within two years. All aspects of the program should be considered, including the benefit structure, unearned benefits, early retirement and cost-of-living escalators, Stockman told the publishers.