Recent declines in short-term interest rates have been the result of the opening of a dialogue between the White House and the Congress on further budget cuts, an administration economist claimed yesterday.
Speaking to a group of business and labor executives at George Washington University, Lawrence Kudlow, assistant director for economic policy at the Office of Management and Budget, said that the financial community had taken note of a "greater enthusiasm" on the part of key members of Congress to deal with the president's budget requests. If the attitude on Capitol Hill continues to improve, Kudlow declared, he believes the decline in long term rates can be sustained.
Wall Street also will react favorably, he continued, if the 1981 budget deficit comes in under $60 billion. Kudlow said preliminary projections show a deficit of $58 billion.
With the comment "business as usual," Kudlow brushed aside predictions this week by leading economist Henry Kaufman of Salomon Brothers that Reaganomics will lead to a further deterioration in the economy.
"There is not sufficient evidence now to suggest a recession," Kudlow said. Separately, White House spokesman David Gergen said at a news conference yesterday that although the economy is what he termed sluggish, he doesn't think a recession has begun.
In addition to Kudlow, Commerce Secretary Malcolm Baldrige and Murray Weidenbaum, chairman of the Council of Economic Advisers, were on hand to defend the administration's economic program.
Both excoriated doomsayers in the media and elsewhere and observed that the administration's success since Jan. 20 in bringing down inflation and interest rates is "one of the best-kept secrets in the press."
When asked by a labor economist what would happen if Reaganomics should fail, Weidenbaum avoided the question by responding that all the projections by independent critics -- though their numbers differ -- show that "they share our optimistic view that the program will succeed."
Donald Kendall, chairman of Pepsico and the U.S. Chamber of Commerce, also defended administration policy of cutting waste and minimizing government intervention. At the same time he admitted that, like government, many businesses have grown "fat and flabby."
"Management," he continued, "has as big or bigger problems as labor," a reference to its failure to innovate.
Meanwhile AFL-CIO President Lane Kirkland denounced Reaganomics as "a replica of Thatcherism." He noted that the monetarist policies of British Prime Minister Margaret Thatcher have caused that country's unemployment to double. Kirkland's speech was read by AFL-CIO economist Rudolph Oswald because his boss was called away at the last moment to meet with members of the Polish Solidarity delegation.
The labor union called for a tripartite reindustrialization board, composed of labor, business and public-sector representatives, that would be charged with the long-term development of the country. Both the Commerce secretary and the U.S. Chamber of Commerce expressed diametrical opposition to such a proposition, which runs counter to the Reagan administration's policy of free markets and private enterprise.
The two-day conference, sponsored by George Washington University and the public relations agency Burson-Marsteller, is entitled "The Way Back" (to prosperity) and is devoted to setting national economic priorities.