Economist Walter W. Heller breezed through town a few days ago, dispensing his own brand of common sense to Republicans and Democrats alike. For more than two decades, since John F. Kennedy first drafted him out of the University of Minnesota, Heller has been unique among the modern generation of economists in his ability to communicate ideas simply.
"What I'd like to stress," Heller said during a freewheeling discussion with Washington Post writers and editors, "is that we're at the end of 3 1/2 years of real stagnation. I mean, we are today producing no more GNP gross national product than we did 3 1/2 years ago, and that's never happened before, except in the Great Depression.
"And essentially, in the broadest sense, it's the price we're paying to try to beat back inflation. I'm not saying that's the only way to handle inflation, but we're paying a staggering price. And it wasn't started in this administration--it was started, of course, with President Carter cheering from the sidelines. One has to be objective about this: It started when Fed Chairman Paul Volcker started stepping on the monetary brakes on Oct. 6, 1979."
Despite the mess the economy is in, Heller doesn't give the Democrats much to cheer about: He thinks that Reagan still has a political edge: "When you go around the country, and you do your own little implicit polling, it's just amazing how many people are cussing out Congress rather than Reagan."
The way he sees it, people may be upset by high interest rates and recession. But they approve of "Reaganology"--the idea of cutting back the size of government, and strengthening the military. For example, the simplistic appeal of the balanced-budget amendment has widespread popular support that probably will push this dangerous piece of legislation through Congress.
The public "still likes the idea of these ideological commitments of transferring resources to state and local governments," according to Heller. "The one idea they don't like is transferring resources from the lower to the upper-income groups. So anyway, I don't think you can have a sort of knee-jerk reaction that the White House is going to get blamed for the failure of Reaganomics . Somehow or another, Reagan is still able to deflect that to a considerable degree, and he's still able to get away with blaming the Democrats of the past for many of the troubles of the present."
Heller thinks that the economy will be rising perceptibly (although the actual recovery will be weak) toward the end of the congressional campaign, and that Reagan will claim credit as well for lower taxes and lower inflation. That, Heller says, "will protect Reagan from the worst political fallout of Reaganomics."
Heller's advice to Democrats is to work toward cutting oppressive federal deficits by liquidating "or putting in cold storage" the 1983 Kemp-Roth tax cut, and curtailing out-sized military budgets. He would also require Volcker and the Federal Reserve Board to adjust their restrictive money-growth targets, to allow the economy breathing room for real growth.
Heller advocates one step that Democrats are hesitant to take, because of organized labor's objections: establishment of "voluntary" wage-price restraints comparable to the guideposts that were successful for a period during the early 1960s. Says a Democratic Party aide: "We can never move more quickly than labor will allow us to in this area."
Labor boss George Meany didn't like guideposts in the 1960s, and his successor, Lane Kirkland, doesn't like them today. Labor's argument is that in any "voluntary" controls system, the wage earner gets shafted. It's easy to police high-profile national wage settlements. And even managements that do not have to deal with unions suddenly become "patriotic" enough to hold their employes to the national wage guidepost. But holding prices, profits and interest rates down on a voluntary basis is something else again.
At breakfast at The Washington Post, Heller made his case: "I abhor mandatory controls, but I think if we had a combination of a more sensibly balanced stimulative policy and some kind of mild wage-price restraint, we'd be in a position to expand without a resurgence of inflation.
"I'm not blaming labor for inflation, but labor is the engine that perpetuates it. I mean the wage process perpetuates it once it gets going. You've got to cut back on wages, and eventually, not too long after that , price inflation will slow down, too. That's a very bitter pill for the Democrats to swallow. But the economic logic is impeccable, and the political dangers of failing to act are patent."