The Reagan administration should stop asking West Germany and Japan to stimulate their economies for the world's benefit, and instead urge expansion in their own self-interest, former Federal Reserve Board chairman Arthur Burns said yesterday at the National Press Club.
In response to a question, Burns said, "We have become accustomed to preaching and moralizing, telling them to be a 'locomotive' for the world economy." Instead, Burns said, "I would tell the Germans that 'you have a great deal of unemployment, and you should take better care of your own people.' "
He said he would make a similar approach to Japan, urging its government to stimulate a higher standard of living for Japanese consumers.
Burns, 82, until last year was the Reagan administration's ambassador to West Germany. He said the diplomatic message that ought to be "whispered" to the Germans is that " 'You have an election coming up, and [economic expansion] may help you remain in power.' But that has to be done quietly and diplomatically."
Burns predicted that the U.S. economy, which he said "is performing less than satisfactorily," would demonstrate "a new upward thrust" by the beginning of 1987, responding to lower interest rates and a delayed boost to purchasing power arising from lower oil prices.
He said the initial impact of the oil price decline was negative, because it resulted in cutbacks in domestic oil production and depressed activity in state and local governments where there was a dependence on oil revenue.
Burns praised Fed Chairman Paul A. Volcker, saying he "is doing a magnificent job under difficult conditions." Asked if he is concerned that recent Reagan appointees to the Federal Reserve, who are said to favor an easier monetary policy, might turn the Fed toward a new inflation, Burns said:
"There is something that happens when [a person] becomes a member of the Fed: When he enters that marble palace, he takes the veil, and becomes a member of a conservative tradition. So I'm not worried."
In his formal remarks, Burns gave an optimistic review of the condition of the world economy, citing the growing commitment among individuals everywhere "to the power of economic freedom" in generating higher living standards.
Said Burns: "Indicative of the spirit of our times is the remarkable turn to democracy in South America."
But he expressed deep concerns about "the erosion of economic dynamism in Western Europe," noting that governments there had imposed extensive intervention on the private sectors of their economies, "and this has sapped their vitality."