THE CENTRAL theme of this year's Economic Report is the importance of public perceptions. The report, produced annually by the president's Council of Economic Advisers, with a preface by the boss, is an administration's opportunity to defend at length its strategies for the country in everything touching money, jobs and standards of living. Past attempts to restrain inflation failed, the report argues, because people believed that they would fail. Many "recent problems"--i.e., the exceedingly high interest rates last year, and the consequent recession--are the result of a widespread belief that the inflation will continue. The sooner people come to believe that Mr. Reagan will persist in his program, the report continues, the more rapidly and painlessly it will succeed.
There's a good deal to that. Policy is much more likely to work when people expect it to work. That's why it is particularly unfortunate that the Reagan administration perpetuates the fundamental inconsistencies in its economic program.
That point was noted the other day by the economist William J. Fellner of the American Enterprise Institute, in regard to the budget. Mr. Fellner, who served on the Council of Economic Advisers under Presidents Nixon and Ford, pointed out that the collisions built into the Reagan program continue to leave the markets uncertain which way the administration is going to move. That uncertainty, currently expressed in terms of high interest rates and declining investment, further depresses the performance of the economy.
Two of these collisions have been present from the beginning of the administration: the forecasts of dropping inflation are at war with the forecast of rapid growth, and the forecast of rapid growth is at war with the severe restraint on the money supply. Now there's a third collision: the looming federal deficits are similarly at war with the cheery forecasts of easier credit. The report points out that "the credibility of monetary policy is influenced by the fiscal policy that accompanies it." How true.
>The Economic Report is the third of the three great messages of state arriving every winter, providing each president an occasion to reconsider and restate his purposes. In the State of the Union address, Mr. Reagan got off into a scheme for federal reorganization that, whatever merit it may have, remains irrelevant to the immediate economic questions. Then came the budget, with its further assaults on social equity and its deficits reaching out through the years. Now arrives the Economic Report, in which Mr. Reagan briefly restates familiar positions and his economic advisers wring their hands and dwell at length on the world's reluctance to believe the unbelievable. The White House has lost a great opportunity to review an eventful year's experience and undertake the necessary changes of course. To judge from the reaction at the Capitol, it may have lost more. It may have lost control of economic policy as well.