TODAY WE would like to announce the winner of the coveted Regan Prize. Many nominees were in the running for this prize. It's the prize that Donald T. Regan, the secretary of the Treasury, offered several months ago to "anybody who can show me the connection between high rates of interest and high deficits."
Many people, whether they wittingly entered the contest or not, certainly did try to show him. All the people who have ever written economics textbooks, for example, were automatically in the competition. Most of the administration's own economists were also eligible, although, with the tact for which economists are well known, none of them pressed his claims very hard. But there is one candidate who stands out among all the rest, and we would today like to proclaim him contest winner. His name is Paul Volcker, and he is chairman of the Federal Reserve Board.
Mr. Volcker's winning entries came in appearances before committees of Congress. First he warned that the credit requirements of private business are already "beginning to clash with the continuing heavy financing needs of the government." The prospects for lower interest rates, and a sustained and balanced recovery, would be improved by "more vigorous and earlier action to deal with the budgetary deficits," he said.
A few days later, before another committee, he returned to the point that interest rates are now "extraordinarily high" at least partly because of the deficit. He noted the upward pressure being exerted on the financial markets last week by the enormous borrowing program that the Treasury was then carrying out.
Mr. Regan is the secretary of the Treasury under whose stewardship the federal deficit swelled from $58 billion a year to the current $208 billion. He naturally finds it difficult to see any connection between this unfortunate change and the extraordinarily high interest rates. But if the interest rates keep rising, they are going to have an effect on the economy's recovery and, no doubt, on the reelection campaign of Mr. Regan's employer, the president.
Administration economists have been suggesting that while the collision between private borrowing and the federal deficit might eventually force interest rates up, it won't happen until 1985--that is, until after the election. But Mr. Volcker was offering a warning not to count on so long a grace period. That's what he meant when he said that the collision is beginning to be visible in the interest rates right now. The rise in the rates is the kind of hard evidence that a practical man like Mr. Regan ought to welcome. If that doesn't entitle Mr. Volcker to the Regan Prize, you have to wonder what kind of proof Mr. Regan is waiting for.