WITH THE STOCK MARKET sitting up in bed and beginning to take solid nourishment, its many friends are greatly relieved. That was a nasty fall. Now that the immediate crisis seems to have passed, as any good doctor knows, it's time to review the reasons why it happened and try to prevent a recurrence.
President Reagan has made an important contribution to this recovery with his decision to work with Congress toward a lower budget deficit, and even to consider higher taxes. Some of the people in Congress have also made a contribution by suggesting that the deficit ought to be cut more than the modest $23 billion required by the Gramm-Rudman-Hollings legislation.
Perhaps the references to 1929 are growing tedious, but one aspect of that terrible experience needs particularly to be recalled now that the sense of peril is fading. After the stock market hit the bottom of the slide that autumn, it rose for five months. By the spring of 1930 Herbert Hoover was not alone in thinking that the worst was over. But then, with economic weaknesses aggravated by bad policy, a far longer and more damaging slide began. Similarly, the causes of this past week's crash are neither trivial nor transient. They arise from the great strains and imbalances in the American economy, and unless they are addressed vigorously, there are going to be further unwelcome signals of deep trouble.
There will be many temptations to think that technical fixes, and changes in trading rules, could prevent another crash like the last one. Here and there people are blaming program trading for the depth of the drop. But program trading is merely a technique of playing stocks and futures off against each other, as ingenious investors have always played various prices against each other. It's less the new techniques that produce enormous swings in the market than the gigantic scale on which the large institutional investors operate. Fiddling with the mechanical details of market regulation can be useful, but it should not be confused with the urgent need for repairs in national economic policy.
No one can have much doubt about the nature of the required repairs. They begin with a smaller federal deficit and lower consumption by Americans, leading to lower trade deficits, lower interest rates and more investment. The rise in stock prices yesterday was deeply reassuring. One prominent reason for it was the impression that Mr. Reagan and Congress have resolved to work together. The market is becoming a sensitive indicator of progress on the budget deficit. To stabilize one, Mr. Reagan and the congressional leaders are going to have to show results on the other.