THE NATIONAL income figures published last week show that the American economy began growing again during the summer. The turning point must have been just about the time when everyone agreed that the recession would certainly continue until the end of the year. According to the conventional wisdom, this cheering surprise will help President Carter's campaign for reelection.
Really? Do you actually know anybody whose vote depended on the gross national product tabulations for the July-September quarter? It seems, on the whole, more likely that voters will consider it further evidence of confusion in economic policy. The standard techniques of economic forecasting were developed in conditions more stable than this year's, and they are not currently providing reliable guidance to the administration or anyone else. Perhaps the recession is now over. Perhaps, alternatively, the country is now at midpoint in a double-dip, or W-shaped, recession with more trouble to come next year.
Out of all uncertainty, you can extract only one clear rule; over the past four or five years the forecasting methods, and the political system that they serve, have consistently been too pessimistic regarding jobs. They have consistently overestimated the danger of unemployment, and they have consistently underestimated the danger of inflation. That experience stands as a flashing yellow light, signaling caution, for the months immediately ahead. Specifically, it is a warning to go slow in cutting taxes next winter. It had been generally assumed that the first major legislation of the next administration would necessarily be a tax cut, retroactive to the beginning of the year. It now looks as though that decision might better be deferred until the pattern of events becomes clearer. The economy's unexpected growth over the summer tends to support the position of, among others, John Anderson, who has urged postponing any tax reduction until the budget is closer to balance.
The huge Reagan tax cut,, in contrast, appears more ill-advised and inflationary than ever in the light of this latest development. Mr. Reagan embraced the idea of a big tax cut at the beginning of the summer, when the economy had just been through a severe decline. But if it seemed dubious then, the sudden turn-up in the economy -- without, mind you, any special government intervention or additional stimulation -- makes the Reagan tax plan positively reckless now.
Decisions on the next tax bill require knowing whether the recession is genuinely over and a real recovery is under way. It may be half a year before the evidence, one way or the other, is adequate for a firm judgment.