As stunning as are the dimensions of Ronald Reagan's victory over President Carter, the most important result of Tuesday's election is the swing to the right in Congress. For the first time in 26 years, the Repubicans have taken control of the Senate by dumping a half-dozen distinguished liberal Democrats. They also narrowed the Democratic margin in the House by more than 30 votes.
The bottom line of all of this, insofar as economic issues go, is that Reagan has a better-than-even chance of actually delivering on some of his promises -- notably a huge tax cut, beefed-up military outlays and expenditure slashes elswhere in the budget. Equally, with a Republican president, a Republican Senate and a conservative House, the voters should be able to hold Reagan accountable for results.
Reagan is still stuck with an energy "policy" that most observers, including industry experts, feel impossible to implement -- down-playing conservation, while calling for a big boost in U.S. production of oil, more emphasis on nuclear power and a major switch to coal. But more than anyone dreamed a few days ago, the new congressional majorities may give Reagan more of a chance to decontrol oil and gas rapidly, and to tinker with both the windfall profits tax and environmental regulations.
Reagan promised the voters an across-the-board 10 percent tax cut in personal taxes for three years running -- 1981, 1982 and 1983. Before Tuesday's results were known, one could have assumed that a victorious Reagan might have sent such proposals to Congress, only to be blocked by Democratic majorities that would have shaped their own tax proposals.
"Now," says the remarkably accurate New York forecaster, Henry Kaufman, "Reagan has a sweeping mandate for tax cuts, and sooner rather than later." To be sure, Reagan will still face what seems to be the impossible challenge of delivering significant tax cuts, a bigger military establishment and a balanced budget.
Moreover, as this column has emphasized more than once, no matter who could win the election, inflation and stagnation are going to dominate the economic scene for at least 1981 and 1982. An underlying rate of at least 10 percent is still deeply embedded in the economy, oil prices may go up further and the demand for wage increases is likely to stiffen somewhat.
So those voters who took their economic discontent into the polling booths to whip Jimmy Carter will be disappointed if their expectation is a magic downward slide in the inflation rate and an immediate restoration of confidence -- here and abroad -- in Washington's ability to manage the economy.
In the post-election interview, economist Alan Greenspan -- who has been close to candidate Reagan -- said, "It is clear that a high priority of the Reagan administration must be to make it credible to the financial community and all others that inflation will not be allowed to be an entrenched element in the American economy."
This reporter has been assured in the past 24 hours that Reagan's pledge to "get the government off your back" will be translated into a commitment to prevent government entitlement and transfer programs from growing any further. Richard Nixon made similar commitments, but couldn't make good on them. But, given the new complexion of Congress, Reagan aides feel, he can pull it off.
In the hiatus that will now exist in the dying days of this battered administration, it is almost certain that the Federal Reserve Board, which had been inhibited by Carter's criticism of high interest rates, will reassert itself. Kaufman, who is almost never wrong on such matters, told this reporter that the Fed will quickly raise the discount rate from the artificially low level of 11 percent to which it has been held recently.
What it comes down to is that Reagan in January will confront an economy with a strong inflationary bias and brutally high interest rates. Can he succeed by relying on the free market, and cutting the size of the non-defense part of the federal government? Can the Reaganisms of the past 12 years really be translated into a workable set of policies?
It's easier said than done, and the financial markets that have been cheering Reagan on know it. Significantly, after the bond market joined the stock market in an excited surge in prices yesterday morning, bonds -- which pay a fixed rate of interest -- quickly gave up almost all of their gains. Translated, that means that the hardheaded financial traders were betting yesterday that even with Reagan's heady victory and a Senate that in some respects is to his right, the long-range inflation outlook is still in double digits.