When Ronald Reagan is sworn in next Jan. 20, he will be confronted with rising unemployment, interest rates at or near record highs, and the economy, in general, in a mess. Like John F. Kennedy, who blamed a similar situation on the Republicans, Reagan can put the monkey on Carter's back and take credit if he later "gets the economy moving again."
Reagan adviser Alan Greenspan says that high interest rates "currently are choking off" economic growth (and putting the final coffin nail in the decaying U.S. auto industry). Greenspan predicts the early part of 1981 will be "very soggy" for the economy as a whole. Economist Otto Eckstein observes that Reagan thus will inherit "an economy which can only get better in response to his policy moves."
But Reagan has a tougher assignment than did Kennedy 20 years ago. We didn't know it at the time, but the 1960 recession that helped tip the election away from Richard Nixon was just about over when Kennedy took office in January 1961. But all signs indicate that the present situation is still deteriorating, with business in a credit squeeze, inflation in double digits and the jobless rate heading for 8 percent by spring.
If you want yet another depressing thought, remember that if the world has one more bad harvest next year, retail food price inflation (which has been a "mere" 10.1 precent over the last 12 months) could easily be 20 percent. And lurking in the wings is yet another OPEC price increase despite the current excess-supply situation.
Meanwhile, soaring interest rates have helped to put both housing and the auto industry on the skids. And as if the economy needed yet another blow, there will be the Jan. 1 increase in Social Security taxes, taking another $20 billion bite out of consumer purchasing power.
So the big question in Washington these days is: What can Reagan do about this sick economy? Didn't his campaign rhetoric about tax cuts and a new golden age for America raise expectations too high?
This question also preoccupies Reagan's advisers, who recognize that dealing with inflation and the economy must be his No. 1 priority despite the tense Russo-Polish tinderbox, and that it would be nice if the president-elect could find some dramatic way of generating new confidence in the government's ability to solve the economic dilemma.
Sen. Robert Dole (R-Kan.), who will take over the powerful Senate Finance Committee from Russell Long (D-La.), said on "Meet the Press" the other day that Reagan might declare an "economic emergency" that would be "followed by some action to really shock the American people because we are in deep trouble in America and it's going to be up to President Reagan to lift us out of it."
But Reagan's advisers, although they'd like the psychological benefit that would come from such a dramatic move, are chary about declaring a national emergency. University of Michigan economist Paul W. McCracken, who has been through the mill once before as Richard Nixon's economic council chairman, told me that a national emergency might only lead to a demand by liberal Democrats for wage and price controls.
What McCracken would rather see is a frank admission by Reagan at the very start that there is very little that can be done in the short term. This may not match the campaign rhetoric, but it's the truth. For example, Reagan is more or less stuck with Carter's budget for fiscal 1981, and any cuts will be symbolic or minimal. This kind of candor may puncture overblown expectations, but could establish a sense of credibility.
He could then concentrate on getting at least the first year of the Kemp-Roth tax cut through Congress, anticipating passage by mid-1981. The reductions (possibly made retroactive to Jan. 1) would come into being coincident with a spring recession, and help to give the economy a slight lift. His team could begin working on the major budget shifts it wants for fiscal 1982.
But that won't solve the current major dilemma of the economy: outlandishly high interest rates. In a speech here to one of the Reagan think tanks, the American Enterprise Institue, McCracken laid out a four-point economic program for Reagan. It stresses steadier (but not necessarily monetarist) policies for the fiscal policy that will make it easier for monetary policy to stay on course.
McCracken would push for tax cuts stressing investment (so will Dole) and a liberal, non-protectionist trading policy. And finally, he advises Reagan to stay away from the kind of reindustrialization policy that focuses on bail-outs.
A steady-as-you-go policy hardly corresponds to anything even vaguely dramatic. It may be difficult to sustain in the wake of some of next year's grim economic tidings. But the public is more sophisticated about economic issues than many observers give it credit for being. If Reagan or anyone else promises a quick fix, they'd laugh him out of town. The New Orleans Saints might as well promise to win the Super Bowl in 1981.