What is Ronald Reagan -- or any new president -- to do when, as usual, he gets conflicting advice from the economic experts on how to handle inflation, unemployment, interest rates, taxes, the budget and the economy in general?
Few of our presidents have known, or cared, much about economics. It didn't seem to matter, however, until the Great Depression made the economy the supreme concern of the federal government.
That led to the creation of the President's Council of Economic Advisers, along with the rapid development of the Budget Bureau as a powerful White House adjunct to the chief executive's control over the country's economy.
The president, of course, is also exposed to the influence of the Treasury, secretary and the chairman of the Federal Reserve Board, plus the House and Senate budget committees and Congress' Joint Economic Committee. Wall Street and the banking community have their input, too, as do the acknowledged high priests of economic theory.
They are all now focusing on Washington in the hope of advising and influencing a new administration headed by a president-elect who obviously is eager to stabilize the economy, but who has no more sophistication in that field than most of his predecessors.
It wouldn't be so difficult for Reagan if there were a consensus among the advisers he apparently is listening to, but they appear to be just as much at odds with each other as the key advisers in previous administrations. For a brief period after World War II, there was something resembling a consensus when the disciples of Maynard Keynes were prominent in government. Today even the most prestigious contemporary economists seldom see eye to eye, so on whose wisdom can the incoming president rely?
A few days ago U.S. News and World Report had the novel idea of simultaneously interviewing all four American economists who have won Nobel Prizes for their work. The result was broad disagreement, with a minimum of fresh ideas.
Nobel laureate Milton Friedman was still insisting that "if you control growth of the money supply, you control inflation," although recent experience in Britain and the United States would seem to question that Laureate Lawrence Klein favored an "income policy," using the tax system to "restrain increases in wages and prices." Laureate Paul Samuelson was against wage-price controls, even though he conceded that "they work well in the short run." The fourth, Kenneth Arrow, felt that "the long-run loss of output due to unemployment is basically a more serious issue for the economy than inflation." In contrast to some of Reagan's closest advisers, he doubted that budget deficits had much of an effect on inflation.
While some Reagan advisers support the Federal Reserve Board's tight money policy, which has driven interst rates above 20 percent, Klein thinks the Fed has "overreacted and lost control."
His view is shared by businessmen like Russell Rockwell, head of the Rockwell Equipment Co., who complains that the current interest rates are "putting us out of business. . . . I don't think the Federal Reserve knows what it's doing. It's like a 2-year-old kid squeezing the kitten to death, and he doesn't realize he's doing it."
The most daring advice Reagan has received comes from Rep. David Stockman, who has been named as budget director, and Rep. Jack Kemp, the newly elected chariman of the House Republican Conference. Kemp is co-author (with Sen. William Roth) of the controversial proposal to cut taxes by 30 percent.
Kemp and Stockman want Reagan to declare a national economic emergency soon after inauguration. They think he should tell Congress and the nation that the economic, financial, budget, energy and regulatory conditions he inherited are far worse than anyone had imagined. He should request that Congress organize quickly and clear the decks "for fast action." Like FDR's "100 days."
Reagan hasn't much to lose by a little gambling, for the alternative is to keep muddling along with the kind of conventional, discredited economic policies that brought down President Carter. Inflationary expectations are now so rampant that only some dramatic action by the incoming president can extinguish them. Many Americans are hoping that Reagan will make the most of the opportunity.