The economic program presented by President Reagan yesterday is truly staggering in its scope. Only rash ideologues can seriously charge that Reagan failed to deliver on his promise of a "new beginning." If the administration is right in claiming that the root of inflation is psychological, then the sheer impact of the president's program could set in motion a major advance toward solution of basic economic troubles. c
Congress, however, has a positive genius for slowing and diluting what presidents propose. Even if the Reagan program goes through relatively unscathed, moreover, there is room for doubt as to whether it will have a siginificant effect in rapidly reducing the inflation that is central to the country's distress.
The magnitude of what Reagan suggests find one measure in comparison with past administration. He wants a tax cut a third again as big as the huge cut achieved by the combined efforts of President Kennedy and Johnson. He wants a decline in federal spending twice that accomplished by the Nixon administration in its best days. He favors a spree of deregulation that make the efforts of Jerry Ford and Jimmy Carter look like mere trifling. He calls for constraint in the money supply significantly greater than now applied by the Federal Reserve Board.
In all, some $60 billion in resources would be transferred from the public to the private sector of the economy in the next few years. That is 2 percent of the gross national product of $3 trillion. It exceeds in wallop the interruption of oil supplies and the tripling in price that occurred back in 1973. It can fairly be called a Reagan shock.
The theory behind the shock is the theory of inflationary expectations. The premise is that the chief force behind ever-rising prices is the expectation by workers and businessmen and consumers that prices will keep on rising. The Reagan program is designed to break that expectation. Once the expectation is shatter, the theory goes, consumers will start saving; funds will become available for investment; longterm interest rates will fall; and the economy will regenerate itself in a burst of new activity, new growth and higher productivity.
By its very nature, theory requires crisp translation of recommendations into action. So an inevitable question is the disposition of Congress.
Congress, by it's very nature as a collective body, has a deep, inner impulse to hang loose. Delay is one action for which no one gets daulted, and a wealth of procedure favors going slow. The bais is particularly pronounced in the committees, and nowhere more so than in the Finance Committee of the Senate.
The Senate Finance Committee is thrust by the Reagan program into the middle of a traffic jam. It has to pass major tax legislation full of opportunities for doing special favors. It has to approve cuts in Social Security. And in food stamps. And in Medicaid.
The congestion inevitably created by that huge volume of business entrenches die-hard supporters of particular agencies and programs. These will inevitably draw support from the Democratic opposition. Thus it seems likely Congress will make significant changes in the Reagan program.
The more so as the basic theory behind the administration approach does not command universal enthusiasm. On the contrary, there are widespread reservations centering around problems that have to do with both inflation and confidence. Wage settlements, now running at about 10 percent per annum, are one item on the list. A second is American dependence on foreign suppliers of oil with a capacity to drive up prices almost indefinitely. A third is the dicey international money scene. A fourth are very high interest rates with resultant falloff in housing and auto sales.
None of these problems is directly addressed by the Reagan program. Thus even businessmen and consumers wedded to the Reagan philosophy may find solid reasons not to save and not to invest. There is more, in short, to inflation than confidence, and more to confidence than government finance. Indeed, it is possible to confuse a sound approach to government finance with a solution of basic economic problems.
For the time being, to be sure, the country is basically favorable to the president's package. Reagan has given people what they voted for. There is a general deposition to give it a try, and, if it works, almost all of us will be richer and happier.
But if it doesn't work, if inflation hangs high and growth stays slow, then disillusion will set in rapidly. Somewhere down the road a second look will be required, and leaders in both parties will cast about for a fallback position that makes direct address to the wide range of conditions underlying the curse of inflation.