Not long ago I had lunch in Washington at the American Enterprise Institute. This eminently reputable research center -- I have never regressed on the word think-tank -- occupies pleasant quarters on the upper floors of an office building on 17th Street a few blocks from the White House. Its ambience is quietly conservative as is its purpose and as were my companions that day in the dining room. These included Arthur Burns, former head of the Federal Reserve, former chairman of the Council of Economic Advisers under Eisenhower and the most respected voice on fiscal and monetary matters in all the land. Also William J. Fellner, a council member under presidents Nixon and Ford and before that for a lifetime the best-regarded conservative and, by many, the best-loved economics professor at Yale. Present too was my former colleague Gottfried Haberler, for many decades that conscience of fiscal conservatism and liberal trade at Harvard.
The American Enterprise Institute is not my natural habitat; I was there to record a conversation with George Gilder, the new high priest of high (and romantic) capitalism; this under the moderating influence of Ben Wattenberg, another effective voice of the responsible right. But the reunion with old friends accorded me a special pleasure. Those mentioned are gentlemen of an older and, I often think, better school; all are unflinching in their beliefs; all gave me fascinating grounds for speculation as to their response to the economic policies of the new administration in Washington.
None, on past form, could accept the supply-side economics of the Reagan economists. All would agree that annual gains in productivity -- gains without a compensating increase in demand for the product -- must, under the very best of circumstances, be modest. It is this increase that the supply-siders are relying on to quench inflation. Increases in output from increased employment carry with them the added income that buys the product. There is no obvious anti-inflationary effect. What economists call Say's Law -- that production produces also its own demand -- is impeccable conservative doctrine.
Gilder that day offered the view that American businessmen, large and small, are now engaged in mass malingering as they concern themselves not with producing goods and services but with finding shelter from their taxes. Tax reduction would put them back to useful work. My old friends have, I believe, a better view of American businessmen and what they are now doing. So they would hesitate to suggest that there is any great reserve of energy thus to be released.
But even more compelling is reflection on how these conservative scholars, and those of like mind, are reacting to the fiscal policy of the Reagan administration. The personal income tax reduction over the next three years is to be massive, and commitment to the reduction is to be now; there is to be no opportunity for later review and reflection. The need for certainty in expected taxes is inherent in the idea. Public expenditures are also to be reduced, but it is now certain that, given the large increases for the Pentagon, these will not be sufficient or sufficiently prompt to prevent a large, immediate increase in the federal budget deficit. And later reduction in the deficit depends in part on that dubious supply-side economics (and the counterpart increase in taxable income) that my conservative friends so rightly reject.
The mind boggles, however that manifests itself, at the response to such action had it been proposed by the liberal economists of a liberal administration. I would not have wished to return to Harvard after association with such a policy and there encountered my colleague Prof. Haberler. He would have been infinitely courteous but exceedingly severe. My mind returns to earlier years when, prices being stable or falling, unemployment being high, idle capacity being considerable, I urged, with others, a modest stimulative increase in public spending. The resulting increase in the deficit would have been minuscule by present Republican standards, but the conservative rebuke is still strong in my ears. One of the most telling of these voices was Arthur Burns; he was unforgiving of what he called the "Keynesian thinking" of the times.
It will be supposed by some that monetary policy will rescue my conservative friends. The money supply will be rigorously controlled at the behest of Beryl Sprinkel of the Treasury; so, the soft fiscal policy notwithstanding, there will be a firm damper on inflation. This my friends also reject. None dismisses monetary policy as unimportant. But Arthur Burns has again been eloquent, here on the dangers of relying excessively on monetary policy. Indeed, he has come close to urging direct restraint on the wage/price spiral. And none of the others mentioned is a proclaimed monetarist. Some at least would agree that monetary policy works by repressing economic activity and thus is in direct conflict with the supply-side expansion from the tax reduction, questionable as that already is.
It is the oldest of cliches that economists always disagree; there are some truths on which the views of cautious liberals and responsible conservatives converge.
The question, indeed, is why these and other good conservatives are so quiet. This has not, as noted, been their past tendency. They would not now be silent were a Democratic administration asking for some liberal version of Kemp-Roth. One can imagine that a conservative organization such as the American Enterprise Institute does not as a group turn easily to criticism of Reagan and his economists. Its supporters would no doubt be surprised were it so to assert itself. But institutional comfort and conformity cannot be a reason for the silence of my friends; these are men with a lifetime habit of speaking their minds. None, by any stretch of the imagination, could be called an organization man. Nor can party loyalty be a factor; some at least have seen liberals in the past as unduly willing to bend economic conviction to political need. None would wish even remotely to be thought guilty of what he has himself so strongly criticized.
One can only conclude that there is a mild shock that a conservative administration, one so described, should play so fast and so loose with the conservative economic and fiscal faith. This being so, one hopes that the shock will promptly wear off. It cannot be left to liberals alone to defend against a policy that in much milder form conservatives in past times found unwise, even alarming