THE ADMINISTRATION'S five-year economic program is premised on the need for substantial shifts in the relationships between public and private spending and between spending for defense and for other governmental purposes. Shifts of this magnitude will cause hardships for some areas and people. That much is inevitable. But some of the dislocation could be cushioned -- or avoided -- with adequate advance planning.
The Office of Management and Budget analysis that was released last week deals with one piece of the forecasting puzzle -- the likely regional impact of the first round of budget cuts proposed for the fiscal year 1982 budget. The study shows that, for the items covered, the total difference in impact among regions (though probably not within regions) is not large.
The Northeast and Midwest are the big losers from the human resource budget cuts that account for two-thirds of non-defense reductions. Taking civilian government pay and pension cuts into account brings the South's losses more in line with the others, but this is because the District of Columbia -- the main target of these cuts -- is counted as part of the southern region. The West loses a bit more than the others on physical resource projects, but it would emerge relatively unscathed were it not for the fact that the study includes reductions in military spending without taking account of the much larger increases planned for the defense budget. This is a serious omission.
It is, of course, hard to predict where defense dollars will be spent, just as it is hard to predict the distribution of many other kinds of government spending. Because of the size and rapidity of the proposed defense buildup, however, it is likely that most spending will occur in the areas where defense-related capacity already exists. To this extent, the average distribution of defense outlays over recent years provides a rough guide to the future and suggests that the total economic program will not be neutral in its regional impact.
For example, estimates prepared by the Advisory Commission on Intergovernmental Relations show that from 1974 to 1976, the West and South, as defined in the OMB study, each received more than 28 percent of defense spending, excluding military pay. The Northeast was not far behind. The Midwest, however, received only 17 percent, and on a per capita basis, its share was less than 50 percent of the West's share. These are, of course, only first-round effects. As defense contractors buy raw materials and other products to support their own activities, the benefits will diffuse to other regions -- an effect that can only be studied with the complex models used to trace this kind of flow.
In the absence of conscious policy to the contrary, however, it seems likely that the defense buildup will accelerate the economic shift to the South and West shown in OMB's economic projections -- projections that do not now take account of the regional or other differential impact of the defense buildup. The administration makes it clear in the OMB report that its policy is not one of propping up economic losers. There are, however, ways of adjusting to the inevitable, if such it is, that are less costly in both human and economic terms. It is not too soon for serious study of the likely need for such adjustment.