Returning home after a couple of weeks in Japan, and reading the newspapers and newsmagazines, I am struck by two facts. First, the political pundits have discovered the economy and the importance of economic issues. Second, some of them join the Reagan administration in accusing Wall Street of "nonsupport" of Reaganomics.
My colleague, David S. Broder, for example, is concerned "to see the big wheels of Wall Street so callously scuttling the very program that American business, in a literally unprecedented fashion, had pressured Congress to pass just a few weeks ago."
In looking for scapegoats (apart from the White House and its ideologues) for the present mess, congressional Democrats would be a much more logical target than Wall Street. The Democrats, mesmerized by the president's political charisma, played a me-too game on Capitol Hill. In fact, Democrats on the House side bid up the ante on the tax bill enough to make the final legislation even more inflationary than the original Republican proposals.
It is true, as Broder says, that businessmen supported Reagan's budget- cutting as well as personal and business tax-rate proposals. But businessmen, in or out of Wall Street, never were seduced, as was the Reagan administration, by the supposed magic of supply-side economics that could translate huge Treasury tax losses into Treasury revenue gains. Even if the process took time, the supply- siders told Reagan, the intervening budget deficits didn't really matter. Businessmen didn't buy that notion, either.
Reagan's monetarists also assured him that the deficits wouldn't be inflationary so long as the Federal Reserve didn't "monetize" the debt-- that is, print money to cover the deficits. But in the real world, deficits do matter: The government is forced to borrow huge amounts of money, and the American economy doesn't generate enough savings to supply all of the demands for credit from the government and the private sector together.
What happens, of course, is that the people with money to lend insist on-- and get--a higher rate of interest. And those who borrow have a choice: pay the rate or go without.
That's the way a market economy works, and it's interesting--to say the least--to find an administration like Reagan's, theoretically committed to the free-enterprise system, grumbling at the market's response to its policies.
A review of the facts will show that, from the very beginning, respected Wall Street analysts, notably Henry Kaufman of Salomon Bros. and Albert Wojnilower of the First Boston Corp., warned that the arithmetic of Reaganomics didn't add up, and no act of faith, for which the president had begged in his April 28 speech to Congress, could change the numbers.
How could you cut taxes $732 billion over a four-year cycle and come up with a balanced budget? they said. How could you brag about cutting civilian expenditures $40 billion this year at the same time you were making a
.5 trillion commitment for defense by the year 1986? How could you stimulate economic growth when a stringent monetary policy would depress business activity?
Now that predictions made by Kaufman, Wojnilower and others are turning out to be highly accurate, we have a classic situation in which the messenger boy--in this case, Wall Street--is being chastised for the message conveyed on the ticker tape showing sharp declines in stock and bond prices. But jawboning Wall Street to be more supportive isn't going to work. Brokers and their customers still know how to add and subtract. Says Edgar Fiedler, vice president for research of The Conference Board, an association of industrialists in New York: "Seeing is believing--behavior has to change."
Unhappily, the genie may be out of the bottle on tax cuts, but the president still has a chance to reduce the outlandish size of the defense commitment, and to make other budget cuts as well. The piddling $13 billion reductions (in proposed increases) in defense spending announced last weekend aren't enough.
If there is a hopeful sign in a dismal picture, it is that Reagan may be beginning to recognize that he was sold a bill of goods by fanatics who told him that rose-colored expectations are a substitute for reality.
To me, the big mystery is not Wall Street's highly rational lack of confidence in Reagan, but why the Democrats continue to sidestep a golden opportunity to jump all over Reagan and Reaganomics. Where are Teddy Kennedy, John Glenn, Gary Hart, Jimmy Carter, Fritz Mondale, Hugh Carey, Jerry Brown, or any other Democrats with pretensions to high national office?
There appears, still, to be no Democratic alternative to Reaganomics. By default, the only effective political criticism I hear comes from the AFL- CIO.