Reports that the president plans to go forward with a massive increase in defense spending in the coming fiscal year--an additional 15 percent, the papers are saying--signal another fateful battle this year in Washington.
In this election year, it's virtually certain that President Reagan will not get that full amount from Congress. Nor will he win the corresponding cuts he seeks in domestic spending. But the evidence that he intends to stay on the course with his essential program and its mix of big boosts in military spending, slashes in domestic programs and large tax cuts in the face of rising government deficits is disturbing.
It suggests that we are entering a critical stage in the brief history of this high-risk president, a stage that poses at least equally high risks for the country.
Despite strong signs that his program is not working, that economically it could lead to even worse times before it's over, the president gives the impression that he will plunge ahead anyway. If so, buckle your belts and prepare to collide. We all seem destined for a rough ride in the months to come.
The problem isn't the president's intent or the way he proposes to order priorities for the nation (guns vs. butter), though certainly that properly arouses strong concern. Nor is the debate really about cutting the present size and curbing the future growth of government. He's right on both counts. Each needs to be done, wisely and equitably. A national consensus for such action exists. The problem comes over the ingredients of the president's program--the assumptions upon which it is based, the reality with which it works.
In particular, the problem stems from two factors: taxes and deficits. They bear a deadly relationship to each other in the Reagan era.
A year ago this time workmen were put-ting finishing touches on the president's inaugural platform and Reagan's people were assembling in the capital, brimming with confidence. We were about to enter a new, more positive period, it was widely and loudly predicted. The new president brought with him to Washington a new, or so it was claimed, economic plan. It was bound to work.
There were three elements to the plan. Economists representing a wide spectrum of opinion were in broad agreement about the first two: ending the dependence of the nation on Washington by cutting federal government spending deeply, and combating inflation by restricting the printing of money, thus keeping prices stable.
It was the third approach, encompassing the benefits that would flow from the so-called "supply-side" school of economics, that stirred the greatest comment, and controversy. This was the real heart of the Reagan program.
According to the supply-side theorists, great things would happen if tax rates were lowered for industry and individuals. Cutting personal income taxes alone would produce dramatic results.
People would work harder. They would save more and demand less in the way of greater wages and benefits because they were so much better off. Inflation would dissipate, America's productivity would rise, our factories would hum.
Welcome, wonderful new era. Critics who cautioned that cutting taxes in the face of sizable government deficits would make things worse were dismissed by the true believers as people who didn't understand the dynamics of the supply-side program.
Although the experiment is far from over, results to date are depressing. And now persuasive new evidence exists that the supply-side approach was doomed from the start because its basic assumptions were faulty.
For several years Dr. Nathaniel J. Mass was in charge of the Systems Dynamics National Model of the U.S. economic system at MIT's Sloan School of Management. He has continued development of the national model at his own economic forecasting firm, Management Technologies, in Wellesley, Mass. For its first publication project, the Mass firm evaluated the supply-side policies of the Reagan administration. The results have been published, and they are singularly negative.
"Our analysis suggests that the policies, especially the major tax reductions, are likely to be highly inflationary," Dr. Mass wrote, "adding as much as 5 percent to the rate of inflation over several years. Moreover, we find that the increased inflation and changing relative prices from the tax reduction will lower real wages sufficiently to offset fully the intended incentive effects of the administration policy."
Space does not permit doing justice to this disinterested and important report, but it deserves careful study on Capitol Hill. It has a prescient quality.
Although its first draft was completed before Congress enacted the great tax cuts last summer, the Mass firm was predicting precisely what has sent tremors through the economic system. In spare language it said flatly: "The immediate impact of a reduction in personal income tax will be an increased deficit." It forecast deficits of around $100 billion a year--twice the average historic highs of the Carter presidency--and warned that staying with such a policy in the end "would accelerate inflation still further."
Other words from the study are worth pondering today, as the president apparently seems determined to ask for greater defense increases while the great tax cuts remain in place:
"A tax reduction that increases the deficit fails to create any of the desired three incentives for more work, greater saving or less pressure for wage increases."
Note: Other Side Department: A young Maryland reader takes umbrage at the views expressed here recently by an older Arizona one, I.A. Goodall, who cited the problems of elderly Americans in this time of Reagan administration domestic program cuts. My Maryland correspondent writes:
"I'm sick of listening to elderly cry babies with their litany of financial ailments which they blame on the government and Social Security. First of all who is responsible for this predicament? You? Me? The younger generation? Hell no! They are! They voted for spendthrift and war mongers and supported industry which raped this country's natural resources. They kept striking for higher wages and spending every penny they got their hands on thus fueling inflation and a play-as-you-go attitude. Are they now totally helpless? They expend a lot of energy asking the government for renewed increases in Social Security and are apparently living to a ripe old age. Where is their responsibility? Since when does the government owe anyone a living just because they are 65, 75, or 85 years of age? And whose money are they asking for? Their working children's and grandchildren's who support the government through taxes. At the rate the government is going into debt at their behest even unborn children are being mortgaged into hopelessness. Is this fair? Is this what they want? . . . The point is you and I are responsible for ourselves and must maintain our productivity as long as possible and stop bellyaching while basking."
Not especially elevating, this selfish exhibition of watch-out-for-number-one-and-get-out-of-my-way mentality, and the characterization of Goodall's words is incorrect. But I suspect there's a fair amount of such thinking in the country today. Which means more, not less, fault-finding and bitterness between the generations ahead.