On ABC television last Sunday, when Ed Meese said the administration might favor making retroactive to January the tax cut now set to take effect in July, a dull-witted journalist (me) asked him: What do you want Americans to do with their tax cuts? Open IRA (Individual Retirement Accounts), thereby increasing the pool of savings available for investment? Or buy new cars, thereby igniting a recovery driven by consumer spending?
"Both," answered Meese. There, in a single word, is the do-everything-at-once spirit that makes the administration's economic program so exhilarating to some people and so hair-raising to others.
The Reagan program is called, and is, "pro- business." But the business community is a house divided, and the Reagan program has a split personality. Part of the business community hopes for a burst of high consumption. Another part hopes for increased savings and investment. The administration rationally wants the latter, but emotionally wants both.
The body is the temple of the soul, and a genial soul has made its home within the ample Meese temple. Meese is a Dickensian sort, round and jolly and Micawberesque. Mr. Micawber was the fellow in "David Copperfield" who, when things looked dark, always said that something would turn up to make things turn out well.
But many unlikely things have to turn out right for the administration just to make the budget turn out no more dismaying than it is as proposed. Keeping the deficit at $91.5 billion depends on, among other things, $55.9 billion worth of congressional actions--raising revenues and cutting spending--many of which are doubtful.
Reaganomics always has presupposed a kind of consensus that is rare: a consensus that must endure for several years. But Reagan's consensus was jeopardized by the successes achieved in the first year.
In 1981 Reagan achieved a degree of Republican discipline in Congress unprecedented in the 29 years that Congressional Quarterly has been keeping such records. And three-quarters of all Democratic senators--37--voted for Reagan's tax cut. But all this was purchased at a terrible cost to the Treasury, as congressmen and senators auctioned their votes. And the budget cuts voted midway through the first year have begun to galvanize the client groups.
Some Republicans worry, reasonably, that their party will acquire--or reinforce--an image like another Dickens character: Scrooge. Rep. Newt Gingrich of Georgia worries that relentless pressure to prune social programs will make the GOP seem like "a party of bookkeepers." But the fiscal 1983 budget may be the worst of two worlds, politically. It may make the GOP seem like a party with the soul of a bookkeeper who cannot even balance the books.
The budget embodies domestic policy that is off-putting to all but a fraction of the conservatives--those whose equanimity is not disturbed by the combination of large deficits and contracted social programs. And the administration's principal foreign challenge--Poland --has elicited a policy mortifying to most conservatives. This situation might discompose an administration made up entirely of Micawbers.
Mr. Micawber said: "Annual income twenty pounds, annual expenditures nineteen six, result happiness. Annual income twenty pounds, annual expenditures twenty pounds ought and six, result misery." Micawber did not take the broad, spacious view of things. He had a picky, cramped attitude about deficits that some conservatives today consider old-fashioned.
Some say the deficit is not alarmingly large, relative to GNP--that is, when compared with other deficits that occasionally occurred when the GNP was smaller. But the fiscal 1983 deficit is most alarming precisely because it is not an isolated phenomenon produced by a particular passing phase of a business cycle. Rather, it is projected to be one of a series of huge deficits produced by structual rather than cyclical reasons--by the structure of America's economy and government.
Some say that the deficit, relative to GNP, is not worse than some Japanese or German deficits, relative to those nations' GNPs. But last year personal savings were 13 percent of Japan's GNP and 9 percent of Germany's. America's personal savings are just 4 percent of GNP, so government borrowing to finance deficits sops up an alarming amount of the investment resources generated internally.
Felix Rohatyn, the financier who is becoming the Democrats' shadow Treasury secretary, says: "Huge deficits will push interest rates higher until the economy really goes into a nose dive." Donald Regan, the real Treasury secretary, says large deficits will have "no effect" on interest rates. We are going to find out who is wrong.