The single message of the elections would seem to be pretty clear: enough voters were worried sufficiently about the weak economy to have stretched the Democratic margin in the House of Representatives by 25 to 27 seats, and to have installed -- net -- seven new Democratic governors.
But the message demanding a change of policy is not directed exclusively at President Reagan and the Republicans. It is directed, as well, at the Democratic Party, which willingly played along with Reaganomics in the past two years, at times going beyond Reagan's willingness to cut taxes.
The voters' demand, it seems to me, is for an alternative to Reaganomics that will stop the disastrous climb of unemployment and restore the public's confidence in the banking system and in other financial institutions. And such an alternative the Democrats have been derelict in providing.
A reshaping of Reaganomics has, in fact, been under way for a good part of this year as a consequence of the huge federal deficits that the president's policy had created. Under the leadership of Sen. Robert Dole (R-Kan.), powerful Senate Republicans forced through a tax increase (and reform bill) amounting to nearly $100 billion over the next three years.
As a result of this modest shift away from the supply-side, easy-money aspect of Reaganomics, the Federal Reserve Board -- starting this past summer -- was able to make a major change. It broke away from its tight monetary restraint policy, and interest rates came down as a result. The combination of these two significant changes spurred enough hope to rally the stock and bond markets.
Thus, the question before the electorate on Tuesday night was never that of "staying the course," as Reagan incorrectly defines it. The course had already been changed. The question was whether to signal that they wanted to continue and extend the direction of that change -- and the verdict was clear.
Before the votes were in, Dole had said on CBS's "Face the Nation" that even if the GOP retained its Senate majority, "I do believe that a lot of us who have been out there, plus a lot of colleagues who have been running, are going to suggest we make some changes in defense spending and some other areas that might not be totally consistent with the president's views of, say, today or a year ago."
Former presidential economic adviser Walter W. Heller suggests that the two parties, neither in complete control, will be forced by continued high unemployment into additional "constructive" compromises. A moderate coalition (moving away from Reaganomics, as Dole suggests) is likely to evolve in the next Congress. It will:
* Make a major effort to whittle back the enormous increases in military spending.
* Display a more friendly attitude toward spending programs for social purposes, including work-related programs involving highways, bridges and other capital investment.
* Produce a Democratic willingness to make sensible adjustments in the "entitlement" programs, including Social Security.
* Consider further modifications in the original design of the Reagan tax cuts -- perhaps focusing on the indexing of the tax structure beginning in 1984 -- so as to cut back the budget deficits.
However, as economist Henry Kaufman of Salomon Brothers pointed out in a telephone chat the day after the elections, there can be little meaningful impact on the deficits for fiscal years 1983 and 1984.
Nothing that the new Congress can do about the economy can possibly begin to have any effect until -- at the earliest -- the spring of 1983. For the next several months, the direction of the economy will hinge on whether the Federal Reserve continues with its easier monetary posture or panics and reverts to its earlier preoccupation with monetarist targets.
If the Dow Jones Index keeps its head above the 1,000 mark, Wall Street will be betting that the Fed will continue its effort to revive the economy, and will be demonstrating it likes the probable bias of the new Congress toward a modest increase in social spending. ("Wall Street," says economist George Perry, "talks with its heart but buys and sells with its head.")
The key point is that Reaganomics in its original form was abandoned with the Dolesponsored tax-increase bill this past summer. There was a further departure when the Fed abandoned the monetarist targets originally endorsed by the White House. What is sure to flow from the midterm election is a further retreat from supply-side ideology, back toward more conventional economics.