Two recent estimates indicate that government tax and spending policies are pumping up the economy much less than this year's federal budget deficit would suggest, and one of them indicates that from now until next summer government stimulus of the economy will be declining.
These estimates suggest that in the short run, Congress may have more room and cause for pump-priming to drive down the unemployment rate than many lawmakers have assumed.
For the longer run, however, even those arguing for short-term stimulus say that the large federal budget deficits now likely are a problem, and agree that steps must be taken to bring them down.
The estimates of how much the government is stimulating the economy center on what economists call the "high employment" deficit.
This drops from the actual dollar deficit those amounts that are due to weakness in the economy as tax revenues fall off or unemployment compensation rises with recession. What is left is a measure of policy: what the deficit would be under given tax and spending policies at a constant rate of high employment.
A study by the Congressional Budget Office shows that this high-unemployment deficit will scarcely change from fiscal years 1982 to 1983 if Congress sticks to its current budget resolution.
And estimates by the Federal Reserve Bank of New York, following an article published in its September review, suggest that from now until the scheduled third installment of President Reagan's three-year tax cut takes effect next July the high employment deficit will decline.
Some economists looking at figures such as these and the weakness of the economy see room for stimulus.
A "temporary boost of expenditure . . . a little bit of pump-priming" not offset by other measures to keep down the deficit "could be tolerated" now, Allen Sinai of Data Resources Inc. said last week.
However, he and other economists remain fearful of the yawning budget gap in later years. Any new action to boost the economy now -- through a jobs program, for example -- should not lock in higher spending for fiscal 1984 and beyond, they said.
Brookings Institution economist George Perry, who also believes it does not make sense to "tighten fiscal policy now when the economy is depressed," said Congress may not have to worry much about the 1984 deficit, either. But "at some point out there you'd like to make room for more investment" by cutting future deficits when the economy should be growing anyway, he agreed.
The dollar deficit can be misleading. It "reveals little about what the budget is doing to the economy," Harvard economist Francis Bator explained to a congressional committee last month. The deficit is "consequence as well as cause," he said, as "it also reflects what the economy is doing to the budget."
The Congressional Budget Office has estimated that if unemployment had been about 5 percent in fiscal 1982 instead of the 9 percent it averaged, the total deficit, including that for off-budget items, would have been $25 billion, instead of $130 billion. Other estimates of the high-employment budget put the deficit higher, because they work from a full or high employment figure of 6 or 6.5 percent rather than CBO's 5 percent. The New York Federal Reserve Bank for example calculates the high employment deficit for 1982 at $57 billion, based on a 6.5 percent unemployment rate. This is still well below the actual figure.
This means that the enormous increase now expected in federal borrowing between fiscal 1982 and fiscal 1983, when the on-budget deficit is thought likely to reach $175 billion, is more a reflection of the extreme weakness of the economy and than of any underlying policy switch toward stimulus.
Such a "passive" deficit helps to shore up the economy by supporting the incomes of those hit by recession. "One must, I think, be thankful for the very large deficits of calendar 1982," Bator said. "If we had tried to make them smaller by cutting spending, or raising current taxes . . . we would have reduced the sum of private plus public spending, and caused a reduction in output and employment. In other words, we would have made the recession worse."
But economists are bothered because the big deficits which have supported the economy thus far are set to remain even if the economy recovers late next year and private sector borrowing also picks up.
In previous economic cycles, the deficit has typically dropped sharply in relation to the size of the economy by about 18 months after the end of recession. Under current policies of continuing tax cuts and defense build-up, it would stay constant at about the post-World War II record of 5.5 percent of gross national product, the New York Fed article said.
The ideal budget action, Perry suggested, would be to spend more and tax less now while the economy is weak, while enacting legislation to pay for it later when the economy recovers. The worst would be to raise more taxes next year -- for example through a gasoline tax or postponement of the third year income tax cut -- while leaving on the books the yawning deficits of later years.