Even as favorable economic statistics and indicators pile up, there is concern about the recovery. How strong and durable is it likely to be?
Alan Greenspan, respected Republican adviser and economist, threw a chill into the National Governors' Conference in Maine the other day when he said that the upturn could reverse its direction early next year, if Treasury borrowing needs begin to compete with private business' needs for money.
"At that point, the recovery is going to run down rather quickly," Greenspan said. "It is not going to end. But the (national growth) rate is going to slow in a rather dramatic way."
Just a few months ago, as economist Jerry Jordan pointed out on a panel recently in Seattle, "the strength of this recovery was largely unforeseen by the majority of the people frequently quoted in the popular press." Instead of an anemic upturn, the GNP burst upward at an annual rate of 8.7 percent in the second quarter (and when revised, that number could be a little bit higher).
Albert T. Sommers, economist for The Conference Board (a business research group), declares in one of his periodic newsletters that we are in the grip of a boom "generated by the most powerfully stimulative economic policies of the past several decades . . . The word 'awesome' used to describe this recovery is no overstatement."
Jordan--a monetarist--goes on to say that those who failed to see how strong the recovery would be are now making a second mistake, assuming that the boom is going to gain strength and be extended. J "herd" will be wrong again: like Greenspan (no monetarist), Jordan sees things petering out fast.
He predicts that the Federal Reserve, even as it has before, will lapse into a "stop-ando policy," alternately keeping money too loose and too tight. Until government spending and deficits are brouging to his view, "we can't expect to have a monetary policy that will produce a well-balanced sustainable recovery. I just don't think it can happen."
Not everyone agrees with Jordan about the strength of the recovery. Yes, it's not anemic, they would say. But no, it's not that big a boom, either. And the corollary of that analysis is that the time hasn't arrived yet for a big dose of austerity.
Economist Lawrence Klein, a Nobel laureate at the University of Pennsylvania, and Larry Chimerine of Chase Econometrics--on the same Seattle program with Jordan--argue that the 1983 economic recovery so far is below average.
That 8.7 percent figure for one quarter is probably a one-time event--to suggest more than about 3 percent growth within the span of a year's time, Klein said.
"This is no rip-rd. "By the end of this year, we'll see the rate of growth fall down somewhere in the 4.0-4.5 percent range, ane all through 1984, not at the 6.0-7.0 percent rate to which a lot of people are now raising their forecast. will see a continuing recovery, but it will diminish very rapidly a year or two from now, and when we look back we will be calling this a relatively moderate recovery, not a super boom."
These questions promise to dominate the dialogue about the economy, and the right policy mix to deal with it, for the next year or more. If Jordan is right about the inability of the Fed to find a middle ground between an acceleration/deceleration pattern, the crucial question for Ronald Reagan (and a lot of other people) is whether the "stop" part of the cycle will take place before or after Election Day 1984.
If Greenspan is right, the confrontation will come early next year. Lately, Federal Reserve Chairman Paul A. Volcker has made guarded public statements, somewhat like Greenspan's, suggesting an inevitable clash between Treasury and private business needs. Volcker had promised no Draconian monetary policy. The markets liked that. But he also warned that the recovery "brings the day of reckoning" nearer.
Therefore, until there is some resolution of the deficit problem, everyone will be operating with fingers crossed. But as Greenspan suggested in an earlier commentary, there isn't the political will to face the deficit problem until after the 1984 election--even if there is a threat to economic recovery early in the year.