THE NUMBERS published this week confirmed everybody's impression: 1984 was a very good year for the American economy. Real GNP -- the economy's total output -- rose faster than in any year since the early 1950s. Income per person, after inflation and after taxes, was once again higher than ever. Inflation stayed low, at least by recent standards. What are the chances of an encore in 1985?
Most of the current economic debate is over what's going to happen in the months immediately ahead. But it's worth asking whether anything is developing to raise the prospects over the longer term for the strong and stable growth that is every president's aim. So far there are not many signs of it.
The original Reagan program was supposed to generate an enormous expanson of investment capital by encouraging work and saving. The personal savings rate is still in the same range in which it has been moving for the past decade, despite a number of tax incentives to raise it. Business investment in plants and equipment has risen sharply from the 1981-82 recession. In 1984, as a proportion of GNP, it was back where it was in 1980 -- and, as the year ended, just a shade higher. There's no indication of the great flood of new investment that was to have transformed the American capacity to produce.
Most of the sources of long-term growth lie deep, and are difficult for any administration to reach. Labor productivity will rise because of demography; the numbers of inexperienced young people coming into the labor market in this decade will be lower than in the 1970s, reflecting the declining birthrates of the 1960s.
Two major contributors to economic growth, both difficult to forecast, are new technology and a rising level of education. Federal support for research and development declined from the middle 1960s until early in the Reagan administration. It's now rising, due to defense -- civilian R&D is still falling quite rapidly. As for education, a child's chances of finishing high school and getting a college degree are much higher in this country than anywhere else in the world. But educational opportunity in this country hit a plateau more than a decade ago, and has not increased since then.
The greatest threats to economic growth now come from the instability being built into the economy by the two mounting deficits -- the federal budget deficit and the U.S. international deficit. Both at present are sustaining the country's sense of well-being. The budget deficit stimulates growth, and the foreign deficit permits the country to spend more than it earns. Mr. Reagan's second term is an opportunity to bring both those deficits under control. But he doesn't seem to be making much prog, or at whose expense.