Any federal budget -- and President Reagan's latest is no exception -- is based on a number of economic assumptions. Expressing pride over an economic recovery that is "faster than any other upturn since 1951," Reagan forecast a continuation of good times.
"The thriving venture-capital market is financing a new American revolution of entrepreneurship and technological change," the president said in his separate Economic Report to Congress. "The American economy is once again the envy of the world."
The president's satisfaction with the current economic surge is understandable. Yet, at the highest levels of his government, there is a nagging doubt about the future, perhaps best expressed by budget director David Stockman.
Stockman -- who may soon leave Washington after a stormy career -- warned that in dealing with the budget deficit, "the hour is almost too late already."
That, to be sure, represents part of Stockman's pitch to Congress to do the budget-deficit job the president's way: by attacking middle-income civilian expenditures, doing little to restrain military programs or Social Security entitlements, and -- of course -- ignoring the need to raise taxes.
But the real weakness with the administration's look into the future is its failure to deal effectively with what may be the single most important variable in its economic assumptions: the extraordinarily high value of the dollar, which, according to the budget document, has risen 70 percent in foreign-exchange markets since the end of 1980.
The document makes some candid observations on the dollar problem, but then walks away from it:
Because the high value of the dollar has made American exports more expensive for foreigners, and imorted goods tantalizingly cheap, "the current account, the broadest measure of trade, services, and interest payments between the United States and other countries," which had been about in balance in 1980, last year was in deficit to the tune of $104 billion.
Because the prospect is that this deficit will continue "for the foreseeable future," the United States this year will become a debtor nation. This means that assets owned by foreigners here will exceed those that we own abroad.
This dramatic shift in our international accounts is in part the direct result of the budget deficit's impact on interest rates: the high-priced dollar has attracted capital investment from overseas.
That's good news and bad news. The good news is that foreign money has helped finance the federal budget deficit, averting a credit crunch here. The bad news is that the resultant current- account deficit has soared out of sight. Now foreign investors have a larger role in determining the economic future of the United States.
What happens if foreigners get edgy about their investments here and slow them down? What happens if there is a sudden, sharp drop in the value of the dollar?
The budget document offered this cautious appraisal: "The long-run problem (of the dollar) concerns the consequences for the economy should foreigners attempt to reduce their purchases of dollar assets while we are still running a large current-account deficit. Under such circumstances, the inflation rate might temporarily rise as the dollar's exchange rate falls. In addition, there could be a rise in interest rates and slower overall economic growth."
The implication is clear, but not made explicit by the budget document: a dollar decline of any significance would make mincemeat of the administration's scenario calling for steady economic growth, low inflation rates and further interest-rate declines. The huge deficits projected by the administration would be -- incredibly -- even bigger.
Former Treasury assistant secretary C. Fred Bergsten points out that even under the administration's current assumptions, there will be a huge buildup in interest payments to foreigners. By 1990, this figure will top $100 billion annually. The current-account deficit, according to Bergsten, will be $150 billion this year, $200 billion by 1988.
How long can such an inflow of foreign capital be sustained? If it slows down markedly, then the dollar could fall sharply, boosting interest rates skyward, sowing the seeds of a new recession.
Asked for his opinion, Reagan economic adviser William Niskanen said that the United States should not expect "any significant decline in the dollar" because interest-rate differences between the United States and other countries have been narrowing.
By itself, that's not very reassuring: it assumes a willingness on the part of foreigners to invest here despite growing debt, and continuing acceptance by American manufacturers and farmers of lost markets for their exports, while imports soar to new heights.