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Serious economics

It seems to me that all of us who live in modern industrial democracies have a lot of hard thinking to do over recent economic news. Here are the essential facts which seem to point to difficult social and political conclusions.

The American economy began to slow down during the month of June. The index of leading economic indicators showed what was called a ''sharp'' drop. It appeared to be the first such decline in 21 months. It showed declines in such areas as factory orders, construction spending, prices of sensitive raw materials, and pressure on suppliers.

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The news triggered a wave of exuberant buying on the stock market. In terms of both volume and price gains it was the biggest buying week in Wall Street history. It amounted to a massive expression of confidence in the health of the American economy.

Why is a slowing of the economy a sign of health?

Part of the answer is easy. The market had for months been held back by anxiety about a revival of inflation. The scale of government borrowing that will be necessary to fund the expected federal deficit could, by itself, force interest rates up to levels that would smother the recovery. The news of the slowdown lifted that anxiety from the market. It is expecting lower, not higher, interest rates in spite of the deficit.

But then we come to the next level of the problem. What else is happening in the American economy which can balance off the inflationary push of expected high federal deficits?

The answer comes in two parts. First, the productivity of American labor is up nicely. The output per man-hour in all nonfarm business in the US went up by 3.3 percent during the first quarter of the year. And second, wages did not go up appreciably.

The Bureau of Labor Statistics issued an employment cost index for June up eight-tenths of 1 percent, compared with a rise of 1.7 percent in May. It means that wages and salaries are remaining relatively stable.

Now we come to the politically hardest part of the problem.

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The same week that showed economic stability setting off a massive upsurge in the stock market also brought an official Bureau of the Census report showing that the level of poverty in the US rose by nearly a million people in 1983 over 1982.

The same week brought news of a rise in the unemployment rate from 7.1 percent of the work force in June to 7.5 percent in July. This was the first rise in unemployment in 20 months. The trend had been down steadily. The July rise in joblessness seems to parallel the slowing in the economy. The demand for labor is slacking off at a time when any rise in the demand would probably be enough to set off a major rise in wage demands, hence inflationary pressure.

The Economist magazine, in its July 28 issue, puts much of this in a challenging perspective. It noted that between 1975 and 1983 Western Europe raised its output by almost as much as America, but that employment stood still in Europe, while it rose by one-sixth in America.

''The main reason,'' The Economist says, ''was that real wages in Europe went on rising, while in America they were cut. In 1973-82 British industrial workers' real hourly earnings went 10 percent up, and total British employment went 7 percent down; simultaneously American industrial workers' real hourly earnings went 11 percent down, and total American employment went 16 percent up.''

In the Soviet Union everyone, by law, has a job. There is no such thing as unemployment. The government makes work for everyone in some form or another; in forced-labor camps when all else fails. The Soviet economy is notoriously stagnant and inefficient. The communist countries that are doing better economically are the ones that have allowed the profit motive to revive, either openly or surreptitiously.

Few Western politicians will accept the idea that some poverty, some unemployment, and wages limited to the rise in productivity are necessary for a healthy economy. But how else does one explain the obvious health and strength of the American economy today? It makes a startling contrast to the stagnation of a full-employment economy in the Soviet Union and the rising-wages economy of West Europe.

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