Recession: 'great opportunity' to reform US economy
Other Eckstein, HArvard economist, one-time member of the President's Council of Economic Advisers, and president of Data Resources Inc. thinks the US recession is "an extraordinary opportunity."
It is opportunity, he says, to shake out some of the policies that have created an erratic boom-bust cycle and resulted in a combination of unemployment , inflation, and soaring interest rates at the same time.
"The current recession," he said this week in Washington, "poses an extraordinary opportunity to put the United States economy on a better development path for the 1980s."
And he added:
"I believe that virtually every responsible observer of the economic scene, whether economist, businessman, or political leader, understands this basic situation and is not at all anxious to continue the pattern of policies that has worked so badly in the last 15 years."
In the statement here, Dr. Eckstein termed the developing recession "very dangerous" and classified it as likely to be "the second worst since World War II" with reference to that in 1974, and "it may well be the worst." He declares flatly that it will require federal tax cuts.
Up to point, Dr. Eckstein's thinking parallels that of the so-called Kemp-roth school -- named for Sen. William Roth (R) of Delaware and Rep. Jack Kemp (R) of New York -- favoring a 30 percent tax cut over three years to encourage "the supply side" of the economy. Ronald Reagan endorses this proposal.
But while Dr. Eckstein thinks "the severity of the decline makes fiscal stimulus inevitable," he dismisses Kemp-roth because it cuts taxes "without any restraining offset" like cuts in government spending or tighter money. It is so-called supply-side economics "in the more extreme form," he says mildly.
There is a startling pileup of scheduled higher taxes ahead, Dr. Eckstein told a joint economic committee of Congress under Sen. Lloyd Bentsen (D)) of Texas. HE listed:
* New energy taxes -- $25 billion by 1981.
* Payroll taxes -- $23 billion.
* Inflation-boosted personal taxes (sometimes called "bracket creep") -- $28 billion.
Combined, these mean the economy will be "sustaining the most severe tax increases attempted since the outbreak of World War II." With recession developing, something has to give, the economist implies.
Congress is preparing to adopt what looks like, on paper, the first balanced budget in 12 years, but Dr. Eckstein advises caution.
"We need a balanced budget badly," he says, "but the program of tax increases now on the books cannot be implemented fully in the midst of a severe recession."
It's time now for new ideas, says Dr. Eckstein.
"We are at one ot those great moments where the opportunity to reverse the steady slide o f our economic system exists," he declares. In particular, he suggests bearing down heavily on tax incentives to get the country to save more, to increase industrial capital, to encourage research and development, and to revive productivity.