Economists boo deficit, but can't agree on cure
The three conservative economists agreed on one major point: Deficits are bad. After that, it was every man for himself.
In a joint appearance before the House Budget Committee, Alan Greenspan, chairman of the Council of Economic Advisers (CEA) under President Ford, said he would not increase taxes to close the deficit gap. He advised cutting the rate of growth in defense spending.
Herbert Stein, a CEA chief for President Nixon, said defense should be left untouched. Then he recommended some tax increases.
Paul W. McCracken, Mr. Nixon's first CEA chairman, said he would not read a laundry list of deficit reductions and instead proclaimed: ''The time may have come for another major inquiry into the management of monetary policy.''
Budget Committee chairman James R. Jones (D) of Oklahoma complained about their differences on how to best fight federal red ink.
''What you're looking at,'' admitted Mr. Greenspan, ''is a microcosm of the whole problem.''
This trio of Republican former CEA chiefs, however, are all budget balancers from way back. All stressed the psychological damage caused by a prospect of burgeoning deficits; all thought it mildly amusing their position has suddenly become fashionable.
''There are some people who think (budget balancing) was always the right answer in the past and will always be the right answer in the future, but do not think it is the right answer now - meaning while they are in office,'' Mr. Stein said. ''There are others who never thought it was the right answer in the past, but are sure it is the right answer now - while the other fellows are in office.''
If fiscal policy isn't shunted off its current track, figures Mr. McCracken, by fiscal year '83 the government will be gobbling up ''well over 50 percent'' of all funds raised in private credit markets.
This ''has to be reduced if there is any reasonable hope for financing the capital formation that is necessary'' to jolt the economy, Mr. McCracken said.
But when it comes to the nuts and bolts of deficit reduction, the choices are , as Mr. Greenspan put it, ''between bad alternatives and worse.'' Congress itself is having a terrible time setting priorities: Should taxes be raised? Should social security be reined in? Must defense spending increase so fast in the name of national security?
Though both Greenspan and Stein are from that respected subgroup of economists, ''traditional conservative,'' they advised widely different approaches.
Herbert Stein said the defense program should not be cut at all, calling a rapid military build-up ''our most urgent national need.''
He recommended getting a handle on runaway social security, through readjusting cost-of-living raises or taxing part of the benefits. He said higher excise taxes on alcohol and cigarettes wouldn't be such a bad idea and estimated a 50-cent-a-gallon gasoline tax would raise $50 billion a year.
Although Mr. Stein said he would ''prefer not to go this route,'' he said Congress might consider deferring the income tax cut scheduled for 1983.
''We should all be willing to sacrifice,'' he said. ''I'm willing to give my tax cut back.''
Alan Greenspan, however, said ''it is by no means clear that increased taxes will bring the deficit down over the long run.'' The more money Congress gets, said Mr. Greenspan, the more it spends.
Accordingly, he thinks Capitol Hill should keep hands off the personal tax cuts. And unlike Stein, Mr. Greenspan does not think defense should be sacrosanct.
If the deficits are not brought under control, what will happen?
Paul McCracken: ''There is a collision course shaping up in the capital markets.''
Herbert Stein: ''We will not get the growth of potential output the nation seeks because too much of net private savings is absorbed financing the deficit.''
Alan Greenspan: ''One can envisage the rise in economic activity aborting relatively early with the levels of industrial activity either stagnating or actually declining.'' However, Greenspan called Reagan's budget ''the least worse solution to a very difficult set of problems.''