Who's to blame for the recession? Regan defends the Reagan thesis
It fell to Treasury Secretary Donald T. Regan to defend President Reagan's press-conference assertion that current economic woes were all the fault of the Democrats who have dominated Congress since World War II.
''He has a good point,'' said Mr. Regan. ''The economy was a mess when we came in. There were many jobs to do. Some we did well. Some we haven't. We've brought inflation down. Also interest rates.''
Here one of the reporters having breakfast with the secretary broke in: ''But how about unemployment? That's going to hit 10 percent soon.''
''Well,'' said Regan, ''we haven't done well with unemployment. Those are not just statistics - they are people. But we can't just throw money at that problem. By the time we created jobs with money, it would be too late.''
''But,'' said a reporter, ''didn't Martin Feldstein, the President's new chairman of his Council of Economic Advisers, say in his confirmation testimony that unemployment was the price we were paying for lowering interest rates?''
''I guess he said that,'' said Regan. Here the secretary quipped that Feldstein was a ''low-church'' economist, as opposed to the ''high-church'' approach to economics followed by the President - meaning, it appeared, that Feldstein basically agreed with Mr. Reagan but was more flexible and less conservative than the President.
Here a reporter mentioned that Feldstein had described as ''decisively proven wrong'' the supply-side notion that huge tax cuts would unleash enough economic activity to decrease inflation, budget deficits, and unemployment all at once.
Regan's answer was that supply-side economics was, indeed, working. Further, he said he saw - as the President predicted at his press conference - better times ahead.
He said that ''if we could now get a 30 percent recovery in housing starts and a 60 percent increase in auto sales, that alone would bring the GNP up 2 to 3 percentage points.
''It doesn't take too much to get us started again,'' he said.
For the economy to come out of its doldrums, Regan said, ''it takes a belief by the consumers that inflation will stay down, together with interest rates coming down.''
''We must remember,'' he said, ''that there are 101 million Americans who are employed. So we are in fairly good shape.''
These people, he emphasized, are financially well off enough to begin spending and investing in economically significant amounts if the interest rates just move down a little bit more.
Regan was cautious in his economic forecasts. He said he thought a ''slow recovery'' was already going on. He saw it in a modest upturn in the hotel business and in financial institutions. ''I hope,'' he said, ''that retail will get better in the Christmas quarter.''
''But,'' a reporter asked, ''would unemployment reach its peak at 10 percent?''
''I hope so,'' said Regan. ''But could it go higher?'' he was asked. ''Who knows?'' he replied. ''But I think we will see unemployment coming down slowly by the end of the year and continuing into the next year.''
Other questions fielded by Secretary Regan:
Mr. Secretary, what happened to that miracle that was supposed to happen with the big July 1 tax cut?
It has increased the rate of savings.
But it hasn't had the anticipated impact on interest rates, has it?
No, you are right on that. But I had said that a lot of it would be savings. When people who are employed hear about a lot of people being unemployed - they tend to build up their nest egg, instead of spending.
How about the anticipated impact from the recent tax increase?
It is helping to dampen inflation expectations.
How about the deficit in 1982 and 1983?
It will be in the neighborhood of $110 billion in 1982. And I'm afraid '83 deficit will be larger.
How about interest rates in the next few months?
They will be coming down in a saw-tooth fashion. There is plenty of money around - so that the Fed can ease up on interest.
But will there have to be another tax increase to deal with the growing deficit?
As far as I'm concerned there will be no tax increase for fiscal '84. We'll attack the budget deficit by cutting spending.
Will the President's laying of blame for the current recession and high unemployment on the Democrats be accepted by the voters November?
I don't know. I'm not a politician.
Do you think the secretary of Treasury should serve on the Federal Reserve Board?
I think an independent Fed is working pretty well - on balance and over the years. But I think monetary policy since 1979 has been very erratic. I think we must make a very thorough study of this. In fact, we are doing so in our department. The study group will release its report soon.
The charge is sometimes made by some politicians that the President really doesn't take part in shaping economic policy.
This is not true. The President has a lot to do with economic policy.