Protect the recovery
Americans can be encouraged by any and every sign that the United States is pulling out of deep recession. There are some such signs. These include the continuing good figures on housing starts, interest rates basically on a downward course, a gain in personal income in March, and strong car sales in the first 10 days of April. Then there are the just-issued figures on the GNP for the first quarter of 1983 showing the US economy growing at an annual inflation-adjusted rate of 3.1 percent - which contrasts with a negative growth rate of -1.7 percent in all of 1982.
While thankful for these harbingers of economic spring, policymakers and public should guard against premature euphoria and stay alert to the long course yet to be traveled. Unemployment remains intolerably high. Interest rates have not declined enough, and spiraling budget deficits could push them even higher. Budget director David Stockman has warned the White House that a failure of President Reagan and Congress to work out a budget compromise could lead to breakdown of the budget process and threaten a ''permanent economic recovery.'' His words should not be taken lightly.
Economists may argue as to just how much impact federal deficits have on an economy as massive as that of the United States. But, even if they have only marginal impact, how shortsighted not to reduce them and avoid whatever risk they pose to long-term economic recovery. The total deficits (including off-budget spending) now projected by the administration are expected to climb to above the $200 billion level and stay there - reaching as high as $294 billion in 1987 and 1988. One thing is certain. Whatever their size, the government will have to cover them; if the Treasury borrows more money to do so, it will push interest rates up and choke recovery; if the Fed prints more money to accommodate the Treasury borrowing, it will reignite inflation; if Congress imposes more taxes, it will discourage consumer spending and also slow economic growth. Why not avoid any of the uncomfortable alternatives and just begin bringing spending under control? Not all at once, to be sure, for that risks retarding the recovery; but with well-considered speed and sense of balance.
The question arises because there is a stalemate on the budget at the moment. The President has not accepted any compromise proposal, refusing to yield on his defense buildup. He asks for a 10 percent real increase in military spending in fiscal 1984. The House proposal calls for 4 percent; a Senate panel asks 5 percent. Given the congressional mood, Mr. Reagan most likely will step down from his position and accept a compromise; but the sooner he does so, the better in terms of reassuring the financial community and keeping recovery on track.
The other most controversial aspect of the Reagan budget is the tax cut scheduled for July 1, the third stage of the administration's tax-cut program. House Democrats want to repeal it in the interests of reducing the budget deficit. On balance, however, it seems wiser to inject a bit more consumer money into the economy to nudge recovery along and to keep encouraging individual saving, which rose 30 percent in the third quarter of 1982 and which in time will provide a much-needed source of investment funds.
In short, the first sprouts of economic recovery should not distract presidential or congressional heads from the job still to be done. Now is the time to work out a compromise budget - and send a strong bipartisan signal of the US government's resolve to prevent runaway deficits.