Deficits: A Challenge to GOP Orthodoxy?: AEI Debate Focuses on ...
At an unusual seminar last week sponsored by the American Enterprise Institute, all three members of the Council of Economic Advisers, along with the undersecretary of Treasury for tax and economic affairs, Norman Ture, discussed the Reagan administrationÛªs economic policies, especially the issue of budget deficits. Some of the remarks of CEA Chairman Murray Weiden-baum and members William Niska-nen and Jerry JordonÛÓthat deficits are not necessarily bad for the economyÛÓchallenged the Republican orthodoxy. The statements raised hackles in Congress and at the White House where official spokesmen reiterated that President Reagan is very much concerned about deficits, which internal administration estimates now place at more than $100 billion for 1982 and, in the absence of spending cuts or tax increases, at more than $150 billion in 1983 and $160 billion in 1984.</br></br>Several AEI economists, including former CEA chairman Herbert Stein, former member William Fell-ner and Rudy Pen tier, former chief economist for the Office of Management and Budget, questioned the administration officials closely and disagreed with some of what the Reagan advisers had to say. Other economists and members of the press were in the audience.</br></br>Ture: ... I think there can be no question about the fact that the [Federal Reserve] and the people in the administration are of a single mind about the desirability of restricting the growth of monetary ag- gregates to rates and proportions that are consistent with a continually declining rate of increase in the overall level of prices.</br></br>. What should we look for as the consequences of a successful pursuit of that policy? . . . The old conventional wisdom . . . says if you restrict the rate of increase in the price level you must, necessarily, reduce employment and therefore total output in real terms as well. That is a judgment which I think is not well-founded either in analysis or in the empirical record, and it is a line of reasoning which, I think, has no part at all in the framing out of the economic policy and strategies of this administration .. .</br></br>there will be lags in the effectiveness of anti-inflation policy [because] cost trends do not adjust instantaneously. . . (and] because there is a credibility problem. The credibility, I think, is being gained now by the Fed and I think that people take their posture very much more seriously than they did in the beginning. . . .There is a dilemma [of long-term cost agreements] which is likely to lead to some slowing and indeed to carry this system through a recession before it really gets on a path of healthy growth . . . and I would expect through a slower recovery than that which we would have if we were willing to accept the rekindling of inflation . . .