COVER STORY
Despite choppy waters, the President holds steady on Reaganomics
"Can anyone here say that if we can't do it, someone down the road can do it? And if no one does it, what happens to the country? All of us here know the economy would face an eventual collapse. I know it's a hell of a challenge, but ask yourselves: If not us, who? If not now, when?"
With those stern words last week, Ronald Reagan ordered his Cabinet to find new ways of cutting as much as $15 billion out of next year's budget and a stunning $74 billion in 1983 and 1984. And with those demands, the President opened Chapter 2 in the history of Reaganomics, the Administration's bold plan to alter fundamentally the policy directions of the past half-century and to put the U.S. back on a course of steady, noninflationary growth after years of stagnation and inflation.
When Reagan left Washington in August for a monthlong vacation at his California ranch, he had just wrapped up Chapter 1 and had every reason to feel satisfied, even a bit smug. No President since Franklin D. Roosevelt had done so much so quickly to change the basic path of the American economy. Though critics had confidently predicted that Congress would never go along with his daring "supply-side" strategy of large budget cuts and deep tax reductions, Reagan had pushed his programs through the House and Senate virtually intact.
But back in the White House last week, the President had to face the sobering reality that his job of overhauling the U.S. economy has barely begun. Even before the program's first tax cut was to go into effect, on Oct. 1, doubts about Reaganomics were proliferating, notably on Wall Street and among Congressmen, aided and abetted by some economists and editorial pundits.
Despite the disquiet—even near panic in some sectors—the economy overall is doing surprisingly well in a number of ways. Near record interest rates have hampered growth, but most experts do not foresee anything like a major drop in the economy. To the contrary, after a period of sluggishness, industrial production is expected to rebound sharply. TIME's Board of Economists,* which met last week in New York City, predicted that by the second half of 1982 business would be growing at a robust 4% annual pace. Alice Rivlin, the director of the Congressional Budget Office and a guest participant at the meeting, reported that her office is assuming a 4% annual economic expansion in the years 1983 and 1984. Said she: "We are quite optimistic about the outlook for the economy."
What matters most to most Americans, as polls have shown in recent years, is inflation—and inflation is coming down. TIME'S economists noted that price increases have slowed from 17.3% in the first quarter of 1980 to 10.8% during the past three months. It is not so far Reagan policy as much as his good luck that is responsible, but the economists now expect that inflation will fall even further next year, to 7.5%, and that will in good measure be to the credit of his policies, with a lot of help from the Federal Reserve Board.
Why, then, the sudden outburst of postsummer anxiety, even before Reaganomics has a chance to show what it can do? Nearsightedness in a word. And a fear that, in the long run, Reagan cannot deliver what he has promised. Or, put another