Mortgaging The Future

RONALD REAGAN was reelected in November primarily because many Americans believed that the economy was in better shape after his first four years than it had been before. But much of that perception is an illusion which Reagan created with a series of unprecendented budget deficits.

Although the decimal have allowed Americans to feel good for a while by wallpapering over other problems in the economy, they make tackling those problems almost impossible.

The "Reagan Revolution failed to address the issues that pose the greatest long-term threat to America's economy. Glow growth in both the GNP and productivity give the economy fewer resources to use in the future. Even after two years of plenty created by budget deficits and an upswing in the business cycle, the prospects are not good for continued quick growth. American technological advances the mainspring of our economy since well before the time of Henry Ford, are being challenged more effectively by the Japanese while cheap labor countries are taking over other markets. The problems of conserving and/or replacing ever scarcer resources has been all but ignored. Keeping the world's environment hospitable is becoming an even to her task than it has been in the past. Some groups of American are likely to be unemployed for life.

We have had these problems for a while, and Reagan's only answer seems to have been to run up sky's-the-limit deficits and say that things are getting better. Compared to the period between World War II and 1980, the economy is not reality getting better. More important, the deficits being used to cover up economic problems will make them harder to cope with later.

How will America deal with these downturns? In the short run, we will be hindered by deficit-inflanted interest rates, which in turn have created an export-choking dollar, which is taking a hand in making the U.S. a net debtor.

ONE ALTERNATIVE may be to cut the budget and perhaps to allow inflation to cut down the size of the national debt. In the event of inflation, the economy might suffer severe damage. Regardless, cutting the deficit will bring back Niger levels of unemployment. In other words, no matter what we do in the next four or five years, American will be left with a larger debt, tremendous interest payments, and none of our economy's basic problems solved.

Solving them will be even more difficult because both the government obstacles, as well as with the more immediate concern of recurring unemployment during business and the country as a whole will have relatively fewer resources. The government will have very few policy options because it will not be able to finance the interest on the debt, standing obligations, and the activities necessary to correct the structural problems in the economy. Simply paying interest on the debt in the post-Reagan era will take at least $200 billion a year. Moreover, all ever increasing share of this money will go to foreign creditors who are very unlikely to invest it in our economy Today's college students may be hit with a two fisted punch-paying taxes to pay interest abroad and fewer jobs and lead investment at home. If the high interest rates do not cut investment at home, the interest paid abroad will. In the meantime, while Reagan was running up deficits, investment in productives resources will have been handicapped by high interest rates and Reagan's Keynesian push for current consumption.

The worst part of this deficit problem is not that Reagan conned the American people. It is that young Americans will have to pay for most of it with they higher taxes and their future umemployment.