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When the Ax Comes Down


By Siddhartha Mazumdar

PERHAPS THE preeminence and sweeping appeal of the new variations on our society's old-fashioned right-wing ideology were most apparent last July at the Republican National Convention in New York. Speaker after speaker harangued the audience about getting America moving again, restoring military superiority over the Russians, ending the subsidization of indolence and waste, and getting the government off the backs of businesses. Their slogans and their rhetoric were not really new after all. Henry Kissinger and Sen. Barry Goldwater (R-Ariz.) spoke, saying the same things they have said for four years. But, this time, the nation was listening to the 'Republican mania, and a large portion applauded.

Among the prominent speakers, only Rep. Jack Kemp (R-N.Y.) appealed to the American tradition for intellectual leadership, saying that the country could best provide an example for the rest of the world through its ideas, not through its military power or economic superiority. The new idea he spoke of was nothing less than a new vision for economic policy and public morality. Much to the former football player's gratification and political fortune, "supply-side economics" has revolutionized policy-making at the state and federal levels, along with shaping the ideals and aspirations of a new generation of industrialists and bureaucrats. Liberal opponents of the new philosophy have accurately dubbed it. "Stealing from the poor to give to the rich," but their self-righteous attitude cannot counter the political power that supply-side proponents have entrenched on their side since the presidential election. Nor can liberals dispel the popular support for tax-cuts and budget-slashing from a large group of people tired of losing their money through taxes used to fund inefficient social programs.

The theory behind supply-side economics is quite simple. As Kemp explained himself, taxation reduces hard work and serious effort, vigor and enterprise. He continues that subsidization encourages waste and frivolous spending, inefficiency and sloth. Current policy makers propose that reducing the tax burden on America's middle and industrial classes will spur greater work effort, and induce the affluent to save a greater part of their incomes. Supply-side theorists pin the country's exorbitant inflation and interest rates to the failure in recent years of businesses to invest in modern plants and equipment. Their unwillingness to proceed with technological innovations is further cautioned by excessive taxation and regulation. Kemp and his retinue of economists propose that the additional savings and entrepreneurial activity will produce the much-needed investment to revitalize the country's aging capital stock and slow down inflation.

BECAUSE THE IDEAS have yet to be tested, they are equally susceptible to both the ridicule of "old-fashioned" liberal economics and the praise of the new policy elite and its corporate clientele who can only profit from the implementation of this new economics. Nevertheless, solitary reliance on the supply-side theories will occasion problems that would render impotent the economists' logic. The present Republican administration should not be surprised if the near future does not see a rapid reversal of the stagnation they have long been blaming on liberal economic policy, high taxation and deficit spending.

Ax-wielding budget director David Stockman's proposed cuts in social spending are intended to reduce inflation rates by eliminating the artificial demand for unproductive services. Conservative economists say these federal spending cuts will allow room in the currently services-bloated economy for investment in the private sector to effect greater output and create more employment. They see a long-term decline in interest rates arising from reduced spending as perhaps the greatest stimulus to increased investment and greater productivity that will reduce inflation.

Reagan and Stockman come equipped with charts and graphs to support their arguments and their rhetoric, but the narrow vision of federally-controlled and industry-oriented policy might make them easy prey to the same mistaken hopes that led to the demise of the original liberal ideals the Great Society. The Democratic policy-makers of the past two decades found out they could not solve the problems of poverty and injustice in the country simply by throwing money at them. As their outlays to social programs grew, poor policy coordination and bureaucratic entanglements got in the way of meaningful progress and fostered the expectations of a society that could not steer itself clear of an inflationary mess.

Similarly, the combat against inflationary expectations is the most significant challenge facing Reagan and Stockman. Today's inflation rates seem almost ethereal to most people who see prices rising on their supermarket shelves and in housing and education, but the pace of inflation is buoyed by a core-rate stimulated by unchanging anticipation of these increasing prices. Companies and labor unions decide expenditures, wage policies and investment strategies with a stream of future price increases in mind. The need to alter this conception for the future has played a large role in the administration's strong ideological tack against budget increases and fiscal waste. Stockman personifies a ruthlessness in policy and intent meant to foster the nation's belief in the positive results of the supply-side experiment. The Reagan administration's recent disagreements with private forecasting firms over the pace of the economy's recovery was not just a quibble between a few professional economists, but a deliberate effort by Reagan's team to convince people that it would get its own way.

THE NEW conservative policies emerge more as image-creating, to influence the nation's psychology, than concrete actions to improve the economic situation. This is not surprising since they have a tundamentally destructive intent--to dismantle the existing fiscal apparatus and consequently unleash the forces of private enterprise which the administration hopes will increase productivity and ultimately reduce inflation. Stockman's budget slashes and the plans for tax cuts, however, ignore the psychological aspects that affect productivity in the economy. Efficiency is more a matter of worker's satisfaction and their effectiveness than the tax and interest rate schedules faced by corporate moguls. Nevertheless, Reagan seems unobtrusively apathetic about any attempt to improve relations between unions and industrial employers. His rhetoric about holding a hard line against inflation appears ludicrous against the enormous wage increase accorded to the United Mine Workers union last week. The further increase in wages and costs that will accompany such industrial settlements, combined with the administration's wait-and-see policy for the poor and unemployed, sheds doubt on its claim that its policies will bring about significant changes in productivity and inflation. Its antagonizing effect on poor groups, while redistributing to the rich, can only undermine the political popularity it currently enjoys.

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