How to Wreck the Economy

America's New Beginning: A Program for Economic Recovery Budget

from the Executive Office of the President/Office of Management and
US Government Printing Office, 270 pp., $7.50

Fiscal Year 1982 Budget Revisions Budget

from the Executive Office of the President/Office of Management and
US Government Printing Office, 159 pp., $5.00

The recent discussion of President Reagan’s budget has largely overlooked its most alarming feature, so far as the US economy is concerned. Reagan is proposing to increase defense expenditures by $142 billion, from $162 billion for the fiscal year 1981 in the current budget to $304 billion in fiscal year 1985, the last budget of his first term. If re-elected he is planning a further $39 billion increase, to $343 billion in fiscal 1986.

This $181 billion increase over five years can be understood only if it is compared with the build-up of military spending during the Vietnam War. In the five years between 1965 and 1970 military spending rose by $24.2 billion, and soon after rose to a peak of $26.9 billion. After correcting for inflation, a $26.9 billion increase then would be equivalent to a $59 billion increase now.

As a result the military build-up that is currently being contemplated is three times as large as the one that took place during the Vietnam War. Whether an increase of this magnitude is really necessary depends on an analysis of foreign affairs and military readiness that is beyond this review. Some defense experts and legislators are questioning whether many items in the new military budget are actually needed and whether some of them endanger national security more than they protect it. Such questions are certainly important and must be raised. But if such a build-up is necessary, then it is important that it be done in such a way that it does the least possible damage to the economy.

The Reagan budget has not been clearly understood because, perhaps deliberately, it has been presented as a set of subtractions from or additions to the Carter budget. The policies of President Carter are now irrelevant. It makes no difference what he proposed. Everything that is in the budget is now a Reagan proposal. The only questions to be resolved turn on what President Reagan wants.

In addition to the increase in the military budget, civilian expenditures are scheduled to rise by $76 billion—from $493 billion to $569 billion. After correcting for inflation, we can see that civilian expenditures are down substantially by 16 percent, although they rise in money terms. As a result the total budget increases from $655 billion in fiscal 1981 to $912 billion in fiscal 1986. In addition, President Reagan is proposing a 16 percent reduction in federal tax collections—$196 billion in fiscal 1986—in order to stimulate savings and investment.

President Johnson’s refusal to raise taxes to pay for the Vietnam War is legitimately remembered as one of the key factors leading us into our current economic mess. He wanted both the Great Society and the war. But if he was to have both and not wreck the economy, his only option was to raise taxes sharply. He chose not to do so, and he wrecked the economy.

President Reagan wants both dramatic tax cuts to encourage investment and an even more extensive military build-up. But…

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