Word: feldstein
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This, however, is a minority view, rebutted by an even more broadly based coalition. For example, in hearings before the House Banking Committee last week, economists ranging from the very conservative Martin Feldstein to the very liberal John Kenneth Galbraith wrangled about the size and composition of deficit cuts but not at all about their necessity. In this view, the U.S. has about come to the end of its ability to cover giant budget and trade deficits by borrowing from foreign investors. The stock-market crash served as a warning of what would happen if the foreign capital is ever...
...values would push the Federal Reserve back into a dangerous high-interest-rate policy and would be bound to fail anyway. "Willy-nilly the dollar is going to fall in the next two to three years," says Charles Schultze, who headed the Council of Economic Advisers under Jimmy Carter. Feldstein figures that the dollar would have to drop 30% in five years to reach a sustainable value and adds that if natural market forces were left to work unhindered, most of that decline would occur in the next twelve months...
Free-marketeers like Feldstein would just as soon let that happen and get it over with. Says Herbert Stein: "The dollar should be allowed to decline as far and as fast as it will." But that course runs a gigantic risk: a free- falling dollar could easily touch off a panic flight of foreign capital from the U.S. That is about the last thing anyone wants, since it could trigger a worldwide financial collapse. It would be much better to renegotiate the Louvre accord to allow a gentle, managed decline in the dollar. As part of such an agreement, foreign...
Whistle blowers within the Administration were consistently squelched. When Martin Feldstein, the President's chief economic adviser in 1982-84, warned of the deficit dangers in the Administration's annual economic report, then Treasury Secretary Donald Regan told reporters they could "throw away" the document. Meanwhile, supply-siders like Economist Paul Craig Roberts, who was an Assistant Treasury Secretary during 1981 and 1982, kept minimizing the problem. Said he in 1984: "Deficits are on the way out." Later the Administration's budgeteers grew so wary of mentioning the prospect of new taxes that they started calling it the T word...
...remembered as a trusted team player. Sprinkel, 63, who resigned last week for personal reasons as chairman of the Council of Economic Advisers, could be counted on to voice strong support for Ronald Reagan's policies. That was in sharp contrast to the free spirit of his predecessor, Martin Feldstein, who frequently stirred controversy by publicly appearing to differ with the President. But while Feldstein earned praise for his independence, Sprinkel, a former bank economist, had more influence in the Administration. He is credited with reinforcing the President's stand against trade protectionism. Sprinkel plans to go on the lecture...