Stay firm at the Fed

If it holds true that when you put three economists together you're going to wind up with three different views of the economy, then this is a week when such a trio might debate all night. Consider all the strands: the gross national product slumping at an annual rate of 1.9 percent in the second quarter; the inflation rate dropping to 6 percent, the best performance since 1978; Federal Reserve Board chairman Paul Volcker insisting that the Fed will remain firm in its tight money policy.

And if all that isn't enough to animate the economists, there is the merger-mania sweeping Wall Street; continuing high interest rates; a settlement for the postal workers; and -- would you believe it -- a quarterly profit at last for Chrysler, progress even if essentially a "bookeeping profit."

While it is premature to assess with certainty what is going on, most economists seem to agree that the US economy is at a standstill, if not heading into a recession, with a rebound not expected until later this year and possibly 1982. This may sound worrisome, but it suggests that the Reagan administration's overall economic program fits the current circumstances -- with the exception of the lack of a rudimental incomes policy. For the American people, the task will be to bear the present economic adjustments with as much patience as possible, while urging the administration to stick to its policy of lowering inflation and spurring growth.

The administration's economic program, it might be recalled, is essentially fourfold, consisting of fiscal restraint (the budget cut program); across-the-board tax cuts (designed to spur savings and productivity); monetary control (to lower the rate of increase in the money supply); and regulatory reform (to enable businesses to be more efficient). The administration has a particular responsibility in the weeks and months ahead to remain firm in its call for monetary restraint. That seems to be the intent, if the words of Commerce Secretary Malcolm Baldridge are an indication. the main goal, he said, "must be to win the inflation fight; until this goal is achieved, sustainable growth, rather than the pogo stick path of recent years, simply is impossible."

We agree with Fed chairman Paul Volcker that curbing inflation will require persistent restraint: "An attempt to escape from high interest rates and strains on financial markets and institutions by abandoning that restraint would be self-defeating."

What must not be overlooked in the current debate over tight money and high interest rates is that in past years the Fed has invariably backed away from its own money-tightening policies. In each case the subsequent new round of inflation began from a level higher than that which existed before. The US now has a remarkable opportunity finally to curb the terrible double-digit inflation that has distorted economic conditions -- and individual expectations -- for so many years.

That does not mean, however, that the administration should be indifferent to the adverse impact of high interest rates and the lack of available credit for smaller and medium-sized businesses. One way of addressing this point is by insisting on a merger policy that discourages questionable takeovers, with the firms involved often tying up billins of dollars in bank credit lines to effect the takeowners -- credit that might otherwise go to hard-pressed businesses seeking to expand product lines or meet payrolls.

At the same time, the administration will have to be particularly alert to the magnitude of the slowdown -- or recession, if it proves to be such. This is where the managerial ability of the Reagan team -- with its close links to the US business community -- becomes crucial. And this also makes a strong case for the multiyear tax cut now being debated in Washington.

Congress and the administration must refrain from turning a productivity-oriented tax approach geared to the growth of the US economy into a business-as-usual giveaway of tax breaks to special interests.

Steady as you go, but with a wary eye on the severity of the slowdown -- this seems to be the necessary but somewhat painful course for the m oment.