Americans peer darkly into '85; from abroad US travels a bright road
It would be nice, in a column on the last day of the year, to announce where the economy is going in the new year. Along, of course, with interest rates, inflation, and the value of the dollar. To give full value, as it were.
That would be an easier assignment if one knew exactly where the United States economy is at this moment. This past year has not been an easy one to follow, let alone forecast.
In the first half of 1984, business expanded at an unsustainable pace of over 8 percent. Interest rates rose more than forecast, so that at midyear the economists were all over themselves forecasting where rates might be by year-end. And then, instead of rising further, rates began to fall. The pell-mell pace of the economy slipped back. The slippage was at first comforting , until it began to look as if it might lead to recession by 1985.
Let us assume for a moment that the economy grew each quarter at its average for the year - about 6 percent. This is still well above its ability to grow on a long-term basis. But if the growth had been even, it would have been easier to write on Dec. 31 that the expansion was aging, that growth would be less than 6 percent in 1985, but that the recovery would probably continue for at least another year.
And that is what I am tempted to say. It is the closest a weekly observer can come to what is likely to happen. The banner growth of the first half of the year was paid for, in a sense, by rising interest rates which caused the second-half slowdown. Now all the horses pulling the economic carriage are more or less in a row again, and the recovery can continue.
Why say ''tempted?'' Only because there is so much going on that defies explanation. The federal deficit has not yet been tackled, although a new Congress will test its mettle in just a few weeks. The dollar is still overpriced, which means imports are too high and some domestic jobs are lost. But there's an opposite side to that - the high dollar has at least helped start the recovery in some other countries, and that is necessary to pull the world out of the slump it's been in since 1979.
Perhaps the views of economists are too narrowly focused. In its year-end survey, The Economist (London) listed major world events of 1984. And first among them was ''the rediscovery of American resilience.'' In an essay that would make all but a chauvinist's ears burn, it argues that ''Reaganism has added political ideas to the cultural ones with which America influences the world.'' Saying that much of the world misses the political debate going on because it isn't staged ''in terms of stale nineteenth-century concepts such as class,'' The Economist notes: ''Today's important political thinking is about the freeing of markets and individuals from the authority of the state in an age of technological change. The most interesting ideas on these subjects are being developed in the United States.''
This could be one clue to the dollar's reaching new highs almost daily. Preston Martin, the Federal Reserve Board's vice-chairman, noted in a television interview last week that short-term interest rates are 3 percent lower than last summer and the dollar at least as high as it was. So much for those who said only high interest rates were attracting money to America. It's also some combination, he claimed, of feeling that this is where the growth will be greatest, that this is a safe political haven, and so on.
Broadly speaking, what The Economist is implying is that this administration has made the correct turns. Everything has not come up roses. But in a world going through a decade of major economic adjustment, other things being equal, the prize goes to that nation whose laws do not act as impediments to necessary economic change. And that says a lot about the US in 1985.
