US economic dip dims outlook for balanced budget

Americans appear to have lost their chance at balancing the budget for the first time in 12 years, although President Carter still pays lip service to the concept.

With unemployment rising swiftly and recession deepening over the land, federal tax revenues will shrink and spending will grow.

A fiscal 1981 deficit of $40 billion is foreseen by Rep. Barber B. Conable Jr. (r) of New York, instead of the surplus budget which Mr. Carter hopefully projected.

Most of this shortfall, Mr. Conable says, will result simply from recession, even if the President and Congress withstand pressure to spend extra money to create jobs.

"The April unemployment increase alone [from 6.2 to 7 percent] would reduce tax receipts by $16 billion over the year," says AFL-CIO president Lane Kirkland , "thus highlighting the folly of trying to balance the budget in the midst of a recession."

added to this tax loss is at least $1.6 billion in extra unemployment compensation and related welfare payments that the US Treasury, under law, must pay out.

All analysts agree that the jobless rate will continue to climb, reaching 8 percent -- and possibly more -- by the end of this year or early 1981.

During the recession of November 1973-March 1975 -- worst of the postwar years -- unemployment soared to 9 percent before beginning to decline.

Inflation now is much higher than it was during the 1973-75 period, leaving the US in the worst of both worlds, as Alfred E. Kahn, chairman of the Council on Wage and Price Stability, puts it: high inflation, coupled with recession.

Debate now centers on whether the current recession will rival that of 1973- 75, which was occasioned largely by the "oil shock" engendered by the oil cartel's 400 percent jump in oil prices.

"I see nothing to cushion the free fall of the economy" into a recession deeper and longer than the "short and mild" downturn predicted by the President, says a highly respected private analyst.

Mr. Carter's chief economic advisers, meanwhile, are caught in a painful bind. Their instincts and knowledge tell them the recession will be sharper than the President admits.

Yet their public rhetoric must follow that of Mr. Carter. They cannot go further than their chief in describing the economic state.

All this puts enormous political pressure on both Congress and Mr. Carter to commit funds to alleviate growing distress among Americans hardest hit by recession.

"In Detroit," said Rep. Guy Vander Jagt (R) of Michigan, "There is 35 percent unemployment among auto workers; 55 percent of young blacks are jobless; and 700 policemen have been laid off."

Detroit is where Republicans will meet in July to nominate their presidential candidate and to tell Americans what they can expect from Republican leadership.

Pressure to stimulate the economy or to reduce taxes, in other words, cuts across political lines and affects Democrats and Republicans alike.

On the Democratic side, Sen. Edward M. Kennedy (D) of Massachusetts demands higher spending to help the poor, jobless, and disadvantaged.

Until recently, this appeal appeared to fall on relatively deaf ears among middle-class Americans, alarmed by inflation. Prices remain high, but -- with more Americans losing their jobs -- Senator Kennedy's economic policy may strike more responsive chords.

"Currency markets," warns Bruce K. MacLaury, president of the Brookings Institution, "will not give the President the luxury" of stimulating the economy too much.

Pump-priming the economy, he said, would give foreign investors a signal that the US fight against inflation had been downgraded, prompting them to flee from the dollar into other currencies.

A weak dollar, in turn, would force the Federal Reserve Board to jack up interest rates to attract investors and to give a counter signal that the US central bank, at least, was determined to curb inflation.