Grim news on deficit

[WORDS MISSING HERE] small percentage of profit over their equally staggering costs. Well Mr Reagan promised that one of the first things he'd to would be to decontrol the price of crude oil which, of course, would mean that the lid would be off the price the companies could then charge the consumer.

No sooner had the president lifted the controls than three of the biggest oil companies announced new increases both for heating oil and for petrol and it took just one week for heating oil to increase by about eight per cent to you and me.

In November, the price to the home buyer was 94 cents a gallon. The expert guess is that by the end of the winter – what the cooler analysts call the heating season – it will have gone to $1.40. That's what, about a 55 per cent increase. On Long Island, the head of a consumer groups sent a telegram to the president asking him to declare Long Island a disaster area which is not so much a bit of rhetoric as a technical term entitling any region so defined to federal funds for help. Of course, if the president went round labelling every part of the country feeling the pinch a disaster area, that would defeat the whole idea – the idea, in the long run, of having prices go down as the oil companies find new sources and drill more oil.

Incidentally, a great deal of the president's economic theory is based on blessings to come in the long run. Unfortunately, in the heat of the presidential campaign, a candidate – any and every candidate – has to polish up the apple to make it look like something tempting and gorgeous that you can eat the day after inauguration.

In fact, the president is now running into the same sort of trouble that Mrs Thatcher ran into, which is that of having to say, 'You may have misunderstood me while I was running for your vote. You may have thought that once we got in, inflation would scream to a halt and then begin to go in reverse, that prices would come tumbling. Well, no. I'm... I'm sorry if you got it wrong, but it's going to take a long time and, short of blood and tears, a lot of hard work and patience and sacrifice.'

I think that anyone who's been a president-watcher for a decade or two expected Mr Reagan to say this about six months from now, but he and his Cabinet officers and his economic advisers are saying it at the end of two weeks. The most important man in the House of Representatives to the Reagan team is the chairman of the committee that passes on all money bills. He is the chairman of the House Ways and Means Committee and he said this week, 'People are expecting a great deal more than the president or this Congress will be willing to do. Everybody expects inflation to just gradually disappear. It's not going to happen that way.'

It certainly isn't. Since the election, I haven't run into anybody in the know, a politician, an economist, a Republican of any stripe, who believes for a minute that inflation will go down in the foreseeable future. They will regard inflation as having been conquered if we can hold it at the present rate of growth. That phrase 'rate of growth' is something you don't hear on the lips of ordinary people. If you have a government in power and the annual growth rate of inflation is, say, 15 per cent and then another government comes in and the growth rate goes to ten per cent, the new boys expect a pat on the back for bringing inflation down but the price of things is still 25 per cent higher than it was two years ago.

I have on my shelves a guide to London restaurants printed only eight years ago, 1972. Under a dazzle of four stars, there's listed a famous restaurant then, as now, one of the most expensive in the country. It says table d'hôte dinner from £2.30p and adds the note, 'one of the finest meals in London'. But so they should be at these prices. Today, I believe the dinner costs between £20 and £24 and, if it stays there two years from now, certainly the government in being would be justified in saying it had whipped inflation.

I have a friend who's a Republican and an old investment man and a tenacious analyst of inflation who says that if the new administration could hold the line on the federal deficit, it would be a miracle. He says, only half joking, 'I hope to live long enough to be able to tell my grandchildren, "Why! I remember the time when you could get a decent hamburger for $20"!'

Well, since nobody of any school of economists, any political party, has been able to check the relentless growth of inflation, we've got used to it as one of the humdrum pains of daily living, like death and taxes. But now we have in this country an administration that came in proclaiming in triumph on every husting that 'it' had the answer. It would cut taxes both to business and to people by ten per cent a year for the next three years and, simultaneously, it would cut so much fat off the budget that, at last, it would be balanced. And by 1983, at the latest, peace and prosperity, if not the millennium, would be assured.

So now what? Well, the other day the president called into the White House some of the top reporters from four or five of the biggest newspapers to sit around and fire away at him. Almost at once he was asked, 'Mr President, you seem to be dampening hopes that you can put a quick fix on the economy but didn't you, yourself, during the campaign raise these hopes?' To which Mr Reagan replied, 'Well, yes, but our plan envisions balancing the budget by 1983 and one of the things that I have not retreated from is the 1983 figure. Now that's hardly a quick fix. But I'm not as optimistic about advancing it beyond that because since I introduced that economic plan, there's been a drastic change in the size of the budget and in the estimate of revenues.'

I step in here to remind you that the budget for 1981/2 was, of course, devised by the Carter administration and so was the estimate of the revenues the Treasury would take in. What Mr Reagan is saying is 'We had no idea what a mess we'd inherited'.

He went on, 'The previous administration was talking about roughly a 600 or 605 billion dollar budget and they had an estimate, a pretty good estimate, of what revenues were going to be. Now, before they left, we suddenly found ourselves with a vastly increased budget and, at the same time, a decreased estimate in what revenues are going to be. So we thought our cuts in the economy would be two per cent and we're still aiming at that, but it will not be as big. We thought the deficit was only going to be, maybe, 25 billions, but it's now going to be in the neighbourhood of 60 billions.'

Well, this is not the sort of talk that the voters analyse and argue over in the evenings but it is grim news for any administration, especially for one that promised so passionately and rousingly to put the auto workers back to work, to give the farmers healthier subsidies, to quicken productivity, to renew the cities, to cut our taxes and balance the budget.

Faced with the awful shock of a budget deficit more than twice what he'd been banking on, the president went up to Capitol Hill on Wednesday to try and woo influential senators and congressmen and he staggered them. You have to give him marks for bravery. He staggered them by asking for a $50 billion increase in the federal debt. A caucus of Senate Democrats told him they wouldn't support him.

Next day, we got the bad news about where he means to make the cuts in the budget. If, during the campaign he'd identified these parts of the body politic that he meant to slice away, I think he would have been beaten in a landslide. He's going to cut meals for schoolchildren, job training programmes for the unemployed, compensation for laid-off workers, federal grants to cities for rehabilitating their slums, benefits to the old, the blind, the disabled and – unkindest cut of all for the poor – a 25 per cent reduction in food stamps.

True, he's also going to cancel a space programme that had meant to poke around Jupiter, put an end to social security payments to students whose parents are dead or retired, a 50 per cent cut in the federal subsidy for the arts and the humanities, a 25 per cent cut in the federal grant to the public – that is the non-commercial – broadcasting network. This sounds like the perfect cue for, let us say, Senator Kennedy, to announce his next angry run for the presidency in 1984, for it sounds like the doom and gloom that he warned everybody was coming if Mr Reagan went into the White House.

There's one thought, however, that should be mentioned which might give pause to the general weeping and wailing you're going to hear from the cities. This is not a parliamentary form of government. The president is no prime minister who says, 'We shall do this' and then do it. If he has a food stamp programme, Congress will get out another. If he says, 'Cut taxes by ten per cent this year!' the House Ways and Means Committee can say, 'Whoa dobbin! We'll let you have five!'.

These bold proclamations are proposals, begging proposals, put to Congress and, in the American system, the president proposes but Congress, not God, disposes.

This transcript was typed from a recording of the original BBC broadcast (© BBC) and not copied from an original script. Because of the risk of mishearing, the BBC cannot vouch for its complete accuracy.

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