For months, American economists saw the storm clouds gathering, but in the euphoria of a bullish stock market, the 1986 tax re form and relatively sustained consumer spending, neither the public nor politicians paid much heed. Then came the stock market meltdown. Suddenly, not only the nation but the world's attention has been focused.
Earlier this year, The Times began surveying 24 leading economists on the state of the U.S. and world economies (please see list of respondents on Page 2). Here are some of the findings:
--They generally agreed that, given economic prospects, stocks were overvalued and the market was being driven by speculative activity. The downturn, therefore, was not surprising. Early this summer Allen Sinai warned that investors were becoming increasingly leery of pouring money into a nation with runaway debts: "This is how investors vote with their feet. That kind of sentiment to me is a very strong signal and a very strong warning for this country for the future if we don't get our house in order and that involves the twin deficits (budget and trade). "
--Most of the economists felt a day of reckoning for Reaganomics was fast approaching but thought the White House would be able to postpone it until after the 1988 election. "They don't give a damn about the deficits," said James Tobin.
--Some economists expected the trade deficit to have showed marked improvement by this time and are disappointed that it has not. Now, indications are that deficit reduction will be a long and painful process. Last month Rudolph G. Penner, director of the Congressional Budget Office until March, 1987, told an audience of congressional staffers: "Every month I have forecast that next month's trade figures would be better and each month I have had to think up a new excuse why they haven't been. I have run out of excuses."
--The dollar will need to decline another 20% to 30% against foreign currencies before the United States regains its competitive place in world markets. "More nearly 30% because we made these stupid mistakes of (the last) five years," said Rudiger Dornbusch.
--The continuing trade deficit will generate additional pressure for protectionist legislation, and there is near-unanimity that a trade bill like the one now pending in Congress would be an invitation to disaster.
--The Reagan Administration will bequeath a legacy of an additional $1.7 trillion in debt: about $1 trillion of national debt and $700 billion owed to foreigners on the cumulative trade deficit. Penner calls it "fiscal child abuse" because of the burden it places on future generations.
--A recession can be expected sometime between 1988 and 1990. Most of the economists do not not think it will be a severe one, but because of the deficits and our newly developed dependence on foreign funds, the freedom of U.S. institutions to respond will be hampered severely and America will be in uncharted waters.
--Because of the high loads of corporate and consumer debt, even a moderate recession could produce a flood of bankruptcies. Many financial institutions are already in serious trouble. According to Andrew F. Brimmer, "We expect to see a substantial number of savings and loans now technically in default coming down." And David Gordon said: "The consequences of the triple deficits--federal, trade and overborrowing--will not be resolved through some magnificent, cushioned 'soft landing.' I foresee . . . several crash landings over the next five years or so."
--Yet economists may also be optimists. Over the long run there is a general belief that the U.S. economy will emerge in good shape once it weathers Reaganomics. "Granted the stupidity of the budget policy to begin with," said Charles L. Schultze, "it makes for a more exciting life. If you look at the amounts involved we will end up with--who the hell knows?--owing net $700 billion abroad, the real interest rate on that, let's say, is $28 billion a year . . . it's throwing it away in some sense and it's bad and I'm all agin' it but it ain't a catastrophe."
What is clear is the development of a new global economic order of national interdependence, with the United States still a fulcrum, albeit of diminished power after the policies of the past six years. The chain of events leading America to its current plight probably began eight years ago, in October, 1979.