The Reflections of a Policy

The most virulent inflation in peacetime American history has subsided during the 20 months that Ronald Reagan has been President, but the economy has also endured a severe recession and high rates of unemployment. The record of the Administration is thus a mixture of pluses and minuses. The main business indicators under Reaganomics:

Inflation. Runaway costs that were sapping the vitality of the economy now seem safely under control. The Labor Department reported last week that the Consumer Price Index rose at an annual rate of just 7.3% in July, and a mere 5.4% for the first seven months of 1982. Inflation had been raging at a rate of 12.4% in 1980, and it was going at an annual pace of 9.7% in January 1981, the month Reagan was inaugurated. The drop since then has been caused by a sharp slowdown in wage hikes, due to the recession, and by only moderate increases and even some declines in the cost of food, fuel, housing and other key consumer items. Many economists expect inflation to remain at 5% to 6% for the rest of the year.

Unemployment. The price of progress against inflation has been near record levels of joblessness. Unemployment stood at 7.4% in January 1981. The rate has risen sharply since then and reached 9.8% in July, the highest point since 1941. Unemployment is likely to continue growing for several more months, because employers are generally slow to lay off workers when business turns down and are equally cautious about rehiring them when the outlook improves.

Growth. The economy now seems to be emerging slowly from the sharp recession. G.N.P. plunged 5.3% in the fourth quarter of 1981 and 5.1% in the first quarter of 1982 before rising a meager 1.3% in the second quarter. Private economists generally expect business activity to remain flat or to grow a modest 3% for the rest of the year.

Interest Rates. The benchmark prime rate charged by banks stood at 20% in January 1981 and averaged 18.87% for the entire year. The prime began dropping rapidly in July, and now stands at 13.5%, its lowest level since September 1980. Other borrowing costs are also receding. The interest on Government-insured home mortgages slid to 14% last week, from a high of 18% in September 1981. Falling rates should spur consumer purchases of big-ticket items and boost business investments. But many economists caution, that interest levels are unlikely to fall much further. The cost of borrowing might even increase slightly if business starts picking up later in the year.

One of the most memorable statements during the 1980 presidential campaign was Ronald Reagan's question to the voters: "Are you better off than you were four years ago?" When Democrats this election year ask a similar question, many Americans are likely to answer, "Yes and no."

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