BATTLE BEHIND THE BUDGET BATTLE

Is Red Ink a Tonic or a Poison?

Behind Washington's Battle of the Budget is a battle of economic theories. Its outcome may be more important than the outcome of Capitol Hill's political give-and-take over spending, for the theories of today are the policies of tomorrow—and the day after that. Central question before the debaters: Does the Administration's fight for a balanced budget—with its stand against chronic price up-creep—help or hinder economic growth?

THE most critical economic problem facing the U.S. is the failure to achieve the necessary economic growth," declares the A.F.L.-C.I.O. Economic Policy Committee, chaired by United Auto Workers President Walter Reuther. Necessary for what? For "improved living standards" and "defense and military requirements" and "the social needs of an ever enlarging population." The Administration's stress on price stability, charges the statement, is a "surefire prescription for stagnation."

The A.F.L.-C.I.O. argument, underwritten by some of the U.S.'s top economists, makes it appear that the issue is "growth" v. "stability." A report this week by the Congressional Joint Economic Committee, chaired by Illinois' Democratic Senator Paul Douglas, falls into the same pattern: "Some stress price stability at the expense of substantially full employment and adequate growth." Following ex-Economics Professor Douglas' bent, the Democratic majority holds that policies to promote "vigorous expansion of the economy should not be unduly deterred by the possibility of future inflation."

But growth and stability, says President Eisenhower, are "not two different problems . . . I believe that economic growth in the long run cannot be soundly brought about except with stability in your price structure." And the Joint Economic Committee's minority report, signed by the six Republicans on the committee, backs up the President. Fostering price stability, it says, "is not an alternative objective to a high rate of economic growth. On the contrary, it is a basic requirement for continuing growth."

So the argument is not whether economic growth is a good thing—both sides agree that it is—but how it can best be brought about.

Among advocates of more federal spending, the figure 5% has become a sort of magic number of yearly economic growth. "Our economy," says Walter Reuther, "should be expanding, at the very least, at a rate of 5% a year." Average yearly rate since the 1870s: 3%. In their swelling stack of pamphlets, proponents of 5%-a-year growth do not argue the realism of their goal in hard economic terms. As authority for it, they point out that last spring a Rockefeller Brothers Fund panel, sprinkled with big businessmen, urged a 5% growth rate.