Euphoria Ends

A cooler view of Reaganomics

Every spring and fall, the chief executives of some 50 of America's largest corporations get together without fanfare for a quiet weekend meeting of the Business Council at the posh Homestead resort in Hot Springs, Va. The agenda includes tennis, golf, business discussions and briefings from top Government officials behind closed doors. TIME National Economic Correspondent David Beckwith attended last weekend's session and filed this report:

The mood of the executives was dramatically changed from a year ago, when Business Council members were rhapsodizing, without a word of skepticism, about the remarkable prosperity that would inevitably follow congressional approval of President Reagan's economic program. The basic faith in the long-term benefits of Reaganomics remains unshaken, but the attempts by businessmen to find encouraging signs in the current recession are sometimes strained. No executive flatly predicted a roaring recovery any time soon, and the informal moratorium on criticism of the President's program is clearly over.

Although the consensus report of 20 corporate economists was that the downturn would end within a month, few businessmen seem convinced. Said J. Paul Lyet, chairman of Sperry: "I don't think the situation will pick up until the fourth quarter, if then." Added Reginald Jones, the retired chairman of General Electric: "We won't see any serious recovery until the emotional and psychological gridlock over the federal deficit is broken."

Last fall Treasury Secretary Donald Regan pleaded with this group to show support for Reaganomics by undertaking major capital spending on new plant and equipment. There was no appreciable response. Capital spending is flat at best, despite the $152.8 billion business tax cut Congress passed last year. These executives expect little change soon. Said AT&T Chairman Charles Brown: "Tremendous plant capacity is lying unused now. It'll be a long time before anybody expands again." Added T.A. Wilson, chairman of Boeing: "We're betting on the downside. If we bet on a fast recovery and it didn't happen, we could be in real trouble." Even Walter Wriston, the eternally optimistic head of the Business Council and chairman of New York's Citibank, tempered his upbeat remarks with ominous words: "We've had some big bankruptcies already, and I think there'll be more."

Some of the greatest concern was over the continued budget deadlock, and the executives had some surprising bits of advice for solving the problem. David Packard of Hewlett-Packard, a former Deputy Secretary of Defense whose company derives 15% of its revenues from defense work, called on the President to reduce his military budget by up to $10 billion. "Those battleship expenditures don't seem very wise. I think the South Atlantic fiasco proves that ships aren't safe from missile attack," said Packard. "I'd also recommend skipping the B-l bomber and going directly to the Stealth bomber." Agreed Jones: "There's a real question of whether we can intelligently spend that much money that fast."

Jones also had a novel idea on taxes, which he said would be worth $3.7 billion in added revenue. He proposed withholding the 10% tax cut in 1983 for anyone who benefited from last year's reduction in the top rate on unearned income from 70% to 50%. Said Jones: "The Democrats are looking for a way to hit the fat cats. That would make them very happy and could lead to a budget compromise."

Despite their short-term pessimism, the executives were still confident about the long run. They are particularly encouraged by what they see as permanent progress in fighting inflation. Said Clifton Garvin Jr., chairman of Exxon: "We're paying a price, but we'll come out of the recession with our economic structure in better shape." Ruben Mettler, chairman of TRW Inc., was equally optimistic. Said he: "I'm encouraged by the realism taking hold. We'll recover from this recession and be stronger for it."

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