Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, February 13, 1991                   TAG: 9102130052
SECTION: BUSINESS                    PAGE: B-5   EDITION: METRO 
SOURCE: The New York Times
DATELINE: WASHINGTON                                LENGTH: Medium

BUSH DELIVERS ROSY FORECAST/ REPORT TO CONGRESS: IT WON'T HURT LONG

"This temporary interruption in America's economic growth does not signal a decline in the basic long-term vitality of the U.S. economy," the president asserted in his annual Economic Report to Congress.

The fuller presentation by the Council of Economic Advisers that accompanied the report carried the thought a step further: "With sound economic policies in place, there is no fundamental obstacle to an expansion in the 1990s at least as long and strong as the record expansion of the 1980s."

The advisers listed several reasons for the recession to be "mild and brief by historical standards," as Bush put it, and thus not to warrant bold anti-recession measures.

Most companies, the advisers said, have low inventories, limiting the need to cut production to work off excess stocks; the low value of the dollar and the strong economies in Germany and Japan are expected to keep exports strong; oil prices have come down in recent weeks, and the Federal Reserve has inflation in check and so is free to ease monetary policy.

The advisers gave little emphasis to what they called "the downside risk" that the scarcity of credit would continue into 1991 and restrict the recovery.

The administration forecast that the recovery would begin by summer, that the economy would grow by nine-tenths of 1 percent this year and 3.6 percent next year, and that the unemployment rate would average 6.7 percent this year. That forecast is similar to the projections of the Congressional Budget Office and the prevailing view of private economists.

But the favorable assessment did not sit well with many Democrats in Congress who have been hearing from their constituents of the pain the recession is causing.

At a hearing Tuesday of the Congressional Joint Economic Committee, Sen. Paul Sarbanes, D-Md., who heads the committee, told Michael Boskin, chairman of the Council of Economic Advisers: "The difficulty I'm having is the almost sanguine attitude about the unemployment situation."

Boskin, an economist on leave from Stanford University, was primarily responsible for preparing Tuesday's reports. He was joined at the hearing by the other two members of the council: John B. Taylor, also of Stanford, and Richard Schmalensee of the Massachusetts Institute of Technology.

In their report and again at the hearing, they said the recession was brought on by the rise in oil prices following Iraq's invasion of Kuwait and consumers' uneasiness as a result of the invasion and the slowdown in bank lending.

They also faulted the tight monetary policy of the Federal Reserve Board as the economy weakened in the first half of last year.

Pressed in an interview about how much blame he was casting on the Fed, Boskin praised the central bank for containing inflation and for moving strongly in the past three months to drive interest rates down.

But "with the benefit of hindsight, they might have been a bit too restrictive," he said.

That is in contrast to the opinion of Alan Greenspan, the Fed chairman, who said in an interview two weeks ago that even if he could go back and start over, he would not change monetary policy.

At the congressional hearing, Boskin was asked by Rep. Lee Hamilton, D-Ind., whether the administration or Congress could have taken steps or avoided pitfalls to avert the recession. Boskin replied that he could not think of any, with the possible exception of recognizing the severity of the scarcity of credit a few months earlier.

A chapter in the reports devoted to energy policy minimizes the likelihood of serious effects from a steep rise in oil prices and says the government should not intervene with price regulation or higher taxes.

In some respects, the reports are noteworthy for topics that are not discussed. While the economic effects of Iraq's invasion of Kuwait in August are fully documented, there is no mention of the potential economic impact of the war itself, which began last month.