Eckstein Calls for Reduction of Deficit

In a report presented to government officials earlier this week. Warburg Professor of Economics Otto Eckstein blamed American industrial woes on the high cost of capital and the strength of the U.S. dollar.

In a series of meetings with Congressmen and Administration staffers. Eckstein also called for a reduction of the federal budget deficit and a more aggressive foreign trade policy to revive faltering manufacturing industries.

The study to be released as a book in March, comes after more than a year of research by Eckstein's Lexington consulting firm, Data Resources Inc. Nine major corporations sponsored the study- AT&T, BEthleham Steel, Burlington Industries, DuPont, Eastman Kodak, Ford, Goodyear, John Deere, and Texaco.

A Reagan ADministration official said yesterday that White House personnel would be studying Eckstein;s report.

Geoffrey Carlmer '65, spokesman for the President's Council of Economics Advisers (CEA), said that President Reagan would consider tax increase options along with budget cuts as means of reducing the deficit.

High interest rates and recurring recession over the past few decades have prevented managers from making long-range capital decisions, Eckstein stated. He explained that manufacturing industries such as steel have been unable to undertake the major capital overhaul their markets demand.

While U.S. businesses confront 18 percent interest rates, their Japanese competitors can finance capital for only 8 percent, Eckstein, added.

A high exchange rate on the dollar has compounded the problem, making it easier for foreign imports to under well American products at home and more difficult for U.S. manufacturers to compete abroad, he said.

"We're being displaced all over the world and we're being displaced in our own country by foreign powers," Eckstein stated.

"If everyone else is not playing by the same rules, free trade policy by the U.S. is not optimal," added Christopher Caton, vice-president of Data Resources.

Caton said that restrictions on foreign imports could help remedy the trade imbalance. He also called for a reduction of the federal deficit to lower interest rates and weaken the dollar.

In the report, Eckstein urged the government to shape macro-economic policy with attention to broad manufacturing interests.

Past Policies to manufacturers have been "percentile and hoc,"Caton said, citing measure to bail out the floundering Chrysler Corporation. "That approach is like sticking Bandai's on a lackey life boat," he said.

"Eckstein's recommendations are not altogether new," Carliner said, adding, "ICEA Chairman and Professor of Economics Martin S.I. Feldstein'61 has been saying the same thing about the budget deficit and the value of the dollar."

And despite recent indications of Presidential disfavor of Feldstein, Carliner remarked. "His ideas seem to be winning out."