Wrinkle That Brow

By WILLIAM SAFIRE

WASHINGTON

Worried about having nothing new to worry about? Upset that Baghdad turned out to be a cakewalk and SARS didn't lay everybody low? Relax; I've got three piping-hot economic worries to satisfy our lust for fresh anxiety.

First, deflation, which is more newsworthy than the other two possibilities, inflation and stagnation, because few brokers alive today sold apples on Wall Street for a nickel.

This much-needed nail-nibbler was offered by the Federal Reserve last week as it held out "the probability of an unwelcome substantial fall in inflation," adding with characteristic pusillanimity, "though minor."

Deflation occurs when too few customers chase too many goods, which drops prices and profits, causing more layoffs and less ability for workers to buy, lowering prices even more and encouraging consumers to wait until everything costs nothing (except college tuition, which will charge a bundle for a course in "deflationary expectations").

Is this a worthy worry? Not only is unemployment rising as wholesale prices decline, but Time magazine's cover warns that "Paychecks are shrinking for millions of Americans." Newsweek's Robert Samuelson, who rightly warned about the 90's bubble, urges us this week to heed the lesson of Japan, drooping for a decade because "its countermeasures were too little, too late." Surely deflation, generating its sinking feeling, deserves a place on America's A-list of angst.

Second, to paraphrase Henny Penny — the dollar is falling! Americans are proud of "the strong dollar," assuming that means a strong economy. But the dollar has been nosediving against the euro, which means the average out-of-work or raiseless American worker will be hard put to afford a bottle of French perfume.

Can you imagine a politician saying "I'm for a weak dollar"? It is the whimper of a wimp, and when Treasury Secretary John Snow failed to make the usual strong-dollar noises for a brief but memorable moment last week, President Bush's top money man was roundly castigated by every stouthearted jingo journalist. As importers blanched, Andrew Jackson's face on the new $20 bill turned the color of peach.

Deflation together with dollar-in-the-dumps may unnerve our troubadours of trouble, but the worrywart's most worrisome worry is that the federal budget deficit will grow more humongous as far as the eye can see.

We're told that the president's tax cuts will raise the crimson tide of ink by some $650 billion in the next decade, assuming that no other Congress or president is elected in the meantime. According to no fewer than nine White House aspirants, this plunge into profligacy will result in a multi-trillion-dollar overhang that will bankrupt government services, strip away our security and impoverish our grandchildren — surely cause for prudent pessimists to furrow their brows.

The reader is cautioned not to indulge in all three worries at once. Beware their interaction, for each diminishes the baneful effect of the others.

Deflation? In an economy that employs most workers in services, salaries would buy more. Modest deflation for a time is better for the burger-flipper than the executive. As Jodie Allen observes in U.S. News & World Report, fear of falling prices induces the Fed to keep interest rates very low. That makes home ownership more affordable.

A weak dollar? That means that the goods we export cost foreigners less, helping U.S. manufacturers sell products abroad. At the same time, it raises the price of imports, encouraging consumers here to buy American, creating more U.S. jobs. Although some foreign investors sell greenbacks (or peachbacks) as the dollar drops, most hold their U.S. stocks and bonds because we're the safest investment climate in the world.

That horrendous deficit? To avert long-term deflation, and to increase the demand that helps coax the business cycle upward, we belong in the red for now. Comes the animal-spirited upturn, company profits and personal incomes will rise and greater tax revenues based on lower rates will flow to Washington and statehouses. That will turn deflation to inflation, strengthen the dollar, balance budgets and cause interest rates to rise again.

Economic worrywarts face the grim need to cheer up. As long as we learn to deal with the right mix of worries, we hardly have a worry in the world.