Day of Reckoning: The Consequences of American Economic Policy Under Reagan and After.

Day of Reckoning: The Consequences of American Economic Policy Under Reagan and After. Benjamin M. Friedman. Random House, $19.95. On Borrowed Time: How the Growth in Entitlements Spending Threatens America's Future. Peter G. Peterson, Neil Howe. ICS Press, $24.75. Rendezvous with Reality: The American Economy after Reagan. Murray Weidenbaum. Basic Books, $19.95. It's no surprise that many Americans have given up worrying about budget deficits. After all, the economic Cassandras who warned of their dire effects in the early 1980s turned out to be dismally wrong.

In 1981, for instance, a host of economists told us that deficits cause inflation. The following year, inflation collapsed, despite the biggest deficit in American history. Then in 1982 they told us deficits would stifle the expansion. Within months, the economy began its recovery at a spectacular pace. Ever agile, the prophets of budget doom argued deficits would cause the economy to overheat and quickly lead to another recession. Today, almost six years into the longest peacetime expansion on record, that warning also rings hollow. Most Americans may still believe that deficits matter, but they've lost all faith in the economics profession to tell them how.

That's too bad. Because finally, a consensus has emerged among mainstream economists that provides a convincing view of the deficit's dangers. The new story is more modest than before, and therefore more credible. Its basic point is this: Budget deficits may or may not lead to inflation or recession. But deficits certainly lead to debt. And sooner or later, one way or another, debt must be repaid.

The consensus is reflected in three new books by prominent economists, each of whom comes from a different point on the political spectrum. Benjamin Friedman, a Harvard professor, is relentlessly anti-Reagan. Peter Peterson, investment banker and former Nixon administration official, attempts to hold himself above partisan politics and parcels out blame to Reagan and his rivals alike. And Murray Weidenbaum, former chief economic adviser to President Reagan, does his part to defend his former boss. But all three adopt a common theme whose nature is readily apparent in their foreboding titles: Day of Reckoning, On Borrowed Time, and Rendezvous with Reality'.

Friedman's Day of Reckoning is especially unforgiving in its critique of Reagan's policies. Those policies were not just wrong, in Friedman's view; they "violated the basic moral principle that bound each generation of Americans to the next since the founding of the republic: that men and women should work and eat, earn and spend, both privately and collectively, so that their children and their children's children would inherit a better world."

But there is more to this book than indignation. Friedman has a story to tell, and he tells it convincingly, with numbers to back it up. Enormous budget deficits have soaked up most of the nation's pool of savings, he argues, leaving little for private businesses that wish to invest. Starved for savings, the nation has been forced to borrow from abroad.

The reader may ask: Didn't the U.S. accumulate foreign debt throughout its industrial development in the late 1800s? True enough, Friedman responds. But the money was invested in plants and equipment that increased the nation's ability to produce, grow, and pay off its debts. The level of investment in the 1980s, on the other hand, has "fallen beneath that of any previous sustained period since World War II." The results:

> American standards of living will stagnate, as the nation is forced to divert more and more of its resources to servicing foreign debt. "We are not borrowing against the future earning power of our new industries, for there are none," Friedman says "We are simply mortgaging our future living standard."

> Foreign ownership of U.S. businesses and U.S. real estate willcontinue to rise rapidly "Like a family that owns a house and a car, and some stocks too," the U.S. "can keep excess consumption going longer by selling these assets off one by one," Friedman says. But "becoming a nation of tenants rather than owners will jar sharply against our traditional selfperception."

> U.S. power in the world will decline. "World power and influence have historically accrued to creditor countries," he writes. America's slump into debtor status "cannot help but alter America's international role."

Friedman's vision of the future may be unduly apocalyptic, and he overlooks the fact that under Reagan both innation and unemployment were reduced-something the president's critics thought would be impossible.

Nevertheless, the core of Friedman's argument, if not his conclusions and his searing tone, is largely shared by Peterson and Weidenbaum as well. They don't give Reagan all the blame, but they raise the same troublesome questions about the nation's commitment to its future.

But while these three men agree on the problem, they disagree over the solution. The budget deficit must be eliminated, but how?

Friedman says taxes. "It is increasingly clear that Americans want the level of government activity that we have and that we can afford that level," he writes. "The question now should be how to pay for it."

Yet what's clear to Friedman isn't at all clear to Peterson and Weidenbaum. Peterson's book documents in frightening detail the explosive grow in Social Security and Medicare spending that will come in future years as the result of a convergence of various trends: an aging population, a declining fertility rate, increasingly expensive health care, and increasingly early retirement. Any attempt to pay for that with taxes, he insists, would lead to "a taxpayers' revolt of unprecedented proportions." Instead, the only answer is to cut Social Security, Medicare, and other "middle-class entitlements."

Weidenbaum shares Peterson's views on taxes, agrees on the need for cutting entitlements, and also suggests an attack on a handful of nonentitlement programs-the space shuttle program, foreign aid to Middie Eastern countries-and the elimination of food stamps.

Here, then, is the stuff that should fuel a great national debate. Not whether to cut the deficit, but how. Imagine a Democratic presidential candidate who had laid out a plan to close the budget gap with higher gasoline taxes, higher cigarette taxes, and a modest rise in the top tax rate; and imagine a GOP contender who had said the only answer is to cut back Social Security and Medicare for the affluent elderly. There would have been great wrenching and screaming, angry claims followed by angry counterclaims. And when it was all over our nation's politicians might have had some notion of what the public really wanted them to do.

Unfortunately, that's not the way it worked. Both candidates gave vague lip service to the deficit, but neither acknowledged the choices that must be made to tackle it. -Alan Murray