Economist Milton Friedman praised President Reagan's economic policies but told a conference of homebuilders the country will be in a recession by 1989.
"We're heading for a recession," Friedman said Wednesday. "Whether it'll be this year or later in 1989, I don't know. But I do expect a recession."However, Friedman told an audience of approximately 2,000, "I do not think we are going to have a depression. We are depression-proof."
Friedman's comments came at the annual Pacific Coast Builders Conference being held through Friday.
The economist praised the Reagan administration for policies that he said have spurred the longest peacetime expansion in the U.S. economy.
Friedman said the upsurge, now in its sixth year, "is not an accident."
"The policies introduced by Reagan have been extremely successful in re-igniting the forces of enterprise and initiative in the United States," said Friedman, who won a Nobel Prize in economics in 1976 and is a strong proponent of free market economics.
However, Friedman acknowledged, "There are some signs that inflation has been creeping up a little," a development that could have a negative impact on the interest rate-sensitive building industry.
Still, Friedman said lower tax rates and deregulation under the Reagan administration "promise good growth over the long-term future."
"This fear that we will have a renewal of inflation . . . is not justified," said Friedman. "I do not believe we will have it."
Friedman said the two biggest problems the United States faces are not its massive trade and budget deficits but "the threat of higher government spending and protectionism."
He called the sweeping trade bill vetoed by Reagan Tuesday "a monstrosity."
Friedman sounded a warning against raising taxes, saying that Congress would be unlikely to use the added revenue to reduce the budget deficit.
"Raising taxes does not reduce deficits," Friedman said. "The federal government will spend whatever sum taxes will yield, plus whatever deficit they can get away with."
Friedman also said the bulk of the U.S. trade deficit is due to the flow of foreign capital into the United States.
The imbalance means "the United States is a better place to spend money" than other countries, he said.
"If you can borrow money more cheaply in Japan than in the United States, it's in your interest to do it," Friedman said.