For Clinton, good news is bad news

Robert Kuttner

December 03, 1992|By Robert Kuttner

THE news that economic growth improved in the third quarte of 1992 only complicates the choices facing President-elect Clinton. In the paradoxical world of economic policy, good news is often bad news. In this case, a slightly improved current growth rate strengthens the hand of those who insist the economy is on the mend, and that heroic measures are not

needed.

But the real challenge facing the new administration is not the short-term recovery, but the long-term economic trend. Between and 1973 -- the year that marked the end of the Bretton Woods monetary system and the OPEC oil price shock -- the economy grew at an annual rate of about 4 percent. Since 1973, the average annual growth rate has been more like 2.5 percent.

The years since 1973, and perhaps not coincidentally, have also seen four out of five failed presidencies, the exception being Ronald Reagan. But even Mr. Reagan's prosperity was fragile, and the failure of George Bush's administration was a delayed reaction to the belated crash of Reaganomics. Mr. Clinton will need bold medicine to restore America's economic performance that of the glory years.

In this context, the initial reports of likely candidates to lead his economic team are somewhat disappointing. In the case of Mr. Clinton's emerging economic policy, there are two distinct camps.

One group of somewhat bolder thinkers emphasizes the structural reasons why the American economy is performing below par: the failure of schools to turn out sufficiently productive workers; the inefficient way American banks and money markets serve industry; U.S. technology's heavy reliance the military; the bias of U.S. economic institutions toward short-term investment; the decaying public infrastructure; and the failure of the United States to position itself effectively as a trading nation.

To some extent this activist group blurs the usual ideological lines. It includes self-described liberals such as Robert Reich and Ira Magaziner, Occidental College professor Derek Shearer and Berkeley economist Laura Tyson, all on the Clinton transition team. It also includes moderates associated with the centrist Democratic Leadership Council, such as economist Robert Shapiro, author David Osborne, and even Republican Clinton supporters such as Clyde Prestowitz and John Young of Hewlett-Packard.

A second group advising Mr. Clinton thinks the main problem afflicting the economy is deficit-reduction, not structural reform. This includes several economists associated with the Brookings Institution, many Wall Street investment bankers, and centrist members of Congress.

I have no crystal ball, but my informed hunch is that Clinton, characteristically, will split the difference. The structural reformers will get relatively peripheral posts at the departments of Commerce, Labor and Education. The more conservative group will wind up with the power positions at Treasury, Office of Management and Budget and perhaps the Council of Economic Advisers.

At first blush, that allocation of responsibility seems appropriate: Let the macroeconomists get the big budgetary picture back into focus, while the tinkerers restructure the schools, training systems and industrial programs.

But the trouble with that is twofold. First, deficit-reduction tends to crowd out other issues and consume fiscal resources. And second, deficit reduction in a slow-growth economy will lead to an even slower rate of growth.

Two leading candidates for the top economic posts are Texas Sen. Lloyd Bentsen as treasury secretary, and Brookings economist Alice Rivlin to be director of Office of Management and Budget. This does not augur well.

Senator Bentsen, though he was made over as a kind of moderate in order to be Michael Dukakis' running mate in 1988, is basically a Texas bourbon. The Senate Finance Committee, under Mr. Bentsen's chairmanship, has been a nest of special-interest legislation. His version of health care reform is a patchwork.

Mr. Bentsen is being promoted as treasury secretary on the premise that he could help Mr. Clinton get difficult budgetary compromises through Congress. But it is just as likely that he would make those compromises even more difficult by loading them up with narrow-interest tax loopholes. (He is also being promoted for the job by congressional rivals who would love to get him out of the Senate.)

As for Ms. Rivlin, she represents the semi-permanent Washington economics establishment, and a rather conservative facet of it, at that. She has punched the necessary tickets, having been Brookings director of economic studies, director of the Congressional Budget Office, even president of the American Economic Association.

Ms. Rivlin is also something of a deficit hawk and a skeptic on whether the structural economic issues matter. During the campaign she was a vocal critic of Mr. Clinton for his failure to give higher priority to deficit reduction. In fact, when 556 economists including nine Nobel Laureates signed a statement of support for Mr. Clinton's economic program, Ms. Rivlin's name was conspicuously absent, though the statement was signed by several other Brookings economists.

If Mr. Bentsen and Ms. Rivlin get these top posts, it will signal a fairly traditional incarnation of the Democratic Party, as well as cautious approach to economics -- and more years of 2 percent growth. That may not be enough to save the economy or Bill Clinton.

Robert Kuttner writes regularly on economic affairs.

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