Clinton plans stimulus package worth up to $20 billion

January 27, 1993|By Thomas L. Friedman | Thomas L. Friedman,New York Times News Service

WASHINGTON -- The Clinton administration, confronting a new round of huge layoffs in some leading U.S. industries, said yesterday that the president was likely to propose $15 billion to $20 billion in additional federal spending this year to stimulate job growth.

Since the election, President Clinton's economic advisers have been debating how much, if any, new spending and tax credits they should propose to create jobs and how that increased spending should be coupled with longer-term measures to shrink the federal budget deficit.

In the campaign, Mr. Clinton and his advisers talked about a stimulus in the range of $20 billion to $30 billion. But since the election there has been pressure to change that figure, but in both directions.

Some of the more liberal economists close to Mr. Clinton, such as Nobel laureate James Tobin, have advocated $60 billion in increased spending. Other advisers, pointing to signs of economic recovery and estimates of bigger deficits than expected, have suggested reducing the stimulus or forgoing it.

Mr. Clinton has been careful not to tip his hand. But in the clearest indication yet of the shape of the new administration's economic package, Labor Secretary Robert B. Reich said in an interview on the ABC-TV's "Good Morning America" that there would probably be a stimulus package and that it would probably be "in the range of $15 billion to $20 billion."

Mr. Reich acknowledged that this was a rather paltry figure in the context of a $6 trillion economy, but he insisted that it would have an important psychological impact, sending "a very clear signal that we have got to get the growth back."

It would also be a clear signal to the financial markets that the new administration intends to be restrained in spending on jobs so that the deficit is not seriously aggravated or inflation spurred in ways that could frighten the bond markets.

Both Treasury Secretary Lloyd Bentsen and Budget Director Leon E. Panetta have urged a modest stimulus package, and their advice seems to have won the day. The package will probably consist of accelerated government spending on highway, rail and fiber-optic projects, plus investment tax credits for companies spending on new equipment.

"On the job front, we still have a problem, and we can't have a genuine recovery, a real booming, buoyant recovery, until we get those jobs back, so we may have to have a little bit of a stimulus," Mr. Reich said. "But in the longer term, that is, beginning next year right on through 1997, we are going to have to tackle the budget deficit and also public investment. Those are the twin deficits that President Clinton has promised the American public we are going to tackle, and we will be tackling them."

Mr. Reich's remarks, which appeared to be calculated to see how Wall Street and businesses react to the modest numbers, were immediately reinforced at a briefing by George Stephanopoulos, the White House communications director.

He confirmed that the administration would offer a stimulus package, but he said it was likely to be even a little higher than the figures mentioned by the labor secretary. Mr. Stephanopoulos said the full package would be outlined by Mr. Clinton in his State of the Union Message on Feb. 17.

A senior administration economic official said Mr. Clinton was opting for a modest stimulus for three main reasons.

First, he said, is the fact that the recovery has not generated many new jobs.

The second reason, the official said, was a fear that even the current recovery is more of a "feel good" recovery among consumers who hope that the new president will turn the economy around. The money being spent is from their savings, not from higher incomes, and could turn out to be short-lived.

The third reason was called insurance. Even if there is only a 25 percent to 30 percent chance of the economy slipping back into recession, $20 billion in additional government spending, even at the cost of a higher deficit, is a small price to pay to insure against that.

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