Report urges U.S. to prod economy

February 15, 1994|By New York Times News Service

WASHINGTON -- President Clinton's economists want the government to do more to tweak the economy, addressing areas like health care and technological research where they think the free market has failed.

They put forward their most comprehensive version of this view yesterday, releasing their first Economic Report to Congress, an annual book-length document mandated by Congress since 1946.

While recent reports by Republican administrations have broadly criticized the government, contending it played too great a role in the economy, the new document calls for a lower threshold for government intervention.

Instead of the typical Republican chapter bemoaning the price of government regulation, the Democratic economists have a chapter entitled "Microeconomic initiatives to promote efficiency and productivity."

They would have the administration spend money on manufacturing research, fight monopolies and force companies to pay for their pollution.

"I think there is something different about the whole tone of this," said Laura D'Andrea Tyson, the chairwoman of the Council of Economic Advisers and the report's main author.

"There is a lot here implicitly about the role for the government to do something that would be beneficial to the future performers of the economy, not harmful," she said.

Some Republicans say they are disappointed. "That was my special baby -- we had a special section on regulatory," said Murray L. Weidenbaum, who was President Reagan's first chairman of the Council of Economic Advisers and is now an economics professor at Washington University in St. Louis.

Republican versions of the report called for two tests to be met before governmental action is justified: first, markets have failed to produce optimal results, and second, government action must be better than private action.

Yesterday's report tends to include the first test but says less about the second. The report is optimistic that intervention can work once market failures are identified.

For example, both last year's economic report, released a week before President Bush left office, and this year's document identify a problem in health care insurance: Sick people tend to buy the most comprehensive health plans, while healthy people tend to buy more modest plans or forego insurance.

This problem of adverse selection means that comprehensive insurance may be difficult to obtain, because insurance companies are afraid it will be used heavily.

The last Bush administration report called for modest steps to tackle this issue. The Clinton report is stronger in calling for government intervention, saying: "By compelling all insurers to cover pre-existing conditions and by eliminating limitations on lifetime payments, the government could reduce the adverse selection problem in private insurance markets and thereby improve how they function."

But this year's report is also much more cautious than some liberal Democratic prescriptions for broader government involvement.

Republican critics contend that the administration has already adopted these liberal solutions, saying the administration's plans for extra research spending amount to an industrial policy.

This report studiously avoids any such stand. "I think industrial policy has a particular meaning, which I don't think is very characteristic of what we are doing," Ms. Tyson said.

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