Stock market changes keep Washington pols guessing

August 17, 1998|By Jack W. Germond and Jules Witcover

WASHINGTON -- The fluctuations in the stock market should be enough to remind President Clinton, Vice President Al Gore and the Republican leaders of Congress that their political fortunes are not entirely in their own hands.

If past patterns are replicated, incumbents of both parties should benefit enormously in November from the optimism about the economy in the electorate -- an optimism that seems well justified by the economic indicators, all of which point to continued strength.

But the market has been inconsistent enough to make the point that not everything in the economy can be controlled indefinitely. In this case, it has been the weakened condition of the Asian economies that is being blamed in large measure for edginess among investors in the United States. But there are many factors that can influence economic performance. The business cycle, we are reminded frequently, has not been repealed.

At the very least, the fluctuations in the market should give pause to proposals in Congress to allow investment in stocks to be used as a partial substitute for contributions to the Social Security retirement fund. The central question in all such plans is just how much of a risk is acceptable when you are dealing with a safety net. But some of the advocates of privatization have been behaving as if stock prices could only go one way.

The boom in the economy over the past several years already has played a significant role in government actions that might look different if the growth in federal revenues had not been so impressive.

There is, for example, a great deal of self-congratulatory chest-thumping in both Washington and the state capitals across the country over the early success of the welfare reform plan approved in 1996 as an election-eve way both parties could demonstrate responsibility. But reducing welfare rolls obviously is a lot easier when there is a labor shortage than it would be during a recession. So it is fair to say the claims of victory in "ending welfare as we know it" may be premature. Then there is the broader question of the budget and deficit reduction plan on which Mr. Clinton and Republican leaders in Congress finally were able to come together. It was possible because it required relatively little pain for the taxpayers; it caused relatively little pain because federal revenues suddenly shot up far beyond any tTC estimates. Indeed, by the time the budget was passed, the growth in revenues had reached a point at which no action really was necessary.

What is most significant, however, is the potential any decline in the economy could have on the principal plans of both the White House and the Republican leadership. They are in the early stages of a negotiation over how much, if at all, taxes should be reduced and over how much needs to be set aside to guarantee funding for Social Security for the next generation of American retirees under some new formula.

Both sides are proceeding on the premise that revenues will outstrip spending by some $1.4 billion over the next decade, perhaps even more. And both the White House and Republicans are essentially framing the issue in terms of how much of this bounty is needed for which purpose.

But such revenue estimates have been notoriously unreliable in the past, particularly when the economists try to forecast beyond the next two or three years. There are too many variables, not the least being the growth rate in those out years.

At the moment, none of these risks seems immediate or particularly threatening. Even Alan Greenspan seems to be viewing the economy with what for him passes as sunny optimism. And surely there is no realistic basis for fearing a downturn in time to influence the Nov. 3 elections.

Nonetheless, if you are Al Gore looking ahead to the presidential campaign of 2000, it is probably wise to keep an eye on the far horizon. Right now he is in position to be the political heir to a great economic success. But there are no guarantees.

Jack W. Germond and Jules Witcover write from The Sun's Washington Bureau.

Pub Date: 8/17/98

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