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Subject: Will Clintonomics Add Little Rock, Confusing Signals as the New Team
Date: Mon, 16 Nov 92 05:02:45 EST
Message-ID: <6.1992Nov16.050246@AmeriCast.com>

Will Clintonomics Add Up?;From Little Rock, Confusing Signals as
the New Team Takes the Field<By Jodie T. Allen=

WHICH HEADLINE do you believe? The one on Friday's Washington
Post lead story proclaiming that "Clinton Vows Fast Economic Ac-
tion"? Or the New York Times lead headline that same day assert-
ing that "Clinton, Sketching Plan for Economy, Counsels Pati-
ence"?

The answer is that you can take your pick. The president-elect,
in fact, said both things in his inaugural press conference last
Thursday as he tred cautiously through the minefield of his cam-
paign promises.

No doubt Clinton hopes, as every American should, that by the
time he takes his legislative package to Congress, the economy
will have perked itself up enough that the public's demand for
fast stimulus will have cooled. The cheering drop in unemployment
claims and surge in consumer confidence reported last week give
him further grounds for such hope.

After all, as President Bush tried lamely to remind voters this
fall, the economy has been growing steadily for several quarters
- just not fast enough to absorb new job seekers and boost aver-
age incomes.  (That's why those economy-based election forecast
models erred in predicting a Bush victory: Their central premise
- that economic performance matters more than the candidate or
his campaign - was correct. But the data from which they extrapo-
lated reflected past patterns of cyclical ups and downs, not the
sluggish growth that prompted 62 percent of Americans to vote
Not-Bush two weeks ago.)

Surrounded as he is by the best and brightest of academia and
think-tankery, Clinton must know that, apart from the important
function of raising public spirits, there is not much he can do
to accelerate economic recovery in the short run and a great deal
he could do to stall it if he missteps.

The pitfalls of the public-works spending favored by his economic
transition chief, Robert Reich, are well-documented: Such pro-
jects create relatively few jobs and are slow to start. By the
time the money is flowing, it adds to the inflationary pressures
of a recovery already in full swing. To deal with this problem,
the Carter administration experimented with faster-starting coun-
tercyclical approaches - the so-called "soft public works" and
public service jobs projects. These create more, though lower-
paid, jobs quickly but leave little solid "infrastructure" behind
and lack the union support attracted by such projects as highway
building. And, like the more traditional public works spending
now back in favor, Carter's projects were criticized by econom-
ists who pointed out that the money used to fund them simply
"displaced" alternative job-creating investment in the private
sector.<Nowadays even a rocket scientist must be aware that the
trade-off between public and private investment is no arcane con-
cern of macro-economic model builders. A big reason entrepreneurs
are finding it so hard to start or expand operations is that
banks are now using more of their deposits to buy risk-free
Treasury securities than to make commercial loans - lending to
the government rather than to businesses. If the government
spends more - and borrows rather than taxes consmuers to pay for
it - more private businesses will get squeezed out.

It's not that public spending can't enhance economic growth.
That, anyway, was the main rationale for the whopping six-year
$151 billion highway and mass transit bill enacted last year.
(Trying to accelerate that already authorized spending could, as
Clinton hinted, offer the new administration a cheap way out,
though he also promised he wouldn't "scale down" on his campaign
commitments.)

But a 1991 Congressional Budget Office study of the $125 billion
or more the federal government already spends each year on physi-
cal and human capital development concluded that higher rates of
return on public over private investment "can only be expected on
carefully selected spending projects."

Lots of luck on that "careful selection," Mr.  Clinton. Take a
look, for only the latest example in a sorry history, at what
happened to this year's urban aid bill. What started as a modest
response to the L.A. riots was quickly transformed by Congress
into a coast-to-coast tax break and spending bonanza. Bush, to
his credit, vetoed the bill - but a new Democratic president with
a strong commitment to "public investment" would find that very
hard to do.

One way for Clinton to paper over the unavoidable drain that pub-
lic spending places on private investment is to emphasize meas-
ures whose costs don't show up in the federal budget. Require-
ments that business provide worker training, health coverage and
family leave are already part of the Clinton agenda. The hope is
that such measures will ultimately lead to a more productive
workforce which can then command higher wages without hurting
U.S. competitiveness. But, in the short run, if such measures ac-
tually force employers to do more than they now do, they add to
the already daunting costs of hiring an American worker. Piling
more costs on the payroll, whether as straightforward taxes or
less-obvious mandates, means lower wages and/or fewer American
jobs - precisely the opposite of what voters demanded.  Tough as
these constraints may be, Clinton faces a far larger challenge:
convincing the American public that their own interests are
directly served by fast action to reverse the economic collapse
of eastern Europe and the former Soviet Union. Here lies both
threat and opportunity.

The threat is that the rapid decline in living standards in the
region will ignite simmering ethnic and ideological rivalries
into full-scale conflict. This would imperil not only world peace
but Clinton's hopes for redirecting defense spending to civilian
needs. The opportunity lies in the jobs and markets that would be
created if the region's huge human and physical resources were
employed to meet the demand of its citizens for goods and ser-
vices. That won't be an easy sale for a new president who prom-
ised to focus on the home front.

No wonder the headlines are confusing.<

Jodie Allen is the editor of Outlook.<02:09 11-16C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

For more information, send-email to American Cybercasting Cor-
poration (usa@AmeriCast.COM)