From: egl1@cunixf.cc.columbia.edu (Elizabeth G. Levy)
Subject: Clintonomics
Reply-To: egl1@cunixf.cc.columbia.edu (Elizabeth G. Levy)
Organization: Columbia University
Date: Thu, 30 Jul 1992 20:24:09 GMT

Reprinted w/o permission from that commie/leftist rag, Businessweek,
8/3/92, p.12.  Typos are mine.  If anyone wishes to buy me a scanner
and OCR software for the Mac, I would appreciate it. :-)

_Clintonomics Has What It Takes for the Long Haul_
by Robert Kuttner

Bill Clinton's economic blueprint, "Putting People First: A National
Economic Strategy for America," has won grudging praise for its
specificity.  But a number of commentators have faulted it for
downplaying the federal deficit, for raising taxes on the wealthy, for
increasing public investment, and for resisting calls to slash
entitlements.

In my view, the proposal deserves praise, not condemnation, on all
these counts.  Economists of different persuasions tell three
different stories about how deficits affect the economy.  In the first
story, shared by Brookings Institute moderates and Wall Street
conservatives, large deficits are lethal for the economy because they
drive up capital costs and crowd out productive private investment.
the only trouble with this story is that the federal deficit is at a
30-year high, while short term interest rates are at a 30-year low.

In the second story, the neo-Keynesian view, deficits are tolerable
and even salutary, at least during recessions.  The reason that big
deficits don't raise interest rates during recessions is the presence
of slack in the economy.  A Mar. 30 open letter, signed by more than
100 distinguished economists organized by Yale's James Tobin and MIT's
Robert M. Solow, argued for a recovery led by purlic and private
investment, relying on investment tax credits and an increase in
direct public outlay.  "Since the economy has idle resources...and the
threat of inflation is minimal, it is appropriate to let these
expenditures add to the deficit, financed by borrowing...," it says.

Nonetheless, most neo-Keynsians believe that once a recovery comes and
high employment is reached, high deficits do create competition for
scarce capital.  At that point, the economy would have to generate
increased savings or it would pay the price in the form of higher
interest rates, which would deter investment and choke off recovery.

Clinton tells a third story.  He shares with the neo-Keynsians a
refusal to be intimidated by the deficit.  But unlike that of the
neo-Keynsians, his view is not primarily a macroeconomic story at all.
Rather, it is concerned with structural factors--how effectively each
part of the economy works, and how efficiently the pieces fit
together.  The Clinton blueprint emphasizes the quality of America's
labor and capital, the potency of its technology, the state of its
infrastructure, and sectoral inefficiencies such as health care.

In effect, Clinton's econoic framework represents a turning away from
macroeconomics.  Thus, he proposes a program of lifetime learning and
training to improve the quality of the work force: a $50
billion-a-year program of renewed public investment aimed at repairing
decayed infrastructure and at stimulating advanced technologies;
conversion of defense technology to commerical purposes; targeted tax
incentives to promote private investment; and comprehensive health
care reform.

Not surprisingly, this approach contrasts radically with the
supply-side strategy of the past decade, which claimed that tax breaks
for the ealthy would increase savings, investment and growth.  What is
more surprising is that the Clinton program also breaks with many
assumptions of the neo-Keynsian brain trust, which has advised
Democratic candidates since John Kennedy.  All of Clinton's senior
economic advisors--human-capital expert and business consultant Ira
Magaziner, Harvard political economist Robert B. Reich, Occidental
College planner and author Derek Shearer, and Robert J. Shapiro of the
Progressive Policy Institute--are people who look at the economy
structurally rather than in terms of macroeconomic factors, such as
deficits.  In the structural view, the real story is the quality of
the nation's physical and human capital, the organization of its
corporations, and the way capital markets serve business enterprises.
An economy with more efficient inputs will grow faster and cut the
deficit.

What Clinton has done is to take back the growth issue--and in a novel
way that rejects both the supply-side view as well as the austerity
view that sees future growth as requiring belt-tightening now.  Thus,
though Clinton is a centrist on social issues, his econoic program is
more in the tradition of the Roosevelt-Truman-Kennedy than those of
his party's last three nominees.

Nonetheless, a Clinton admininstration would be at risk in three
distinct respects.  If Clinton is elected, the usual suspects will
clamor for influence.  He will be warned that structuralists like
Magaziner and Reich are not "real" economists and that Democrats must
reassure money markets by appointing apostles of austerity.
Furthermore, if inflation starts to rise and the stock market falters
before January, many financial commentators will see anticipation of a
Democratic Administration as the cause.  That will only intensify the
pressure on Clinton to embrace fiscal orthodoxy.

Clinton's program is primarily a long-term cure for long-term economic
problems, not a quick fix.  If we get a "triple-dip" recession,
Clinton will have to be nimble indeed to deal with a short-term crisis
without sacrificing his long-term vision.  But that vision is astute,
and despite the nay-saying, Clinton should hold his course.
Xref: sparky alt.politics.clinton:920 alt.politics.perot:1117 talk.politics.misc:36196