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Clinton must confront balancing act; the deficit versus the economy.

President-elect Bill Clinton plans a "disciplined reduction" in the size of the annual Federal deficit. He wants to do this "gradually" and also to create a "framework which permits us to substantially increase investment."

Perhaps the main message in those phrases is that, yes, the deficit is crucially important, and the bottom line is the economy and its growth capacity. At his November 16 press conference in Little Rock, Clinton said, "I do not believe you can reduce the deficit without restoring economic growth."

The Clinton-Gore team--in Putting People First, the campaign's policy book--outlined a "national economic strategy" that is built around "investing more than $50 billion each year for the next four years while cutting the deficit in half." It is noteworthy that the $50 billion figure is not necessarily new money.

That's a "difficult balancing act" says Viveca Novak in The National Journal. A "delicate business," says Robert Kuttner in Business Week. "A great dilemma" editorializes the Washington Post.

Whatever "balance" Clinton proposes, the new Congress will dispose. Clinton has expressed great admiration for the way Ronald Reagan accomplished "a whole lot of changes" in 1981 by putting them into "omnibus bills." He said "we will do as much of that as we can...the fewer votes you have, the better off you are."

The details of such omnibus legislation will no doubt include mixtures of joy and pain for the American body politic, including cities and towns. The challenge for the Clinton administration and the Congress will be to achieve an overall pattern--a balance of deficit reduction, economic stimulus, and investment--that commands effective support. Municipal officials and NLC will face a similar challenge in seeking to help shape and then to assess that balanced pattern.

In addition to its many real and troublesome economic effects, the deficit has loomed over all of federal policymaking. It has rained on the parade of anyone who tried to mount new initiatives that might cost money.

Finding the "Middle Ground"

Speaking to the press on November 12, Clinton described his position as occupying a middle ground between two extremely different views about what the U.S. economy really needs.

On the one hand, he said "there is the group that says go ahead and make big cuts in the deficit now because a few years from now you'll bring down interest rates, even though it will actually drive up unemployment, slow the economy more "in the short run.

On the other hand, Clinton said, "there's a group that says spend more money now, either by putting more money into construction projects, or by having a huge tax cut."

Clinton's description of his own position is worth quoting at length. He said that it is "what this election was about."

"I believe that what we have to do is have a disciplined reduction in the debt, so we send a clear signal to the markets at home and abroad that we're going to bring this deficit down. But that we do it more gradually and with a framework which permits us to substantially increase investment....We'll test it. We'll see if I'm right."

Clinton is making a point similar to the one Ronald Reagan rode into Washington on in January 1981 : it matters what you spend your dollar on. Of course, Clinton and Reagan have starkly different priorities; in fact, Clinton will be trying to reverse some that Reagan successfully advocated.

But, as the Washington Post reported last week, both men had a similar "central tenet" to begin their presidency: "a pledge to institute change that brings an improved economy as the fundamental campaign promise to voters."

When Reagan took office, however, the Federal government owed $.26 for every dollar of total US national income. Since then, that ratio has doubled to $.52 and growing. At the end of World War II, the Federal debt-to-national economy ratio was $1.03.

The margin for dithering has narrowed since 1981. Business Week magazine quotes Urban Institute economist Isabel Sawhill in support of plans for stimulus and for long-term deficit reduction being proposed in tandem; otherwise, she says," you could scare the hell out of the financial markets." A run-up in bond rates in October was a warning shot across the bow of the on-coming Clinton Administration.

Another approach to the deficit, that may get some attention, is to divide the budget into "capital" and "operating" segments and to require balance in the latter. Economist Robert Heilbroner and others in the Clinton camp suggest this approach. The immediate results would include (a)transforming the arithmetic of the deficit debate, (b) setting off a stampede by program advocates to move favored programs into the capital side, and (c) targetting unbearable pressure for substantial spending cuts on the operating programs that remain.

Assuming all these things occurred, in a context with even the normal level of Washington wisdom applied, the result might be useful. Or, may be not. But it would be one way of manifesting the Clinton emphasis on "investment."
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Title Annotation:Bill Clinton
Author:Barnes, Bill
Publication:Nation's Cities Weekly
Date:Nov 23, 1992
Previous Article:President-elect begins to map agenda that includes cities.
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