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Stimulus is focus of major policy debate.

Whether or not to stimulate the economy with an infusion of capital is a major issue at the heart of the emerging Clinton Administration's evolving agenda.

As the debate continues, there is a great deal at stake for cities and towns.

"The big battle for Clinton's soul and mind is between those who want to do something significant in the way of fiscal stimulus and those who worry about the deficit," Barry Bosworth, director of the Council on Wage and Price Controls in the Carter Administration, recently told the Washington Post.

Clearly, getting the economy moving again - or, growing the economy, as Clinton sometimes put it - was the dominant message from the November 3 presidential election. NLC's 1992 survey of city fiscal conditions found that three of four cities said economic conditions adversely affected their ability to balance their budget.

Even a year ago, NLC's annual opinion survey of municipal elected officials found that "overall economic conditions" were already causing the "most important problems" locally. Moreover, one out of three elected officials - the highest proportion for any factor named - predicted that overall economic conditions would be the "most difficult to deal with during the next two years."

The incoming Clinton people are finding out just how difficult dealing with these economic issues will be. According to the New York Times, their plan for a three day "national audit" meeting in December is geared toward the need to focus national attention on how very bad - and difficult to change-conditions are. This would, as George Stephanopoulos, Clinton's director of communications, put it "keep expectations in check."

The stimulus question actually is composed of a series of inter-related economic policy questions, any one of which can cause a heated argument among political insiders and economists.

The answers that President-elect Clinton finds to these and other such riddles will significantly affect the nation's cities and towns. NLC and municipal leaders will need to be a part of the deliberations that seek to develop those answers.

* How bad off is the economy, nationally and regionally? The situation is somewhat different around the nation and a single one-size-fits-all approach may create unexpected effects.

* Where are we in the business cycle? If a significant upturn is imminent, stimulus might just feed inflation. The Federal Reserve, chief keeper of the anti-inflation torch, is sending out signals that somewhat faster growth will be okay with them.

* If stimulus is needed, then how much would be just right? Economists offer figures from $20 to $50 billion.

* Does it matter what kinds of spending or tax cuts are included in the package? Absolutely. Especially important is the likelihood that the money would get spent quickly and in ways that will ensure that the new dollars will "roll around" enough to have multiplier effects.

* Not least - and perhaps first rather then last - is the question of what "stimulus" means relative to the federal budget deficit. In the gross terms of macroeconomics, cutting federal spending by a dollar in order to be able to spend that dollar on a "stimulus" is not a stimulus at all, A dollar spent is a dollar spent. But how much can be added to the already gigantic deficit without incurring devastating attacks from the deficit hawks?

* And what about the politics of all this, particularly in the one-fourth brand new and perhaps unpredictable Congress?

The struggle over the stimulus question will tell us much about what the Clinton Administration will be like. In this regard, the process and quality of the debate and their ability to shape consensus among the public as well as in Washington will be as important as the details of the outcome.
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Title Annotation:economic stimulus
Author:Barnes, Bill
Publication:Nation's Cities Weekly
Date:Nov 16, 1992
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