The upsides and the downsides: Clintonomics (Editorial)
There is much in Clintonomics, I think, that we can enthusiastically support. We can certainly agree that the government needs not merely to speed the current recovery but, more fundamentally, to change the economy's course. In his warmup speech to the nation on February 15, the President vowed to "work for fundamental change .... At stake is the control of our economic destiny." Amen.
Equally welcome is the new Administration's determination to present the government as part of the solution, not part of the problem. The President told the country he wanted to talk with us "about what government can do, because I believe government must do more." Amen again.
Most of us will further endorse many of the "new investments" proposed in Clinton's economic program. Reagan/Bushonomics massively eroded the nation's resource base--our public capital, skills, technology and environment. "This plan" the President promised, "invests in our roads, our bridges, our transit systems; in high-speed railways and hightech information systems; and... environmental cleanup...; investing in our people, their jobs and their incomes over the long run." Amen a third time.
Thankfully and at long last, we can also acclaim Clinton's return to a more progressive income tax system. Jesse Jackson, in his 1988 presidential campaign, called for restoring the 38 percent top-bracket rate and was thunderously ignored. Now, little more than four years later, a centrist President promises "fairness, for a change, in the way additional burdens are borne." To that, my final amen.
But the Clinton program is also seriously flawed. While supporting Clintonomics against conservative attacks, progressives should also move aggressively to shift the priorities of the President's program and to broaden its ambitions. I worry most about two aspects of the Administration's economic package.
First, in its explicit budget proposals, the President's program prays much too fervently at the altar of deficit reduction. It calls for a cumulative net deficit reduction (from current projected levels) of roughly $325 billion over the next four years, culminating in a net deficit shrinkage of a whopping $140 billion in 1997. Although total proposed tax increases and spending cuts allow for a sizable expansion of what the Administration calls "stimulus and investment" over that four-year period, the balance favors net deficit reduction over new investments by a margin of nearly two to one.
Whence the push for fiscal austerity? Probably not from the public. In one public opinion poll right before the program's unveiling, for example, when asked, "Which is more important in the immediate future, creating jobs or reducing the deficit" two-thirds of those surveyed cited jobs creation, while only 19 percent inclined toward deficit reduction.
More immediately, the President's devotion to deficit reduction represents a signal triumph for the "deficit hawks" in his inner circle of advisers, including Treasury Secretary Lloyd Bentsen, budget director Leon Panetta and deputy budget director Alice Rivlin. They must be breaking out the champagne at the Brookings Institution, Rivlin's former home, where she, Charles Schultze and others have been insisting for years that the economy can't walk, much less run, unless we first tightly tie our fiscal shoelaces.
More broadly, the fiscal austerity pledge underscores the White House's steadfast courtship of the financial community and of Ross Perot. Rather than "putting people first," the program appears to be putting Wall Street first. Pictures spoke 1ouder than the President's address to Congress, as TV cameras focused repeatedly on Alan Greenspan, chairman of the Federal Reserve's Board of Governors, in his seat of honor next to the First Lady. (Greenspan rewarded the Administration's attentiveness two days later by placing his stamp of approval on the program in Congressional testimony.)
What's wrong with such ambitious deficit-reduction proposals? Most seriously, it seems quite likely that the degree of fiscal austerity proposed in the President's program will severely dampen the very growth that he hopes to unleash. The $31 billion short-term stimulus proposed in the first year is itself fairly tepid--many liberal economists have called for twice as much short-term stimulus [see Paul Davidson, "Putting Caution First," March 11. And by the second year, the combination of tax hikes and spending cuts will begin applying the fiscal brakes, slowing the economy before it's had a chance to gather momentum.
The Administration economists hope, of course, that their courtship of Wall Street will help keep longer-term interest rates low. "If there's anything that this program is directed at," admits Robert Rubin, chairman of Clinton's National Economic Council and Wall Street's main mole within the Administration, "it's interest rates." But short-term rates are already low, and long-term rates have already begun to inch down. You can lead investors to water with lower rates, but they won't necessarily drink until they foresee buoyant growth in demand. And that, with the proposed path of fiscal austerity, is something they probably won't get.
My second concern about the Clinton program derives from its sins of omission. Its diagnosis of the sources of structural crisis in the U.S. economy is incomplete and, therefore, doesn't tackle some of our most severe problems. Let me cite only one example (for a fuller treatment, see Bowles, Gordon and Weisskopf, "An Economic Strategy for Progressives," February 10, 1992).
Clinton offers a plan "honoring work and families?' And he vows to "raise productivity so that we can generate both jobs and incomes?' But one of the central afflictions plaguing workers and their families over the past fifteen years has been their deteriorating situation at work: Workers have been facing declining union protection, fewer vacations, increased supervisory harassment, spreading job insecurity. And U.S. corporations are losing ground to European and Japanese competitors in part because they continue to rely on the stick, not the carrot, in the workplace. The President wants to prepare us for the twenty-first century, but U.S. labor-management practices reek of the nineteenth. Clintonomics turns away from enhanced worker participation and expanded worker rights. In his message to Congress the President said nothing about labor-law reform, nothing about reduced working time, nothing about changing relations at work. Until and unless the government tends to the workplace, all else may be for naught.
What's in it, then, for us in the progressive community? Much that's positive, much that's misdirected and much that's missing. "This must be America's new direction," the President counsels. I'm delighted to help get the journey started, but I hope we can bypass the austerity swamps and chart a much more ambitious course than the White House dares to imagine.
David M. Gordon, who teaches economics in the Graduate Faculty of the New School for Social Research, is co-author of After the Waste Land: A Democratic Economics for the Year 2000 (M.E. Sharpe).