Time - Man of the Year/Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso/moy/112392/11239927.000

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                                                                                THE TRANSITION, Page 24

How Much Can He Do?


As Clinton tries to rebuild the economy, he faces challenges
that are global in scope -- and to which there are no easy
answers.

By JOHN GREENWALD -- With reporting by Tom Curry/New York, S.C.
Gwynne/Washington, and William McWhirter/Chicago


    Bill Clinton had no shortage of advice last week about how
to fix the U.S. economy. Innumerable pundits, still wheezing
after the long campaign, devoted themselves to speculating and
kibbitzing about his every option. Should he immediately attack
the deficit Dracula that is sucking the life out of the economy?
Or should he first focus on putting people back to work with a
short-term stimulus package, and thereby risk worsening the
deficit? Clinton had remained coy since election night,
maintaining a low profile in Little Rock, Arkansas, and emerging
mostly for photo opportunities.

    The silence ended with a bang last Thursday, when Clinton
declared that he intends to move quickly to create jobs and
stimulate the economy at the expense of a modest short-term
increase in the deficit. At his first news conference since the
election, Clinton vowed to stick to an economic program that
includes tax hikes for the rich, tax cuts for the middle class
and an investment tax credit to help business. He also left
little doubt that he intends to ask Congress for some $20
billion next year to rebuild America's roads, bridges and
highways. Denying postelection reports that he wanted to lower
expectations and slow the pace of his promised reforms, Clinton
insisted, "I expect to keep the focus on these economic issues,
and I'm not trying to scale back or scale down or anything
else."

    Even as he declared his support for new spending, Clinton
reaffirmed plans to cut the budget deficit in half by 1996.
"What we have to do is have a disciplined reduction in the debt
so we can send a clear signal to the markets at home and abroad
that we're going to bring this deficit down,'' the
President-elect said. Yet critics point out that the numbers
have never added up in Clinton's program. For example, Clinton's
own advisers privately concede that a plan to raise $45 billion
by closing tax loopholes on foreign corporations would probably
net closer to $5 billion.

    To help prepare for his first 100 days in office, Clinton
plans to invite economists, executives and labor leaders to a
Little Rock summit next month to diagnose the economy's ills and
prescribe remedies for them. "If we're lowering expectations,
summit was a bad choice of words," says a rueful adviser. Though
the forum is shaping up as a centerpiece of Clinton's
transition, the record of such talkfests has often been meager.
Gerald Ford's 1974 meeting of the minds produced mainly
red-and-white WIN (Whip Inflation Now) buttons that proved to
be little more than good grist for Johnny Carson monologues. "If
it's just blah-blah-blah, it's a total waste of time," says
Hewlett-Packard chairman John Young, a Clinton supporter. "But
if it's eight or 10 people fine-tuning, framing and giving
direction to a policy, that's another thing altogether."

    One of Clinton's biggest concerns will be the global
nature of the economic slump he must confront. With unemployment
stuck above 7%, the U.S. desperately needs vigorous exports to
put people back to work. But Europe too is mired in a downturn,
and the collapse of Japan's financial and real estate markets
has left that economic superpower reeling. "There's no way the
economies of Europe and Japan can provide an engine of economic
growth for the U.S.," says Barry Bosworth, an economist at the
Brookings Institution. "Clinton will not be bailed out by a
strong expansion overseas."

    Leaders around the world -- who know that it will take a
strong U.S. recovery to help right their own foundering
economies -- anxiously watched the Clinton transition last week
for clues to the new President's trade and economic policies.
"We cannot hope for a healthy Japanese economy while the
American one is sick," says an official of Japan's Ministry of
International Trade and Industry. Says Gunther Albrecht, chief
economist for the German Chambers of Commerce and Industry: "The
talk is of putting a higher priority on U.S. domestic matters,
and that could mean a harder line on some issues, and
protectionism is one of them. That would be bad for the world
economy."

    What Clinton actually does after his Jan. 20 Inauguration
will depend on what he makes of the tentative signs that the
U.S. economy might be starting to recover. Most experts are
skeptical. Despite gradually falling unemployment and a
surprising 2.7% surge in the third-quarter gross domestic
product, business and consumer spending is expected to continue
to languish next year unless Clinton acts to stimulate growth
through public works spending or other programs. "We're just not
going to see a very vigorous economy," says Donald Ratajczak,
director of economic forecasting at Georgia State University.
"After the first quarter next year, if the world is still in
recession, we're going to go back to very sluggish growth."

    Most economists agree that the U.S. recovery is far weaker
than the recent 2.7% GDP growth spurt indicates. "That was a
nice number, but not sustainable," says Lea Tyler, manager of
U.S. economic forecasting for Oxford Economics in Pennsylvania.
The results included a temporary bulge in defense orders and a
consumer shopping spree that blossomed in July but quickly faded
in August. Moreover, Tyler said, the mild drop in unemployment
from 7.5% in September to 7.4% reflected a shrinking labor force
as students returned to the classroom and discouraged workers
stopped looking for jobs.

    "My gut reading says the economy is not picking up to
anything like a normal recovery," says a Clinton economic
adviser. At the same time, he adds, "the likelihood of a sharp
downturn or a sharp upturn is small. We're not suddenly going
to grow at 6% or shrink by 2%. I see absolutely no evidence for
a return to a technical recession."

    To snap the economy out of its doldrums, 100 leading
economists called in March for a $50 billion-a-year federal
spending program -- 2 1/2 times the size of Clinton's campaign
plan to rebuild the infrastructure. "The economic arguments
still apply today," says James Tobin, a Yale Nobel laureate and
a prominent member of the group. "Fifty billion dollars is 1%
of gross domestic product," Tobin adds, noting that it would not
be an excessive stimulus. "One could argue that $50 billion is
not enough." But Robert Solow, an M.I.T. Nobel laureate who also
backed the plan, provides a note of caution. Says he: "The
stimulus idea still applies now, but who can tell what
conditions are going to be like at the end of January?"

    The stakes are high in this forecasting game since any
misreading could cause the new Administration to stumble.
Although Clinton won the White House largely by bashing Bush's
feeble economic policies, some experts warn against trying to
jump-start growth next year if business really is improving.
"The worst thing they could do would be to stimulate the economy
just as it seems to be growing all by itself," says Edward
Yardeni, chief economist for the Wall Street firm C.J. Lawrence.
"That would create concerns about overheating the economy" and
could reignite an inflation rate that is now in the low 3%
range. Last week the Commerce Department provided evidence that
the recovery may be gaining momentum: its report said retail
sales climbed 0.9% in October, the biggest gain in three months.

    Aware of the dilemma, Clinton has been trying to dampen
expectations about what he can achieve in his first 100 days --
or even his first 1,000 days -- in the Oval Office. Clinton
declared last week that "the American people understand that
these problems are of long duration and there won't be any
overnight miracles. But I think they expect aggressive and
prompt action," he added, "and I'm going to give it to them."

    Clinton's warning against miracles seemed intended to
serve a double purpose. On the one hand, he wants to discourage
people's hopes for immediate delivery of all the goodies,
ranging from jobs to health-care reform, that candidate Clinton
promised. On the other hand, he needs to reassure nervous
investors that he will not worsen the deficit or overheat the
economy. Such moves could cause bond buyers to drive U.S.
interest rates higher and torpedo the recovery.

    To keep the deficit from growing larger, Clinton will have
to ask the public to make sacrifices to pay for his programs.
But he remains reluctant to bite that bullet. For example,
Clinton has never said where he expects to find the billions
that it would take to provide government medical insurance for
everyone not covered by company programs. Slapping a large
payroll tax on employers would hurt small businesses and drive
up unemployment. And a general tax increase would violate
Clinton's pledge not to squeeze the middle class to finance his
programs.

    Unlike Ross Perot, Clinton has studiously avoided talk of
tax hikes or spending cuts that could spread pain across the
populace. Nor has his economic program discussed possible
reductions in Medicare and Social Security programs. During the
campaign, moreover, he flatly rejected the idea of higher
gasoline taxes, calling them "backbreaking." But now is
precisely the time to talk of sacrifice. "He's got a honeymoon,"
says economist Ratajczak. "So he has to decide what nastiness
he's going to serve up that the honeymoon will sugarcoat. And
he has to serve up that nastiness early on."

    One strategy that some of his advisers are pushing: tie
the short-term stimulus plan securely to a package that also
contains medium-term deficit-reduction measures. A pork-happy
Congress will readily pass the former, so it must be made to
swallow the latter at the same time. That would have the added
advantage of reassuring credit markets, justifiably jittery
about the prospects of an even higher deficit, and thus prevent
long-term interest rates from spurting even higher.

    Fortunately for Clinton, he will take office with high
hopes from voters and far more business backing than perhaps any
other Democrat since Franklin Roosevelt entered the White House
in 1933. "You just can't get the country moving again without
the help and support of the business community," says Young of
Hewlett-Packard.

    At least part of that support reflects disenchantment with
the disarray and inertia that marked Bush's economic
management. "A lot of Republicans felt that any number of things
weren't being addressed by the Bush Administration and that we
were drifting toward a depression," says Dwayne Andreas,
chairman of agribusiness giant Archer Daniels Midland and a
longtime G.O.P. stalwart. "People will be very patient with
Clinton if he appears to be heading in the right direction,"
Andreas adds, "because it will take a lot of time to get the
economy turned around and moving again."