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                                                                                NATION, Page 25

THE POLITICAL INTEREST

Who Has the Best Plan for Fixing the Economy?


By Michael Kramer


    Two guys with booklets itching for a fight. That's what
it's come down to. Two candidates who have specific ideas for
fixing an economy both describe as near collapse and who view
each other's prescriptions as deficient. "At some point," says
Paul Tsongas, "we're going to have to go head to head on
economics." The sooner the better, says Bill Clinton.

    Well, if it's a debate they want, let it begin.

    Note first that Clinton and Tsongas are new-breed
Democrats. As they seek to craft a different relationship
between government and the private economy, they challenge their
party's traditional orthodoxy. In some ways (and especially when
Tsongas touts his unabashed probusiness views), they sound like
moderate Republicans, that nearly extinct species whose nostrums
George Bush once championed. Tsongas enjoys a reputation as a
hard-nosed economic truth teller, largely because he never tires
of self-righteously describing himself in those terms. Clinton,
on the other hand, suffers from what Mario Cuomo calls the
"dumb-blond syndrome": If you're good-looking, you can't be
smart. In fact, though, if deep-think and specifics attract you,
Clinton is the more forceful and articulate.

    If you read their books, study their speeches and consider
their extemporaneous remarks, Tsongas most often delivers topic
sentences, while Clinton fills in the details. Tsongas' writings
are full of "we should consider this" and "we should think about
that," and the latest addendum to his 85-page booklet, A Call
to Economic Arms, casually borrows some of Clinton's stronger
proposals -- but only, it seems, for political cover, since
Tsongas' transparent me-tooism is only sporadically fleshed out.
On some matters, however, like the wisdom of a middle-class tax
cut (which Tsongas opposes and Clinton supports) and the idea
of adjusting entitlement-program payments like Social Security
to a person's income (which Tsongas is more willing to
consider), Tsongas is clearly the more courageous.

    TAX CUTS. The sexiest difference between the two men's
views involves a tax cut for the middle class. Clinton favors
a revenue-neutral reduction in rates: the 15% tax rate would
fall to 13.5%, the 28% rate to 26.5%. The net loss in Treasury
receipts, about $30 billion, would be recaptured by raising the
top income tax rate to 38% on earnings above $200,000 a year.
On average, a middle-class family would gain about $350 a year,
a "paltry" 97 cents a day, says Tsongas, who decries Clinton's
plan as a "pandering, poll-driven gimmick" that "won't create
jobs or help our economy."

    For a brief time (and then only in private), Clinton
conceded Tsongas' critique. He admitted that his plan was mostly
symbolic. Political exigencies, he explained, required his
signaling sympathy for the economically stressed. For public
consumption, a rationale beyond sympathy is needed. So with a
straight face and a fair amount of feigned indignation, Clinton
regularly swipes at those who pooh-pooh his idea. "That $350 a
year may not sound like much," says Clinton, "but for many, it's
a month's mortgage payment -- and that's nothing to sneeze at."
Suffice it to say that in New Hampshire, where the economy has
moved from recession to depression, most Democratic voters
seemed to side with Tsongas.

    INVESTMENT. Tsongas' aversion to a tax cut, his opposition
to an increased tax exemption for children (which Clinton
favors) and his proposal for a yearly 5 cents-per-gal.
gasoline-tax increase (which Clinton opposes) illustrate the
considerable philosophical gulf between the two candidates.

    Much of what Tsongas believes and proposes smacks of
trickle-down economics. "My job as President," he says, "will
be to grow companies." Only later "will I turn my attention to
things like tax cuts." Tsongas' neo-Republican view sees the
cost of capital as the crucial force in economic growth. To
lower these costs and thus induce investment, he would use the
powers of government to cut the tax bite on venture capital. But
this direction has been tried before with little success. From
the mid-1970s until the 1986 tax-reform act took effect, the tax
burden on capital was reduced, but the rate of growth of
investment during those years was half of what it was in the
1950s and 1960s.

    It should be clear by now that the post-tax cost of
capital has relatively little influence on both the overall
level of investment and the uses of invested funds. In fact, the
greatest influence on investment is the prospect for pretax
returns. The key questions concern how good a new idea is, how
much of a market there is for a particular product and how
productively it can be created. The issue -- as Clinton
understands far better than Tsongas -- is how to make the entire
economy more productive, not how the tax code can be jiggered
to induce the wealthy to buy stocks instead of yachts. Both men,
by the way, favor a capital-gains tax cut, but Clinton would
target his break toward the creation of new businesses, while
Tsongas' cut would apply primarily to securities purchases.

    INDUSTRIAL POLICY. Although he usually avoids the term on
the stump, Tsongas favors a national industrial policy, and his
campaign literature makes his preference clear. "American
companies need the United States Government as a full partner
if they are to have any hope of competing internationally," he
says in A Call to Economic Arms. "That means an industrial
policy." Tsongas traces his affinity for government involvement
in the private sector to the 1979 Chrysler bailout. He applauds
his own leadership on the issue, but the driving force was
really Senator Richard Lugar, an Indiana Republican. "Tsongas
was important to show bipartisan support," says Roger Altman,
the former Assistant Treasury Secretary in charge of the Carter
Administration's effort to save Chrysler. "But it was Lugar who
really made the deal fly by insisting on some fairly impressive
union givebacks and other concessions."

    One area particularly in which Tsongas would have the
government take a leading role is in the creation of nuclear
power plants. He wants the U.S. to become energy independent,
and he views nuclear power as a crucial part of the mix.
Adopting the nuclear option may accommodate an economic truth,
but Tsongas has been quick to recognize a different, political
truism: the fact that many Democratic voters abhor nuclear
power. His speeches these days downplay nuclear's role in
achieving energy independence, but on paper Tsongas notes that
America's 112 nuclear plants produced the energy to cut the U.S.
oil-import bill by $4.7 billion in 1989. On the basis of these
figures, substituting nuclear power completely for oil imports
would require more than 1,000 new nuclear plants. Even that
estimate is low, since Tsongas calls for building
300-MW-to-500-MW plants rather than the current 1,200-MW models.

    Tsongas' true industrial-policy ambitions are even larger.
He is positively intrigued by the idea that the government
identify a broad range of economic winners, who then would be
helped with tax breaks and investment assistance. Few economists
have much faith in the government's ability to predict strong
economic performers, and when it comes to health care, even
Tsongas agrees. In knocking Bob Kerrey's national
health-insurance scheme, Tsongas says, "If anyone thinks the
words government and efficiency belong in the same sentence, we
have counseling available." There's an inconsistency here, of
course, but Tsongas ignores it.

    ANTITRUST. Both Tsongas and Clinton are ardent free
traders, but only Tsongas sees the antitrust laws as inhibiting
the nation's ability to compete abroad. "Current antitrust
laws," he says, "prevent American companies from joint venturing
in almost any area, including such critical ones as research and
development." On this, Tsongas is just dead wrong. Even the
American Bar Association's antitrust contingent, which is heavy
with attorneys who represent manufacturing clients, and which
therefore supports the fewest obstacles to unfettered business
enterprise, has concluded that the law is fine as it stands.
"He's just plain misinformed," says Stephen Axinn, one of the
nation's leading antitrust lawyers. "Since 1984 there have been
virtually no impediments to R. and D. joint ventures. What's
more, the current state of play is good public policy. A
wholesale wiping out of the review process for prospective joint
ventures, which Tsongas wants, might lead to a better ability
to compete globally, but it could also cause skyrocketing prices
at home and layoffs as companies combine. The only responsible
way to approach joint ventures is on a case-by-case basis, and
that's proceeding very well now."

    ENTITLEMENTS. Significant increases in capital will be
possible only when the deficit is controlled, a difficult task
when the costs of entitlement programs continue to spiral. To
his credit, Tsongas has flirted with capping cost-of-living
adjustments at 1% below the inflation rate, and he seconds
Bush's desire for a greater contribution to Medicare from those
who earn more than $125,000 a year. He has backed off an earlier
call to means-test Social Security, an idea that views as folly
the right of rich and poor to draw equal retirement stipends.
But at least Tsongas is talking about the problem. Clinton has
run away. At a dinner in New York City a year ago, Clinton
responsibly endorsed Bush's Medicare plan. Since then, however,
he's been mum.

    EDUCATION AND JOBS. While Tsongas worries about the cost
of capital, Clinton's focus is on human resources. His
coherent, systematic approach to improving education at all
levels revolves around apprenticeship programs for those who
choose not to attend college and a universal loan program that
would guarantee a college education to all who want one, in
return for an extended repayment schedule or a period of
national service. Clinton has also developed a worker-retraining
plan that would force companies to spend equally for this
purpose. Current worker-training schemes are virtually useless,
he notes correctly. "Roughly 70% of corporate training expenses
serve only 10% of employees," explains Rob Shapiro of the
Progressive Policy Institute, a centrist think tank that is
advising Clinton. "Companies are loath to train lower-rung
employees for fear they'll leave for other jobs once their skill
levels improve. Compelling all U.S. corporations to spend
similarly on training will help."

    Astutely recognizing smart ideas when he sees them,
Tsongas has lately bowed to these needs as well, but only with
bland, content-free bromides. His recognition of the skills gap,
for example, is currently contained in just half a sentence:
"Americans . . . must also receive continuing education and
training to keep up with the latest technologies."

    Marry Tsongas' emphasis on capital formation with
Clinton's concern for human capital, and voters could have a
compelling alternative to the policies George Bush labeled
"voodoo economics" before he adopted them as Ronald Reagan's
1980 running mate. All that's needed now is for Tsongas and
Clinton to actually engage in the debate they profess to crave
-- that and two open minds.