WHAT AMERICA NEEDS IS JOBS, JOBS, JOBS
As President-elect Clinton pieces together his plan for boosting America's long-run competitiveness, he faces two decisions--one easy, one hard. The easy decision, surprisingly, is what such a program should include. Most economists, of all ideological stripes, now agree with the main themes of the Clinton campaign: The U.S. needs more public and private investment, sustained investment in the so-called knowledge base--education and training, and a government-supported transition from defense-based research and development to commercially useful technology. No matter what else happens with the economy over the next six months, these long-run policies deserve the priority Clinton has already said they will receive.
But another, more controversial decision awaits Clinton as his inauguration approaches. Recent signs of strength, including a 3.9% growth rate in the third quarter, suggest that the economy is already on the mend. Given that strength, should Clinton shelve any short-term pump priming and let growth take its course? Considering the size of the deficit, which could approach $350 billion in 1993, there is a lot to be said for that. But without some sort of boost, the job drought seems likely to continue. Economic growth needs to reach 3% for a sustained period to generate substantial numbers of new jobs--and that level may not be attainable without a helping hand from the new Administration. Private-sector employment has been flat for almost four years, while the working-age population has increased by some 4.5 million.
That's why we think Clinton should give the economy a short-run boost by accelerating spending on long-run programs, such as infrastructure or investment-tax credits. Front-loading his program would serve as an insurance policy for job creation by increasing growth in 1993. That risks a bigger budget deficit early on, so it must be coupled with a credible plan to reduce the current deficit over four years.
An early start to Clinton's long-run program would allay the very real fear that after a good quarter or two, growth could fade, just as it did last year. The U.S. economy has yet to shake off the forces--high levels of debt, a global slowdown, and corporate restructuring--that are holding it back. Indeed, companies such as Digital Equipment Corp. and American Airlines Inc. have announced new layoffs. There are signs of recovery. But there is no clear-cut evidence that, unaided, the U.S. economy can sustain the 3% growth needed for a significant long-term decline in unemployment.