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An Impeachment Trial Would Punish The Economy

Economic Viewpoint

An Impeachment Trial Would Punish the Economy

Could a protracted Senate hearing on the impeachment of President Clinton and an eviscerated Clinton Presidency, whatever the hearing's outcome, have adverse economic consequences? Absolutely not, say some commentators. But they are wrong. The impeachment process carries two risks for the American economy: the loss of effective centrist leadership in forging both domestic and international economy policy and the loss of market confidence in the predictability of the American political system.

Admittedly, many factors other than Presidential leadership have contributed to the outstanding performance of the American economy during the last six years. Dramatic changes in technology have fostered a boom in business and consumer spending. And with Alan Greenspan at its helm, the Federal Reserve has charted a judicious policy for balanced growth. But surely history will also give some of the credit for the economy's success to Clinton.

His 1993 economic package--passed without a single Republican vote--reversed years of escalating budget deficits and gradually restored the credibility of the federal government in domestic and global capital markets. Repeatedly, Clinton used his political skills to forge centrist compromises that cut the deficit while protecting the basic commitments of safety nets like Medicare and Medicaid and increasing spending on education. He blocked large tax cuts on the grounds that the fragility of America's long-term budget health and its low savings rate made such cuts reckless. But he also restored a greater degree of progressivity to the tax code to offset growing income inequality. It was the climate of fiscal responsibility fostered by Clinton that allowed the Fed to follow an easier monetary policy.LOST OPPORTUNITY? Now, impeachment is undermining Clinton's ability to lead Congress toward bipartisan compromises on Social Security and Medicare. The budgetary surpluses of the next decade provide a window of opportunity for "saving Social Security first," as the President has urged to wide popular support. But the impeachment debate has drowned out promising hints of a possible bipartisan deal involving partial diversification of Social Security's assets into equities and the creation of supplementary private retirement accounts funded by projected surpluses.

And it is hard to imagine that Congress will pay much attention to the recommendations of the National Bipartisan Commission on the Future of Medicare scheduled for the spring of 1999 as long as the Senate's energy is sapped by impeachment hearings. Unfortunately, there are no painless solutions to the long-term financing problems of Medicare and Social Security. But the sooner we take action, the smaller the sacrifices required.TRICKIER SAILING. On the international front, too, Clinton's weakened position will limit his ability to help devise solutions to global problems. It's true that members of Congress from both sides of the aisle have long challenged his efforts to liberalize trade and that fast-track authority to approve trade agreements has been dead in the water for some time. Still, Clinton has shown himself able to muster support in the past--witness the record-breaking number of trade agreements his Administration has negotiated. Witness, too, the hard-won battle to increase U.S. funding to the International Monetary Fund by $18 billion. Now, the President's initiative to establish a contingency financing program to help sound economies ward off market turbulence might stall. And if conditions destabilize in 1999, financial markets will yearn for global leadership.

Indeed, a Senate impeachment trial to remove a popular President will add uncertainty to already jittery financial markets. Thus far, it's true, they seem to have been able to shrug off events in Washington. But that may be because there's been so much other good news around.

The coming year, though, may be different. Already, a slowdown in sales, a weak outlook for corporate profits, and downward pressure on the dollar are risk factors. In such an environment, a sudden decline in investor confidence in U.S. assets or a sudden flight from the dollar could trigger a sizable market correction that if sustained, could trip the U.S. economy into recession. That in turn would dim prospects for growth in emerging markets struggling to recover from deep recessions of their own.

Historians worry about the implications of the Senate impeachment trial for the institution of the Presidency and for the interpretation of the Constitution itself. But the trial's implications for the health of the American economy should also be a source of concern.BY LAURA D'ANDREA TYSON

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