Ahead in the polls by 15-plus points and impervious to Republican character assaults, Bill Clinton appears headed for victory on Nov. 3. But even before the votes are cast, the Arkansas governor's advisers are struggling with the central problem that he would face as President: How can he balance the competing imperatives of reducing the budget deficit and getting the economy moving? President Bush's inability to shake the tyranny of the deficit has, in all probability, cost him his job. And Clinton aides know that if they do not do better, the fiscal dragon could slay his Presidency as well.
Clinton has gotten an early whiff of the dangers. When an already shaky bond market realized that--gasp!--a Democrat was about to win, it got a case of the willies. It wasn't all the candidate's doing, but yields on 30-year Treasury bonds surged from 7.50% on Oct. 15 to 7.61% on Oct. 21. Word leaked that Clinton might be considering a new short-term stimulus package on top of the $80 billion federal spending-cum-investment program he has been promoting. Bond traders went into a funk despite the efforts of Clinton's advisers to calm the market. "It's a hell of a burden to inherit an economy this weak and a deficit this big," says Clinton's economic-issues director, Gene Sperling. "But we will remain firm."
TALL ORDER. The debate among Clinton advisers isn't really about extra spending. It's a disagreement over how quickly Clinton's investment plan should kick in. Some of his gurus, particularly Harvard University Professor Robert B. Reich, want to give the economy a quick jolt by accelerating some public-works spending. Others, including Progressive Policy Institute Vice-President Robert J. Shapiro and Wall Streeters Robert S. Rubin and Roger C. Altman, counsel caution.
Clinton still has an election to worry about, and he won't tackle this touchstone issue until after Nov. 3. But he's beginning to recognize his painful choice. He has promised to halve the deficit in four years, boost spending, expand tax incentives, and raise taxes only on the rich and on foreign corporations. That's a tall order, and Bush has repeatedly charged that Clinton will resort to raising taxes on the middle class. In the Oct. 19 debate in East Lansing, Mich., Clinton established his priorities: "If the money does not come in there to pay for these programs, we will cut other government spending or we will slow down the phase-in of the programs."
That suggests Clinton may not be receptive to calls for a quick economic fix. But if the economy remains sluggish, pressure will build on Clinton to act boldly--not just for the long term but for the short run as well.
Stimulus schemes come in two flavors: a speedup in public-infrastructure spending and some sort of business tax cut. Spending boosters argue that since the checks would be written anyway, why not jump-start the economy by loading as much of the money as possible into early 1993? But the economy may have trouble digesting additional public-works funding. Congress and the Administration have already agreed to spend more than $25 billion in the coming year on roads, water and sewer projects and on mass transit. Congressional Budget Office Director Robert D. Reischauer doubts whether another huge dollop of cash could be spent efficiently in such a short peri-od of time.
FEW BUYERS. Clinton advisers have kicked around two tax incentives: a temporary investment credit designed to boost capital spending and a credit for wages paid to new hires. A generous but temporary investment tax credit might accelerate equipment purchases in 1993 even if it did little to raise investment in the long run. If so, Clinton might be better off with it than with the permanent--and more expensive--write-off that he has been pushing. He might even try a one-year speedup of depreciation, as Bush proposed earlier this year.
But tax incentives may not be enough to encourage business spending, since lower interest rates already have drastically cut the cost of capital. The real problem is that with orders weak, businesses are unwilling to purchase new equipment no matter how cheap the financing.
The Arkansas governor knows that America's real economic problems are long term: the challenges of opening foreign markets to American-made products, the effects of the conclusion of the cold war on the defense industry, excess private and government indebtedness, and a continuing surplus of commercial real estate. Clinton also ought to know that there are no short-term solutions to those problems. He has been correct to focus on the nation's long-range needs. It would be a shame if a newly elected Bill Clinton ended up spending both dollars and precious credibility in search of a quick fix.