At which point Clinton had to say something-and he did, with more passion than at any other moment during the conference, thumping the table, saying, “If Elaine is right, and I think she is,” then maybe political capital shouldn’t be spent on fiddling with entitlements like social security, but on “big … stuff” like reforming health care and easing credit, which an earlier speaker (a banker, natch) had suggested could produce $86 billion in new business loans-an amount greater than any stimulus package proposed at the conference-if banking rules were rejiggered. This was classic Clinton: smart, high-minded, right-about health care, at least-and somewhat evasive. It seemed a cry of anguish: hey, isn’t there some less excruciating way to do this? It was also a way of telling his two contentious economic-policy camps, the fiscal stimulators and deficit depressors (hereafter, to save space: uppers and downers), that neither was making him very happy-both were thinking too small.
The trouble is, there aren’t any big bangs or shortcuts. Certainly, the two “big things” Clinton mentioned offer little immediate relief. Take health-care reform, for example. (Please.) Even if Clinton can pass the proverbial managed-competition with universal-coverage and strict-cost controls plan, and even if it works, most of his advisers believe that it won’t start saving money until halfway into Jack Kemp’s first term (1998); even then, it wont reduce health-care costs, just the rate of increase. As for Clinton’s other big-bang suggestion, bank regulatory reform: it’s irrelevant. Most banks aren’t loaning money to small businesses now because it’s safer and more profitable for them to just buy Treasury bills. Why? Because long-term interest rates are high. Why? Most experts think it’s the size of the deficit-and the faith that government won’t have the discipline not to be inflationary in the future. As many of the next president’s contemporaries have learned, too much stimulation can be a downer.
As it happened, the uppers were blown away-intellectually, of course-by the downers at Clinton’s conference last week. The fatal blow, delivered by John White, who developed Ross Perot’s severe deficit-reduction plan, was the news that the deficits for the next three years would run about $100 billion greater than expected. Clinton had hoped to cut the deficit in half by 1996 (a campaign promise) without breaking a sweat-the numbers would shrink naturally as the savings and loan debacle was paid off and economic growth resumed. Now, though, he’ll have to cut $150 billion per year by 1996 if he plans to be true to his word (if not, watch out for Perot). It won’t be easy.
But it appears to be Clinton’s likely course. Even the crypto-uppers among his economic advisers have discovered that down can be beautiful (if for no other reason than as a means of gaining credibility for their long-term, $220 billion “investment” strategy). The big news from last week’s economic conference was that a gasoline-or, perhaps, energy-tax is now inevitable. It became so the moment Ford Motor Co. chairman Harold Poling shocked the gathering by saying he supported one. Clinton told The Wall Street Journal several days later that he’d oppose raising a gas tax 15 cents in any year-which, of course, left the door open for a 25-cent increase (as Poling suggested) over five years. “My guess is we’d combine that with a social-security tax cut to make it more palatable for the poor and middle class,” said one Clinton adviser. Other wild schemes filled the air: raising the retirement age for social security, freezing cost-of-living adjustments for a year, taxing social security (for affluent retirees), taxing health-care benefits …
That’s a lot of taxes, all of a sudden and a blue Christmas for Elvis-especially since Clinton is, in his heart of hearts, a fervent upper. He’d love to stimulate his way out of the deficit, as Ronald Reagan always promised (and never delivered). But there’s another lesson of the Reagan years: take your medicine early. Reagan did, involuntarily-the sharp, inflation-killing 1982 recession came courtesy of Paul Volcker’s money-crunching at the Fed-and lived to see “Morning in America.” The most convincing advice Clinton received last week was from those who told him: forget short-term gain. Combine long-term deficit reduction with your long-term stimulus plan. It won’t be pleasant at first. But most immediate-gratification strategies are fantasies. Reality is almost always a downer.
