Administration takes full credit for recovery


WASHINGTON -- The Clinton administration claimed full credit for the nation's improving economic prospects yesterday, but independent economists disputed the impact of President Clinton's policies on deficit reduction, growth, and interest rates.

Treasury Secretary Lloyd Bentsen, National Economic Council Director Robert Rubin and White House Council of Economic Advisers Chairwoman Laura Tyson held a year-end briefing for reporters at the White House to predict that the economy would continue to grow in 1994 and that interest rates and inflation would remain low.

Mr. Bentsen cited the administration's success in getting Congress to approve the North American Free Trade Agreement and a budget package of deficit reduction and incentives for business investment and productivity, as well as a recently negotiated world trade agreement, which still must receive congressional approval.

"All of that adds up to what I think is a very positive result for the economy and, in my opinion, will lead to long-term sustained growth and low inflation," he said.

Philip Braverman of DKB Securities Corp. in New York, disputing Mr. Bentsen's assertion, commented: "It's a heroic assumption on all bases."

The administration is looking for the economy to grow 3 percent next year, more than twice the average annual rate between 1988 and 1992. Real long-term interest rates, after adjustment for inflation, should be around 3 percent, against the "real" rate average of 4 percent in the 1980s. Low long-term interest rates reduce the cost of borrowing, stimulating economic growth.

The administration's projections are in line with the predictions of many economists, but there is less agreement over what is actually underpinning the economic recovery.

"This is a very large and complex economy, and a new president and new administration really don't have much responsibility for what happens during this first year," said Paul W. Boltz, financial economist with T. Rowe Price of Baltimore.

"I don't think this administration did much of anything to help the economy," he added, noting that this year's budget increased taxes, which tended to depress economic activity. "It's just normal cyclical developments that are at work as the economy is gradually improving."

According to Robert Rubin -- a leading Wall Street investment banker until Mr. Clinton tapped him to direct the new National Economic Council -- the current low interest rates are directly attributable to this year's deficit reduction package pushed through Congress by Mr. Clinton.

"There is absolutely no question in my mind that without the president's deficit reduction program, long-term rates would be nowhere near as low as they are now," Mr. Rubin told reporters yesterday, noting that when the administration took office, long term interest rates were at 7.76 percent. They are now around 6.30 percent.

Diane Swonk of First Chicago Corporation credited the administration's "restraint" in dropping its promised plan to stimulate the economy with helping to convince the financial markets of its determination to reduce the deficit, reducing fears inflation and keeping interest rates low.

"That was good, but it was really part of a larger story," said Ms. Swonk. "They deserve credit for not making the situation worse. But really, at this early stage in the game, they can't take much more than credit for being able to enhance a process that was already under way."

Carol Cox Wait, president of the Committee for a Responsible Budget, a business-backed Washington research institute, said:

"The fact is we have not solved the structural deficit problem. The debt is growing faster than the economy."

According to her calculations, the deficit will be back above $300 billion annually by the turn of the century.

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