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The Clinton-Greenspan payoff Economy: Fed monetary and Clinton fiscal policies produce election-year bonanza.

THERE THEY WERE. The new First Lady, a Democrat to her core, and the Republican chairman of the Federal Reserve Board, sitting side-by-side in their gallery box listening to President Clinton's first speech to a joint session of Congress.

It was one of the riveting spectacles of the early days in this administration. While it was overshadowed by such White House gestures to the left as gays in the military and the most intrusive big government health care proposal in history, it conveyed a message of conservative monetary policy from which Mr. Clinton has never deviated.

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Now, more than three years later, as the president rides a huge 21 percent lead over Republican Bob Dole in his bid for re-election, the explanations for his ascendancy focus too much on politics and not enough on economics.

History tells us that good times favor incumbents -- especially incumbents who know how to exploit advantage. What Bill Clinton has going for him, far beyond his legislative outmaneuvering of Newt Gingrich and Senator Dole, is an upbeat economy that is largely a product of Mr. Greenspan's policies -- and the president's wise acceptance of them.

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During Mr. Clinton's first two years, as he was taking a beating in the polls and on Capitol Hill, Mr. Greenspan doubled short-term interest rates, nudge-by-nudge, to keep inflation under control and economic growth on a slow but steady up-trend line.

It was not a popular thing to do. But Mr. Clinton must have remembered how Mr. Greenspan had praised his 1993 deficit-reduction plan as "a very positive force in the American economy" even as every Republican in Congress opposed it. And the president returned the favor, to his own ultimate advantage, by avoiding any criticism of Greenspan policies that were enraging the Democratic left wing.

The payoff for this bizarre, unexpected partnership is now visible as the Clinton-Dole race heats up. Mr. Clinton has not only re-appointed Mr. Greenspan to another six-year term but has chosen as new Fed members two economists who are centrists and deficit hawks. Insurrection in the Fed is not on the president's wish list. Meanwhile, Mr. Greenspan has responded by lowering interest rates just in time to head off the kind of recession that undid George Bush.

As Mr. Clinton climbs higher and higher in the opinion polls, good economic news abounds despite ritualistic hand-wringing from would-be wealth redistributors on the left and damn-the-deficit supply-siders on the right.

Examples:

The White House Council of Economic Advisers reports that 68 percent of the 8.5 million jobs created in the Clinton years pay more than the national median of $480 a week. These data collide with the well-publicized notion that ours is a nation of hamburger-flippers.

Consumer confidence is at its highest in nearly six years -- a date recalling President Bush's riding-high days. Researchers report that Americans believe jobs are easier to come by and recession dangers are fading.

Inflation, despite a worrisome rise in long-term interest rates, is very much under control.

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First-quarter growth was at a robust 2.8 percent annual rate as unemployment dropped to a 14-month low of 5.4 percent.

To be sure, there are serious soft spots in the economy -- especially stagnant wages in many job categories, a growing gap between rich and poor, a scarcity of jobs in some vocations where highly qualified applicants abound, corporate downsizing that short-circuits would-be lifetime careers, competition from overseas that hits vulnerable industries like textiles.

Mr. Clinton often plays to these liberal concerns even as he pursues economic policies pleasing to the old-fashioned conservatism of Alan Greenspan. He has to walk a fine line, as House Democrats prepare a manifesto to combat the GOP's "Contract with America."

Senator Dole, in contrast, has a more affluent constituency that is doing pretty well, thank you, even as it rails against high taxes and government regulation. As the candidate of the out-party, he naturally seeks out Mr. Clinton's economic vulnerabilities while trying to avoid steps that would interfere with long-term economic growth. Note how gently Republicans treated all three Clinton nominees to the Federal Reserve Board. His is definitely the more difficult political task.

PTC Neither candidate can resist hot buttons. There is no pressing economic compulsion for the Clinton-backed rise in minimum wages or for Senator Dole's drive to repeal the 4.3 cent gasoline tax passed in 1993.

Nevertheless, these two proposals will pass, probably in combination, since neither President Clinton nor Senator Dole dares to oppose them. Their political impact is problematical and their economic impact far less than all the palaver would suggest. Most pertinently, they do not interfere with the smooth operation of the Clinton-Greenspan connection.

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All in all, if the economy stays on track, Senator Dole has a big problem -- thanks in part to his Republican friend at the Federal Reserve.

Pub Date: 5/05/96


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