President's economic legacy debated; Clinton claims credit, but experts disagree

THE BALTIMORE SUN

WASHINGTON -- With the Dow touching 10,000, unemployment and inflation at remarkable lows and economic growth climbing, President Clinton is turning to the decade's stellar economic performance as a positive legacy for his administration.

But as more economic mileposts are passed on Clinton's watch, debate is raging over how much credit the administration should take. The Dow Jones industrial average broke through the 10,000 mark yesterday for the first time, though it ended the day down 28 points, at 9,930.

Not surprisingly, White House officials point to policy decisions throughout Clinton's tenure that they say lowered interest rates, eliminated chronic budget deficits, spurred investment and increased job opportunities for a better-trained work force.

"Strengthening the economy to create a foundation for improved living standards for generations to come -- I think those are legacies the president can be proud of," said Janet Yellen, chairwoman of Clinton's Council of Economic Advisers.

And economists of all political stripes are in agreement on one point: The president didn't botch things up, either with heavy-handed interventions in the economy or the appointment of political hacks at the Treasury Department and Federal Reserve Board.

"Most of what governments are liable to do are probably bad, so the biggest thing to any government's credit is not messing things up," said William Cheney, chief economist for the insurance giant John Hancock.

Donald Ratajczak, director of the economic forecasting center at Georgia State University, said: "The captain of the ship is responsible for bringing it safely to port, even if he only hired the sailors, had especially favorable weather and slept through the trip. To say otherwise is to indicate that administrations have no role to play in the economy."

But beyond that, economists appear to be following the old adage that if you line up every economist end to end, you will never reach a conclusion. Some are willing to give Clinton credit for much of the expansion, pointing to policies that they say spurred private investment and opened markets in the United States and abroad.

Clinton's centrist political identity may also have produced broad economic benefits.

"A very important intangible is that Clinton succeeded in bringing the Democratic Party toward the center," said Charles Schultze, a Brookings Institution economist. "His was the first in a large group of left-of-center parties around the world that was pulled toward the center, and that changed the economic environment."

Others are less charitable, saying no politician, Clinton included, can really propel an economy as vast and complex as that of the United States.

"He'd like to take credit for everything," said James L. Butkiewicz, chairman of the economics department at the University of Delaware, who studies the impact of administrations on the economy. "I think he can take credit for far, far less."

The president has pushed through, or at least assented to, a number of policies in the economic realm. The 1993 budget deal, which passed without a Republican vote, raised taxes, cut spending and is generally credited with helping to eliminate federal budget deficits. The 1997 budget act with Congress legislatively locked in a balanced budget.

Clinton pushed through the North American Free Trade Agreement and the General Agreement on Tariffs and Trade -- free-trade deals that President George Bush could not secure. The Clinton administration secured bailouts for Mexico, Russia and East Asia, signed welfare reform, embraced greater competition in telecommunications and energy, and pushed through education and work-force training measures. Even the Justice Department's antitrust cases against Microsoft and Intel were designed ostensibly to spur economic innovation.

But whether any of those policy decisions helped fuel the longest peacetime economic expansion in history is subject to debate. Many economists argue that the nation is enjoying the fruits of economic decisions made long before Clinton came to Washington.

"The fact that I have a 450-megahertz computer on my desk for [just] $1,800 has less to do with Bill Clinton than forces that were at work when [John F.] Kennedy said, 'Let's go to the moon,' " said Curtis Simon, an economist at Clemson University.

Since the early 1930s, when John Maynard Keynes began preaching the need for the government to intervene at times to bolster the economy, policy-makers have debated the effects that government policies could have. But since the Reagan-era tax cuts, the interventionist Keynesians have been in decline, Butkiewicz said. Now, administrations -- including the Clinton White House -- have shied away from trying to fine-tune the economy.

Perhaps the most dramatic policy decision Clinton made was one of his first, the 1993 budget. By 2007, that budget will have raised at least $268 billion by raising taxes and cutting spending. Without it, most economists do not believe the budget would be in balance.

Yellen called it "a critical decision" that proved to be "central to the performance of the economy."

Even some conservatives, who predicted that the plan would send the economy into a free fall, have had to eat crow.

"I still think it was a bad idea, but I must admit it wasn't as bad as I had thought," said David R. Henderson, a research fellow at Stanford University's Hoover Institution, who served on President Ronald Reagan's Council of Economic Advisers.

The budget deal calmed nerves on Wall Street, where traders were wary of a Democratic administration they feared would raise federal spending when deficits were seemingly out of control.

Clinton's reappointment of Republican Alan Greenspan as Federal Reserve chairman and the naming of Goldman Sachs co-Chairman Robert E. Rubin as Treasury secretary had a similarly positive impact.

Rubin and Deputy Treasury Secretary Lawrence Summers have headed the administration's international strike force, securing bailouts that may have helped keep economic turmoil abroad from reaching U.S. shores.

Conservative critics, like Henderson, said the first bailout of Mexico may have helped spawn the global economic crisis by convincing other countries that they could adopt reckless economic policies, knowing the United States would provide a safety net.

Others, including Joseph Stiglitz, chief economist of the World Bank and an original member of Clinton's economic council, have sternly criticized the administration for imposing harsh austerity measures in exchange for those bailouts.

That has helped keep the U.S. expansion alive, Butkiewicz said, in part by allowing international investors last summer to shift their money from developing economies to the United States, thus lowering interest rates and boosting a faltering stock market.

The economic turmoil abroad may have helped the U.S. economy more than it hurt it, by lowering interest rates, bringing in a flood of new investment and spurring corporations to make long-term equipment purchases that will yield future gains.

Said Schultze: "If an administration can make modest improvements around the edges in the way the government affects the economy, they'll be doing very well. You can't expect too much."

Pub Date: 3/17/99

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