Clinton’s Opportunity

President-elect Clinton faces a situation in which US economic policy and the US economy have reached a standoff. Business is sluggish in part because it must carry the weight of past mistakes, both public and private, but also in part because it has been receiving little help from what in other circumstances would be standard policies used by the federal government to stimulate the economy. At the same time, such policy measures have been largely absent because so many of the usual measures that are appropriate during a time of stagnation—tax cuts, boosts in spending, genuinely deep cuts in interest rates—apparently fly in the face of the need to begin resolving the mess left by the excesses of the last ten years.

All this is not to say that it is impossible to improve the economy in its current condition, or to address the problems created by past errors or, indeed, to do both. There are in fact measures that the nation can take to encourage business today and to foster advances in productivity and competitiveness in the future. There are ways to reverse the trend to low investment and high consumption of the last decade without plunging the economy into a yet deeper shortfall from its potential output. But combining these objectives in a workable policy will require serious dedication, including a willingness to take actions that inevitably will be distasteful to one interest group or another, as well as a degree of legislative ingenuity that, at least in recent years, neither the President nor the Congress has been able to muster. In short, the challenge is very great. But then so is the need.

That 1993 presents a critical opportunity to take action on our economy has by now become a cliché. But this does not make the point less true. The economic history of our time has been radically different because Ronald Reagan in 1981 used his election mandate to support the tough measures, including record high interest rates, that Paul Volcker carried out at the Federal Reserve System in order to brake double-digit inflation. Three years later, voters rewarded the President for having done so, forgiving if not forgetting the record high unemployment that had temporarily ensued.

The economic history of our time would have been radically different in yet other ways if President Reagan in 1985 had followed his reelection victory by imposing some combination of spending cuts and tax increases sufficient to eliminate the very large budget imbalance his earlier policies had created. But he chose not to do so, and we thereby lost the chance to correct this problem while our economy was strong. In 1989 George Bush too missed his opportunity. Perhaps because he believed he could not violate his “Read my lips” campaign pledge, President Bush adopted an approach to our economy’s mounting problems that consistently amounted to too little, too late.

It is now Mr. Clinton’s turn. Because of the mounting economic damage done along the way, the easier…

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