Bob Dole and Bill Clinton
Bob Dole and Bill Clinton; drawing by David Levine

“Perhaps if people were told of their dangers,” Churchill suggested to Britain’s war cabinet in 1940, “they would consent to make the necessary sacrifices.” Economic dangers differ from wartime peril, of course, but over much of the past year the American political system looked as if it were about to apply Churchill’s maxim in just that context.

The 1992 election campaign did not initially focus on the dangers inherent in the trajectory of mounting debts and deficits charted by Presidents Reagan and Bush, but it certainly did so once Ross Perot reentered the contest. Both Mr. Perot in his televised “infomercials” and Bill Clinton in his own campaign appearances repeatedly emphasized the economic damage done when a nation persistently lives beyond its means.

The two challengers also repeatedly made the case that the real burden of this excess falls primarily on Americans who are too young to vote, or not yet born, and on that ground they questioned not only the Reagan-Bush policy’s economic wisdom but also its moral probity. And while they differed over concrete matters like which government programs to cut and whether or not to impose a fifty cents per gallon tax on gasoline, both men were plain that Americans can and should make sacrifices, by forgoing some of what government now does as well as by paying more for it, to prevent those dangers from becoming realities.

Just after the election, Mr. Clinton used the Little Rock economic conference to focus public attention yet more fully on what is wrong with the government’s tax and spending policies and what will happen over time if it isn’t fixed. With the President-elect sitting close at hand, some of the country’s most distinguished economists explained why today’s huge excess of spending over revenues causes the US government to drain away the bulk of what Americans save, why that loss of saving restricts what the nation can invest, and why without adequate investment the standard of living cannot rise. Other speakers, including many who have since assumed responsible positions in the new administration, explored potential ways of addressing these problems, again including solutions that would require real public sacrifice.

Finally, the new President himself took up the message, beginning right from his first day in office. In his Inaugural Address, President Clinton observed that “most people are working more for less” already, and argued that to reverse this creeping decline,

we must invest more in our own people, in their jobs, and in their future, and at the same time cut our massive debt.… It will require sacrifice, but it can be done and done fairly, not choosing sacrifice for its own sake but for our sake.

Four weeks later, in his State of the Union speech, the President was even more explicit. The problem, as he put it, is “two decades of low productivity, growth, and stagnant wages; persistent unemployment and underemployment; years of huge Government deficits and declining investment in our future.” The solution? In blunt terms, “spending must be cut, and taxes must be raised.”

In the wake of this forceful and sustained effort to tell the people of their dangers, the subsequent call for sacrifice has been somewhat disappointing. Over the next five fiscal years, beginning this October, President Clinton’s initial budget proposals called for $328 billion of tax increases, partially offset by $77 billion of tax reductions, together with $375 billion of spending cuts compared to current policies, partially offset by $153 billion of increased spending on other programs. The resulting $473 billion of net deficit reduction represented about one third of what the administration estimates that the government would have to borrow over the next five years if it simply carried on under today’s tax and spending policies. The administration predicted that the combination of a recovering economy and these proposed tougher fiscal measures would narrow the deficit from last year’s record $290 billion, and probably well over $300 billion this year, to $206 billion by 1997 (after which the deficit will begin to widen once again, even with these policy changes). With just the economic recovery, but no change in policy, the deficit would instead widen to $346 billion in 1997.

The budget package recently passed by the House of Representatives, and now pending before the Senate, is very close to what the President originally proposed and, as I write, still pending before the Senate. The House version calls for $496 billion of deficit reduction over five years, to be achieved through $273 billion of tax increases, net of tax cuts, and $223 of spending cuts, net of proposed new spending. The Senate will probably introduce some further changes, primarily ones that will enlarge the total of spending cuts and reduce the total tax increase, but most of the major elements of the program are likely to remain intact and the overall projected net deficit reduction is likely to remain close to the half-billion dollar benchmark.


All this may look like a big change, and in a sense it is. President Clinton has clearly called for a change of fiscal direction, especially compared to the chronic inattention to fiscal responsibility that marked the approach of Presidents Reagan and Bush. But Americans are also entitled to ask whether the change Mr. Clinton has proposed is big enough to address the genuine dangers about which he has so energetically warned. More basically, does it represent a call to sacrifice consonant with what the President, Mr. Perot, and others have prepared people for by repeatedly highlighting those dangers?

The main reason for wanting to reduce the government’s deficit in the first place is that the borrowing it forces the Treasury to do absorbs private saving, saving that the financial markets would otherwise make available to businesses undertaking investment in new factories and machines or to families building new houses. The most immediate question that arises about any deficit reduction plan, therefore, is whether it frees up enough saving to enable the private sector to increase the economy’s overall investment rate to a level consistent with reasonable objectives for rising living standards and enhanced international competitiveness.

Despite several favorable developments that should have boosted US productivity growth and therefore real wage growth in the 1980s—a more experienced work force and generally declining energy prices, to cite just two examples—productivity growth has continued to be disappointing and real wages have stagnated. Accounting for such shortfalls in any precise way is impossible, but inadequate capital formation is clearly one of the central elements in the story. After allowance for replacement of buildings and machines that wore out or became obsolete, business investment in new productive facilities averaged 3.6 percent of US national income in the 1960s and 3.7 percent in the 1970s. Since 1980 the average net investment rate has been just 2.6 percent. Investment inclusive of needed replacement has declined even more precipitously in recent years. Gross investment in new factories and equipment was 13.5 percent of national income in 1981. By 1989, the last year before the latest recession, the gross investment rate had fallen to 10.8 percent. Last year it was just 9.2 percent.

Not investing adequately means not providing workers with the tools they need to do their jobs productively and competitively. Not surprisingly, periods of rapid growth in the total amount of capital per worker in the US economy have also seen rapid growth in productivity, and vice versa. If business had invested during the 1980s at the same pace that prevailed on average over the previous three decades, by 1990 there would have been $65,700 in capital behind each American worker. But because business invested less, the actual amount was $57,600. Just last month the Federal Reserve Board reduced substantially its estimate of the US economy’s potential capacity for further expansion, underscoring the directly practical consequences of a decade of inadequate investment.

When the economy is at or near full employment, as it was during much of the 1980s, the principal factor limiting its investment is the amount of saving available to finance it. On average throughout the Reagan-Bush years, all American families and businesses together saved 5.9 percent of national income on a net basis. (Broader measures, which count household purchases of durable goods like refrigerators and VCRs as “investments,” naturally lead to higher estimated saving rates. But the “saving” that is “invested” in these items is not available to finance new factories or new machines, and no one thinks that putting bigger refrigerators and more VCRs in Americans’ houses will enhance their productivity or competitiveness.) The federal deficit during these years absorbed 3.8 percent of national income, or nearly two thirds of that saving. How much better will the Clinton program do?

For 1997, the year in which the deficit hits bottom under the Clinton plan, US national income will probably reach the neighborhood of $7.6 trillion. (This level, predicted by both the administration and the Congressional Budget Office, would represent a five-year average growth of 5.1 percent per year—slightly more than half of it real, the rest merely inflation—from last year’s level of just under $6 trillion.) The administration’s projected deficit of $206 billion in 1997, under the assumption that Congress adopts the President’s proposals in full, would represent 2.7 percent of that year’s national income. If the private sector’s saving rate remains near the 5.9 percent level of the past dozen years, therefore, borrowing by the Treasury will still be absorbing almost half of the economy’s already meager saving. An improvement over the Reagan-Bush years? Yes. But satisfactory? Of course not.

As always, it is easy to imagine any number of reasons for optimistically supposing that novel developments may rescue the situation despite a deficit that continues to be so large when compared to the available saving. Perhaps families will save more as the members of the baby boom generation grow older. Perhaps the advance of the information age will finally begin to make possible gains in productivity, and therefore rising real wages, without requiring much investment by business. Perhaps the current economic problems in Europe and Japan will so worsen that Americans will at least be able to think of themselves as gaining on the competition, even if developments at home are still disappointing.


Sadly, imagining does not make it so. Each of these tantalizing possibilities has been around at least since the beginning of Ronald Reagan’s presidency. Like the theory that Elvis will one day turn up alive and well somewhere in South America, each such prediction is impossible to disprove in advance. But none provides any real basis for confidence in this nation’s economic future, or solid ground for disregarding the genuinely likely prospect of continuing to dissipate the nation’s saving instead of investing it. A government deficit that still absorbs half of America’s net saving is just too big.

Applying a different, more fundamental perspective to the President’s proposals leads to the same conclusion. What made the Reagan-Bush period unique in American history, from a fiscal standpoint, is that even in peacetime the government borrowed so much that its outstanding indebtedness grew faster than the economy’s ability to produce income. When President Reagan took office, the government owed $26 for every $100 of that year’s national income. When President Bush left office, the government owed $53 for every $100 of a year’s income. The Congressional Budget Officer projects that under current policies the government’s debt per $100 of income would reach $77 after another ten years. Presumably it would just keep rising thereafter.

No nation can continue indefinitely to increase its debt faster than its ability to produce income. Before President Reagan, this nation never tried to do so. Except for wars and occasional brief episodes when the economy faltered, the government’s debt was either stable or declining compared to US national income for two centuries until 1980. Once the full implication of Mr. Reagan’s tax and spending policies became undeniable, apologists argued that the US government’s ratio of debt to annual national income was sufficiently low compared to that of other countries—for example, 0.57 in Japan, where there clearly is no problem in this regard, or 0.93 in Italy where there clearly is a problem—that there was no cause for concern. But twelve years later this country’s government debt ratio is not so low any more. Comparisons to Japan’s level can no longer provide much comfort, and on the current trajectory even Italy’s seems not so far away.

By 1997, the US Government’s total outstanding debt will be roughly $4.5 trillion. (It was $0.7 trillion when President Reagan took office.) Compared to this total, a deficit of $206 billion—to recall, the low point under the Clinton plan—will represent debt growth of 4.6 percent in a single year. The average growth of national income that the government projects for the five years ending in 1997 is 5.1 percent per annum. Even this relatively modest growth rate, however, optimistically includes more rapid expansion this year and next, on the assumption that the economy is now recovering toward more nearly full employment of its labor and capital resources. By 1997 the projected income growth is just 4.7 percent, and thereafter it is still lower. Hence a one-year deficit still big enough to add another 4.6 percent to what the government owes will be barely sufficient—and if income growth is disappointing it will not even be sufficient—to arrest the steady climb of debt relative to income that began with President Reagan. Such a deficit will certainly not allow the debt ratio to begin once again to decline over time, as it always used to do apart from wartime.

Moreover, experience suggests that comparisons like these, based as they are on the consequences of the President’s tax and spending proposals as predicted by the administration, are likely to overstate the amount of progress actually achieved in narrowing the deficit and hence to understate the continuing actual growth of government debt and absorption of private saving. No American adult who lived through the Reagan era, when the confident prediction that extraordinary economic growth would so bolster tax revenues as to eliminate the deficit altogether came directly from the President himself, can sensibly accept at face value the claims of any President, of either party, about the consequences of proposed changes in tax and spending policies. The right question to ask about President Clinton’s proposals, therefore—and in light of recent history the question implies no disrespect—is not whether the administration’s budget projections are accurate but how far they are off the mark.

At least according to the Congressional Budget Office, the answer is, not very far. The CBO’s analysis of the President’s program mostly differs not about the likely outcome but about who should get the credit. For 1997, for example, the administration claimed its proposals would cut spending by $73 billion (net of spending increases) and raise taxes by $68 billion (net of tax cuts), thereby reducing what would have been a $346 billion deficit to $206 billion. By contrast, the CBO calculated the net spending cut for 1997 to be only $45 billion and the net tax increase to be $72 billion. But because the CBO began from a baseline deficit that would be only $322 billion under current policies, the resulting 1997 deficit is $205 billion, slightly smaller than what the administration predicted.

The main difference between these two computations is simply a question of how to account for various spending cuts, including the reductions in both defense and domestic spending that are necessary to meet the dollar limits on spending to which President Bush and the Congress agreed as part of their 1990 budget compromise. The CBO built those cuts into its “current policy” baseline on the principle that the 1990 legislation already requires them. The Clinton administration wants to include them among its own spending cuts, on the grounds that simply mandating numerical spending limits is very different from saying which programs are to be sliced in order to meet them.

From the standpoint of what affects the American economy, such intramural disputes are irrelevant. What matters is that both the administration and the CBO agree on a likely 1997 deficit modestly above $200 billion if the Senate now approves the President’s budget. Similarly, for the five fiscal years running from 1994 through 1998, the CBO projects an average deficit of $236 billion under the President’s proposed policies, versus the $231 billion average deficit predicted by the administration.

This remarkably close agreement notwithstanding, there is still ground for skepticism that the President’s proposals—even if they were to be enacted in full by Congress—would actually deliver deficit reduction on the scale claimed. The largest single component of the proposed reduction in spending, accounting for nearly a third of all spending cuts and fully half of the President’s $222 billion in net savings over five years, is a $112 billion whack at the defense budget. A defense cut-back on this scale will strike many as large, but in the new post-cold war era it probably can be achieved under an administration that genuinely wants to do so.

Another $76 billion of savings, however, was specified to come from a long list of proposed cuts grouped under the general category of “Managing Government for Cost-Effectiveness and Results.” Because the President’s published program provided a detailed sixty-two item breakdown of what managing government for cost-effectiveness and results is supposed to mean, direct comparisons to such Reagan era classics as “Elimination of Fraud, Waste, and Abuse” are so far unwarranted.

Even so, $76 billion is a significant part of the overall net reduction in spending to be achieved. While some of the sixty-two line items given sound reassuringly concrete—examples range from saving $11.3 billion by forgoing a federal pay raise in 1994 and holding raises to 1 percent below inflation in each of the next three years, to, at the other end of the scale, saving $10 million on the US Information Agency’s Russian Far East Technical Assistance Center—others do not. For example, the $76 billion five-year total included $10.5 billion from cutting 100,000 federal employees, but there was no indication of which parts of the government are to shrink their payrolls. It also included $11.3 billion of unspecified “other administrative savings.” There was also a further $12.1 billion over five years, in addition to the $76 billion, for “Stream-lining Government.” Clearly, much of the success of the President’s deficit reduction program depends on whether such spending cuts prove real or mythical.

Perhaps the most intriguing component of the detailed spending program underlying the President’s State of the Union speech is the $60 billion of cuts ($68 billion in the version passed by the House) to be achieved by “Controlling Health Costs,” mostly in the Medicare program. Here, too, a detailed list of proposals ranges from $105 million for permanently extending the Medicare Secondary Payer program for end-stage renal disease after eighteen months, to $11.6 billion for maintaining the ratio of Medicare premium collections to outlays at a 27 percent ceiling. No doubt all such savings are entirely possible. Many Americans will naturally wonder, however, how this $60 billion worth of detailed changes proposed in mid-February relates to the planning process, still under way in June, of the First Lady’s task force on health-care reform.

The question is more than a matter of curiosity, in that the presentation of the President’s program in A Vision of Change for America, the book that provided the main supporting materials underlying his State of the Union speech, pointed squarely to rising health-care costs as the chief reason why the deficit will widen again after 1997 even if Congress enacts his proposed budget in full. This analysis obviously placed an enormous responsibility on Ms. Clinton’s task force to find cost savings just in order to maintain whatever progress the President’s program makes in narrowing the deficit. The burden is all the greater, however, in that the President’s own proposals already included $60 billion of health-care savings over five years ($22 billion in 1998 alone), although they still projected a deficit that widens from $206 billion in 1997 to $241 billion in 1998. The burden will become greater still if the budget as accepted includes $19 billion of further Medicare savings, as the Senate Finance Committee proposes.

Spending cuts that do not materialize are one reason the President’s deficit reduction program may fall short of meeting its stated objectives. Disappointing tax receipts are another. Although the gross total of spending cuts that the President has proposed modestly exceeds the total projected tax increase, on a net basis—that is, after subtracting proposed new spending programs and new cuts in taxes—more than half of the overall deficit reduction that President Clinton hopes to achieve over the next five years is supposed to come from added revenues.

A large part of the attention that these revenue proposals have attracted has naturally concentrated on the new energy tax (originally to be $71 billion over five years from a broad tax, although the Senate, apparently under pressure from a variety of lobbyists, is likely to substitute a more modest tax on motor fuels) and on the change from 34 percent to 35 percent in the corporate profit tax rate ($16 billion, but originally $30 billion from raising the rate to 36 percent). But the heart of the President’s proposed tax increase consists of greater levies on upper-income tax payers, including $124 billion from imposing higher income tax rates on families with incomes above $140,000 ($115,000 for individuals) and another $29 billion from applying the current hospital insurance tax to payroll incomes above $135,000. A decade ago, President Reagan’s hopes for a flood of additional revenues from lowering individual income tax rates were sorely disappointed. How plausible today are the Clinton administration’s projections of $151 billion of additional revenues from raising rates?

Discussion of this question since the President submitted his proposals has mostly harked back to the Reagan era notion that people’s willingness to work, or invest, or start new businesses, is highly sensitive to tax rates. There is, of course, no inherent reason why people’s behavior in any or all of these respects cannot be extremely sensitive to tax rates, but that does not mean it is highly sensitive. There is also no inherent reason why it cannot be quite insensitive. The matter simply cannot be answered as a matter of abstract reasoning alone. Only real experience with the behavior of actual people who work and invest and make productive innovations can tell. The reason most economists were not surprised when the tax cuts that reduced rates by one fourth during 1981–1983 failed to generate a surge of new work effort is that ample evidence, based on prior experience in the US labor market, had strongly suggested that the average person is just not sufficiently willing, or able, to adjust his or her efforts at work in response to incremental changes in after-tax pay rates so as to produce such a reaction.

Now the identical issue has come up again, but with the direction reversed. Opponents of President Clinton’s proposals ask what would happen if upper-income people responded to the new higher tax rates by cutting back 10 percent on how much they work, and they go on to calculate that a negative response of that magnitude would eliminate most of the increase in revenues the administration projects. Such statements are presumably correct as a matter of arithmetic, but the real question is why one would assume such a sharp negative response in the first place. There is no substantial evidence from the US labor market to warrant a prediction of this magnitude. After all, the issue at hand is not whether some hypothetical tax increase, under some imaginable set of circumstances, might induce a sizable reduction in work effort—as of course would be bound to happen if rates got high enough—but whether this proposed increase, to a maximum rate of 42.5 percent (including the health insurance tax) on incomes above $250,000, will plausibly do so. Based on evidence from past experience, the answer is no.

Even so, the fact that so much of the discussion of this subject to date has focused on the wrong issue does not mean that there is no cause for doubt about the administration’s projected revenue increases. The real issue in this regard is not people’s reduced willingness to earn income but their ability to change the label they put on their income for tax purposes.

For all its faults, the 1986 Tax Reform Act did achieve the worthwhile objective of equalizing (at 28 percent) the maximum tax rates that individuals paid on ordinary income and on capital gains. It therefore eliminated the incentive that for decades had led upper-income Americans to seek ever more sophisticated ways of transforming interest and dividends, and in some cases wage and salary payments, into capital gains. President Bush’s 1990 budget agreement with Congress raised the top tax rate on ordinary income to 31 percent while leaving the maximum capital gain rate at 28 percent, but the resulting small differential has not spurred tax avoidance transactions on anything like the pre-1986 scale.

President Clinton’s proposal to raise the top rate on ordinary income to 42.5 percent while still leaving the top capital gain rate at 28 percent is another matter. (The Senate Finance Committee has proposed an increase in the capital gain rate to 30.8 percent for incomes above $250,000.) In all probability, the vast industry that used to create devices for transforming wealthy investors’ interest and dividends into capital gains will be back in business. Senior corporate executives will redesign their compensation packages to sweeten stock options in place of salaries and cash bonuses. Owners of smaller companies, who often have great latitude in deciding how to distribute to themselves the earnings of the businesses they control, will likewise choose payments that qualify for the 28 percent maximum rate. The fact that most working Americans have little or no ability to take any of these actions is beside the point. The new 42.5 percent tax rate will apply only to incomes above $250,000. There are relatively few taxpayers in that bracket, but they account for a large part of the total increase in revenues that the administration expects.

In sum, a program that offers at best marginal capacity to meet its declared objectives, even when considered on its face, also has questionable ability to live up to the claims made for it. Its more likely consequence, even if enacted in full, is deficit reduction that will fall well short of the five-year $496 billion total now projected. Even at the low point in 1997, therefore, the deficit will still absorb more than half of the country’s net saving, and the government’s outstanding debt will continue to climb compared to the national income.

Where did things go wrong? The heart of the problem is that after months of energetically preparing the public to accept some significant level of sacrifice in order to escape the real economic dangers that a large and chronic fiscal imbalance presents, the President and his advisers nonetheless shied away from asking for much in the way of sacrifice from most Americans. Despite the long list of itemized expenditure cuts, the program as proposed in fact takes little away from federal spending outside the defense budget. And even if the new energy tax passes in some form, the program still asks few Americans other than the minority who enjoy much larger than average incomes to pay more in taxes.

As presented by the administration, the President’s proposals call for $222 billion of spending cuts (net of new spending initiatives) and $251 billion of tax increases (net of tax reductions) over the next five years, or 88 cents of spending cuts for every dollar of tax increase. The version passed by the House cuts spending by 82 cents for every dollar of tax increase. This ratio, not even dollar for dollar, stands in sharp contrast to the deficit reduction proposals that were made not long ago. Just last year, for example, Leon Panetta, now President Clinton’s budget director but then a California congressman and chairman of the House Budget Committee, introduced a comprehensive proposal to reduce the deficit by roughly $600 billion over five years. That proposal offered three options—one to cut spending by $2 for every dollar of increased taxes, one to cut spending and taxes equally, and one to accomplish the entire job by spending cuts with no tax increase at all. Mr. Panetta himself favored the two-for-one version.

The plan Mr. Panetta now advocates on the President’s behalf seems far away from that. Moreover, even the 88 (or 82) cents per dollar ratio of spending cuts to tax increases overstates what the President actually proposed, since $32 billion of the program’s “spending cuts” over five years really consist of additional income tax payments by Social Security recipients who earn more than $30,000, and who will now have to pay tax on 80 percent of their benefits instead of 50 percent. Relabeling this one item as a tax increase lowers the net ratio of spending cuts to tax increases to just 69 cents per dollar in the President’s proposals, or 63 cents per dollar as passed by the House.

The President’s program spares most Americans from real sacrifice not only by favoring tax increases over spending cuts but also by concentrating these tax increases mostly on upper-income families. Including the effects of all of the proposed tax changes—the higher individual income tax rates, the new energy tax, higher estate tax rates, and so on—as well as the changes proposed in income-based benefit programs like food stamps and job training, 74 percent of the burden of the President’s program falls on families earning more than $100,000 per year. This may or may not be “fair,” but it hardly reflects the repeated public call to sacrifice made so eloquently by Bill Clinton both before and after his inauguration, and by others whom he called to Little Rock. Perhaps because of Mr. Clinton’s successful efforts, and Ross Perot’s as well, the initial attempt by Republican leaders to mount an attack on the President’s tax proposals attracted little public support. Last year members of President Bush’s own party were able to force him into a humiliating apology for having dared to include a tax increase in his final 1990 budget agreement, but in today’s climate the public appears ready to pay.

The question is for what? Both in Congress and in general public discussion, the debate over the President’s program has concentrated less on the proposed tax increases than on the absence of proposed nonmilitary spending cuts. As the Congressional Budget Office bluntly concluded in its March analysis of the President’s program, “The Administration proposes to increase real discretionary spending in most domestic functions of the budget” (emphasis added).

As a result, Congressional resistance to the spending cuts that the, President proposed has been overshadowed by calls for more extensive cuts. When application of current budgeting procedures required Congress to assess the Clinton program’s five-year projected net deficit reduction at only $420 billion, not $473 billion as claimed by the administration, the Senate Budget Committee more than made up the difference by adding a series of further measures including another $47 billion of cuts in nonmilitary spending. Their action reflected the widespread concern among Democrats in particular that if the President’s program ends up delivering little if any deficit reduction, but instead only a big increase in domestic spending financed by a combination of new taxes and defense cuts—not the most likely outcome, but not a possibility to disregard either—the consequences will be damaging both economically and politically. No doubt this same concern lies behind the effort of Senate Democrats now to expand the program’s spending cuts, and trim back the tax increases, before passing it.

I believe President Clinton misjudged the willingness of both the public and the Congress to accept major tax and spending changes as the necessary means to reduce the deficit and thereby boost America’s investment and productivity and the standard of living of the average citizen. In so doing, he misread his own success in creating that acceptance. Attitudes toward the budget today are what they are in no small part because of what Mr. Clinton said and did as a candidate, as President-elect, and then as President. Others, including Ross Perot, were important in this regard as well, but the President himself certainly deserves a major share of the credit for changing how the public sees the nation’s economic problems. Unfortunately he either underestimated how successful he had been in his warnings, or perhaps simply chose not to take advantage of his success by calling for more aggressive action to address the dangers of which he had spoken. Either way, the outcome is especially unfortunate in that no one knows whether this administration will have another, equally promising opportunity to push for bold measures to deal with the fiscal problems Ronald Reagan and George Bush left behind. Nor does anyone yet know whether comprehensive health-care reform and the financing package that goes with it will further compound that fiscal problem or ease it—or, for that matter, whether health-care reform on a large scale will happen at all.

Regardless of whether the President’s proposals represent a sufficiently aggressive assault on the problem, however, they at least constitute an attack. Compared to what Mr. Panetta proposed last year, or to what some current members of Congress would now do if given the chance, the program the President has proposed is in many respects disappointing. Compared to what the President and others prepared the public to understand and accept, it is especially so.

But compared to the approach of the last twelve years, during which the government’s deficit grew while the nation’s investment rate shrank and the average citizen’s standard of living stagnated, the President’s program is surely a big step in the right direction. And compared to what seems the likely alternative now, which would probably amount to taking no action at all, it certainly merits the public’s support.

Churchill’s statement to the war cabinet in 1940, when he was prime minister, was actually a direct quotation from a memorandum he had written in 1936 to a cabinet of which he had not even been a member. The cabinet took little heed, and the price paid for that four-year delay was enormous. The United States has idly allowed its chronic fiscal imbalance to starve investment and stunt productivity for over a decade. The time to address the problem is now, and President Clinton has forcefully turned the nation’s attention toward that task. The program he has offered may stop short of the full attack that many would prefer, but it moves the country in the right direction and by more than any other fiscal action within recent memory. It deserves the support of both the public and the Congress.

June 17, 1993

This Issue

July 15, 1993