WORLD

‘A FATEFUL MOMENT’

IN CANADA, U.S. BUDGET PLANS TO CUT SPENDING AND CREATE JOBS HAVE RESONANCE IN THE FREE TRADE ERA

RAE CORELLI April 19 1993
WORLD

‘A FATEFUL MOMENT’

IN CANADA, U.S. BUDGET PLANS TO CUT SPENDING AND CREATE JOBS HAVE RESONANCE IN THE FREE TRADE ERA

RAE CORELLI April 19 1993

‘A FATEFUL MOMENT’

WORLD

The world is watching. As America goes, so will major portions of the industrialized world. In Canada, of course, proposals on spending cuts, health care, welfare and other social programs have special resonance, especially given the free trade agreements. Alice Rivlin, deputy director of the office of management and budget, told Maclean’s: “I think it is a fateful moment. If the United States is to have a rising standard of living and the basis for playing the role that most of us feel that it should play in the world—being an economic leader

IN CANADA, U.S. BUDGET PLANS TO CUT SPENDING AND CREATE JOBS HAVE RESONANCE IN THE FREE TRADE ERA

RAE CORELLI

CHRIS WOOD

HILARY MACKENZIE

and a contributor to the prosperity of the world—then we have to get the economy turned around.”

In his 14-minute inaugural address last Jan. 20, President Bill Clinton promised to end “the era of deadlock and drift” that, he claimed, had weakened America, bruised its economy and destroyed the confidence of its people. Even then, it was no secret how he planned to pursue radical change; since the November election, Clinton had talked of the need for massive economic reform, including a new healthcare system, far less spending on defence and a determined attack on the deficit. However, by last week, it was clear that the era of deadlock in Washington politics was far from over. In Congress, Republicans successfully manoeuvred to prevent the Democratic majority from putting a $20.2-billion job creation bill, part of Clinton’s overall economic plan, to a vote. Then, two ranking Democrats made it clear that a tax break to encourage business investment, the other key plank in the stimulus plan, is unlikely to be approved. “Our opponents apparently don’t want to hear about the human cost of playing politics at the country’s expense,” fumed Vice-President Al Gore. Shot back Senate Minority Leader Bob Dole: “If he keeps talking like that, it will be less and less likely there will be a compromise.”

The jobs bill, aimed at creating public works and summer jobs for inner-city youth, is included in a $38.4-billion economic stimulus package—the first piece of Clinton’s program to reach the floor of Congress. There is also a $26-billion proposal to induce companies to spend on machinery and equipment. But the President’s entire $1.5-trillion budget, submitted to Congress last week, is under assault. First, there was the Republican filibuster on the jobs legislation, then the public opposition of Democratic Senator Daniel Patrick Moynihan and powerful

ways and means committee chairman Dan Rostenkowski to the company tax break. When Congress reconvenes on April 19 after the Easter and Passover break, Clinton will face an angry mood, fired by the conviction that even larger cuts are needed in spending than he proposes. And the budget takes no account of the cost of the President’s commitment to provide health care for all citizens. Said Thomas Gallagher, political analyst with the Wall Street brokerage firm of Shearson Lehman Brothers: “Clinton’s political standing is weaker than is generally perceived.”

One reason is that the budget will raise more than $397 billion in taxes, while cutting the deficit by $615 billion over five

years. It also forecasts a deficit of $327 billion for fiscal 1994. Some parts of Clinton’s program will indeed be difficult to sell. They include raising taxes on social security benefits, in some cases by hundreds of dollars a year; major cuts in defence spending; putting a tax on electricity, gasoline and other fuels; imposing royalties on hard-rock mining and gradually getting rid of belowcost timber sales. Revealingly, the White House has already beat a hasty retreat in

the face of special interests: because of anger in western states, it backed off a plan that would have increased fees for grazing cattle on government lands.

Across America last week, the experts watched closely and warily as the President tried to get his game plan in place. “Clinton’s strategy is about right and his policies are about right,” said Lester Thurow, dean of the Sloan School of Management at the Massachusetts Institute of Technology (MIT). “He is trying to push consumption down and investment up. He is dealing with the right problems, but you can’t do it too fast without causing a recession.” The mystery that historians will one day ponder about the decades of the 1960s and 1970s, Thurow said, “is why didn’t anyone care about the future? All

invesment was down, education was down, prison populations were up. It was not a prescription for succeeding.”

Other experts said the fate of the budget and the programs it contained would have an impact outside the United States as well. Another member of the MIT faculty, Robert Solow, winner of the 1987 Nobel Prize in economics, said that Republican attempts to cut back on the short-term stimulus program, for example, “are a bad mistake for the country and for the world because if the U.S. economy recovers a little more quickly, it will help Japan, Canada, Britain and the rest of the world to come back more quickly.” Solow accused Clinton’s predecessors, George Bush and Ronald Reagan, of “quite deliberate neglect of the U.S. economy.” However, he rejected arguments that their policies had threatened the survival of the American economic system. “I think capitalist democracy will survive the Clinton administration no matter what happens,” Solow said. “I don’t honestly think we are looking at a narrow window of opportunity that we dare not miss. I don’t think civilization will end if the Democrats do a mediocre job.” However, some financial experts disagreed. Stephen Roach, codirector of global economic policy for the Wall Street brokerage firm of Morgan Stanley, said he worried that the President was “headed exactly down the wrong track.” The economy, he said, had gone through wrenching changes during the past few years but had £ begun to emerge “with the poteng tial for a solid productivity-led g recovery, which would keep inter| est rates and inflation rates low I and lay out a sustainable and I meaningful pickup, with a job I recovery.” But Clinton was propos° ing to burden business with new costs and hit consumers with tax increases “just as they are struggling out of a meagre recovery. It would be a real tragedy if this recovery few believed would unfold was dealt a cruel blow by a policy blunder.”

In the final analysis, said Thurow, “the economy is never dramatic; it’s not Sputnik. It’s a game of inches—you do things slightly better and you win; you do things slightly worse and you lose. We are testing Bill Clinton and we have to wait to see if he can be a great salesman.” The former governor of Arkansas sold himself to American voters last November. He is still trying to sell the ideas he brought with him to the White House.

RAE CORELLI with CHRIS WOOD in Dallas and HILARY MACKENZIE in Washington