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The Pocketbook Issue

BECAUSE the economy will largely determine the outcome of this year's election, it is useful to analyse the economic criteria that might guide voters through the maze of interpretations.

Economist Ray Fair of Yale University has a simple econometric model that predicts President Bush will capture around 55 percent of the vote. A Republican incumbent, the model says, starts out with about a 7-percent vote advantage; it would take a severe economic downturn this quarter and far worse inflation to knock Bush out of office.

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Mr. Fair acknowledges that voter behavior could change suddenly. His model looks at economic growth in the two quarters prior to an election. Perhaps, he speculates, the unusually slow growth of the past four years has made consumers especially gloomy and will change votes.

An incumbent president should not get either the full blame or full credit for the status of the economy. The monetary policy of the Federal Reserve System has much to do with the business cycle.

Nonetheless, in the 1988 campaign President Bush gladly took credit for the prosperity then and promised that voters would be better off in four years. It is no surprise that the Democrats are trying to pin today's economic malaise on Bush.

The Bush administration has presided over an economy that is stalled in recession; there is no arguing about that. Bill Clinton and the Democrats promise they will get the economy, and jobs, growing again; that is an assertion. As voters weigh the Bush facts against the Clinton assertions, they should keep in mind some key factors:

* The deficit: Both parties carry some of the blame for the $330 billion federal budget deficit this fiscal year and the $3 trillion in federal debt.

In the 1980s, the Reagan administration accepted the myth that massive tax cuts would stimulate the economy so much that revenues would grow enough to shrink the deficit. In fact, economic growth in the 1981 to 1988 period, though greater than from 1973 to 1981 (the era of the oil-price shocks), was considerably less than from 1948 to 1973. Neither the White House nor the Democrat-controlled Congress has shown much courage in tackling such budget busters as health-care spending.

* Taxes: The federal tax burden was 20.3 percent of gross domestic product in 1979, 19.7 percent in 1991. An increase in state and local taxes has meant a modest rise in the overall tax burden in those years to 32 percent in 1991. Contrary to Reagan-administration views, cutting taxes did not force federal spending into line with revenues, as the growth in the deficit indicates.

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Though now terming it a mistake when he broke his "read my lips" pledge, President Bush took the responsible path in agreeing on a budget package involving tax increases in 1990. The US is not an overtaxed nation. Total government receipts as a percent of national output were 31.8 percent in 1989, compared to 33.4 percent in Japan and 44.6 percent in Western Europe. Another supply-side tax cut, as proposed by Bush, would be a mistake, endangering social and education programs and risking bigger deficits.

* Priorities: Would a Democratic administration "tax and spend?" Perhaps there would be some shifts in emphasis, though far less than the campaign rhetoric would imply. Candidate Bill Clinton offers a campaign program that would raise taxes on the most affluent 2 percent of households, taxpayers who prospered in the 1980s and enjoyed some modest reduction in their tax burden. That, plus some tax reduction for the middle class, would restore some additional progressivity to the federal tax system and slig htly reduce the growing inequality of incomes.

* Training: The Clinton plan calls for stepped-up spending on apprenticeships and other training for workers. Bush has proposed a smaller expansion in this area, where the federal government already spends $18 billion a year. Considering the decline in income in the 1980s of less-educated workers, these workers must be better prepared for jobs of the 1990s.

In the end, voters must decide how much they're influenced by the present economic facts - inevitably tied to Bush - and how much they trust Clinton's economic assertions.

* First in a series.

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