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Eyeing Clintonomics: Jimmy Carter Redux?

JUST over two weeks from election day, Bill Clinton has a commanding lead over George Bush. Although campaign documents are rarely a reliable guide to presidential action, the shape of the new Clinton administration is clear.

Federal spending, already out of control, will rise even faster. Taxes will go up, initially just for upper-income families, but later on for the middle class, too. The Clinton White House will pressure the Federal Reserve to stay with easy money long after the economy fully recovers. Inflation will accelerate. The dollar will continue to drop.

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In 1993, of course, the economy will do much better. The Fed has already seen to that. Consumer spending, housing, business investment, and exports are all improving. Truly weak sectors account for less than 3 percent of output. However, the key issue is not 1993's prospects, but whether Gov. Clinton's economic engineers can improve long-run growth. The obvious risk is that, like Jimmy Carter's team, they may make a bad problem worse.

Despite aggressive use of his veto power, President Bush failed to keep the big spenders on Capitol Hill in check. Federal outlays (not including defense and interest on the debt) have soared at an annual rate of more than 10 percent in the Bush administration. Growth in spending was less than 3.5 percent at the end of Ronald Reagan's term. Bush could not control the Democratic Congress; how would Clinton?

Higher personal taxes are a foregone conclusion, but that is only part of the story. Clinton intends to finance a wide array of social programs through corporate mandates. For example, employers would have to offer private health insurance for their workers. Firms would have to spend 1.5 percent of payroll on education and training. Workers would have the right to time off for family emergencies - without pay but with health insurance.

These mandates would be in addition to literally thousands of requirements under existing health, safety, social, and environmental laws. In economic terms, mandated expenditures are implicit corporate income taxes. No one knows the total cost of mandated outlays, nor can anyone figure out who actually pays them - consumers in higher prices, workers in lower wages, or investors in lower earnings and dividends.

Politicians suggest that mandates give taxpayers something for nothing. However, the rise in implicit corporate taxes has cut profits as share of national income. As profits went down, so did net investment, productivity, and growth. There is no free lunch. Somebody has to pay.

Of all the potential pitfalls in Clinton's economic program, his coming confrontation with Federal Reserve chairman Alan Greenspan may be the most serious. Mr. Greenspan, a staunch Republican, will be chairman of the Fed at least until March 1996, when Clinton would be campaigning for a second term. As a practical matter, Clinton cannot remove the Fed chairman from office. Greenspan is committed to inflation so low that price changes do not enter into economic decisions. Over a long period, stable prices

are the best setting for high investment and rapid growth. Clinton's advisers, despite rhetoric about investment, want a quick payoff, even at the cost of higher prices.

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If Greenspan were to frustrate Clinton's expansionary plans, the Democratic Congress could respond by clipping his wings. In fact, even the Bush administration endorsed the chief feature of a Democratic proposal to reduce the insulation of the central bank from political pressure. This mirrors the adage that the Fed is independent within the government, but not of the government.

Michel Camdessus, managing director of the International Monetary Fund, warned recently that "the most serious mistake we could make today" would be to "relax monetary discipline ... because inflation has been subdued." That was sound advice. The only way to cut long-term interest rates and boost the economy is by reducing expectations of future inflation. That means tighter, not easier money. Let's hope that, if elected president, Bill Clinton learns this lesson before the nation has to pay too big a pr ice.

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