Wise Clintonomics

IF advice were money, the United States budget deficit would disappear. President-elect Clinton is being deluged with suggestions on how to deal with the slow economy and the federal budget's red ink as his transition into the White House moves ahead.

Here's our two bits:

It now looks as if the recovery is showing some genuine vigor. Real (after inflation) personal income, real consumer spending, and capital-goods orders have at last beat their pre-recession highs. The first revision of the gross domestic product numbers for the third quarter, released Wednesday, showed an annual real growth rate of 3.9 percent. That was decidedly better than the original estimate a month ago. After a slump last summer, industrial production stepped up its pace in October. Orders for dura ble goods shot up 3.9 percent in October. Further, September orders were revised upward.

If December and early January statistics follow this pattern of faster growth, Mr. Clinton should keep his plan for fiscal stimulus to modest amounts. Any tax or spending changes should be made for their own reasons rather than to simply boost the economy. The Federal Reserve System has poured more than $100 billion of reserves into the banking system. There are indications that banks are finally using more of this money to make loans that create jobs rather than putting it into Treasury securities.

The impact of such monetary-policy changes on the actual economy always has uncertain lags and imprecise magnitudes. Fiscal policy also takes time to work. So Clinton will need to be careful not to pour on fiscal kerosene just as the economy flames up from monetary fuel.

Nonetheless, if more spending on infrastructure (roads, bridges, etc.) is justified on its own account, a modest program of $20 billion should improve the nation's productivity. In an economy turning out $6 trillion of goods and services per year, that spending is relatively small - not even one-half of one percentage point.

An investment tax credit could encourage business investment in new factories, machinery, computers, and all the other equipment that add to the nation's productive capacity and productivity. Given the deficit, the credit should be structured to get a big bang for as few bucks as possible.

Finally, Clinton's program should include measures for shrinking the deficit by at least half by 1996. That will require tough measures - cutting the government's escalating medical bill, hiking taxes modestly on the wealthy, and perhaps increasing the tax on the Social Security pensions of upper-income citizens.