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Economic Challenges For a Second Term

President Clinton probably can thank economic prosperity for his easy reelection. With both low unemployment and low inflation, Republican candidate Bob Dole had a hard time persuading Americans it was time for a change.

And for the next four years, the economy could remain in good shape. Charles Schultze, chairman of President Carter's Council of Economic Advisers, cites research indicating there is no automatic connection between the age of an economic recovery and the probability that there will be a recession in the next year. The present economic expansion will be six years old next spring, rather antique compared with other postwar recoveries.

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"Something could happen - there could be a recession," says Mr. Schultze, now at the Brookings Institution, a Washington think tank. "But the Federal Reserve has things pretty well in hand."

That doesn't mean Mr. Clinton won't face economic challenges. These include making progress toward balancing the federal budget by 2002, cutting back the rapid growth in costs of Medicare and, to a lesser extent, Medicaid, assuring the long-term stability of the Social Security system, maintaining a liberal trade regime, improving the efficiency of environmental regulations, smoothing the deregulation of electric utilities, fixing up the new welfare-reform program, and encouraging improvements in public education.

Schultze maintains Clinton could deal with the escalating costs of entitlements and win some credit for doing so, certainly with young people. Young people don't want to be stuck paying the medical bills of their parents or providing them with housing and living expenses. "You could even make it popular," he says. Both Clinton and Dole suggested forming a bipartisan commission to propose solutions.

But Keith Poole, a professor of politics and political economy at Carnegie Mellon University in Pittsburgh, figures that Republicans in Congress could give Clinton a hard time on entitlements, particularly since he "demagogued" the need for Medicare cost restraint in the election. "Democrats painted themselves in a corner on this," he says.

Mr. Poole notes a 25- to 30-year trend affecting Washington affairs: The two main political parties are polarizing in terms of income distribution. The Republicans have become much more the party of the well-to-do; the Democrats of lower-income or median-income voters.

Such a pattern is common in most industrial democracies. But the United States was different decades ago. In 1952, party identification in the South was almost 80 percent Democrat, only 20 percent Republican. The strongly conservative Southern segment of the Democratic party has been disappearing. By 1992, party identification was 50 percent Democratic and 35 percent Republican in the South. Detailed analysis of Tuesday's election will likely show that trend has continued, Poole says.

This increasing party homogeneity has heightened the importance of economic issues for the parties, he continues. Many issues have become matters of income class more than race. These include the minimum wage, Medicaid, welfare, food stamps, affirmative action, and income redistribution through taxes.

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"They all involve taking away from someone and giving it to another," Poole says. "They are not about civil rights any more."

To help his party constituents, Clinton has promised a number of measures, such as an education "voucher" of $1,500 for those attending a community college, a tuition tax credit, and expansion of the family-leave act.

Since the $1,500 voucher requires a B grade-point average, Poole suspects the vast majority of students will get that grade. They will all be "above average," like the children in Lake Wobegon of the Prairie Home Companion radio show, he says.

One likely need for Clinton will be to find new members of his economic team. Laura Tyson, head of the National Economic Council, is rumored to be leaving. If that is the case, her successor will need to have unusual talents in coordinating the policies of a host of government agencies - the Treasury, Commerce Department, State Department, and so on. The NEC currently has 18 staff members and is supposed to parallel the National Security Council, which deals with defense and foreign policy. But experts regard the NEC as "a work in progress" that could even help the president handle health-care reform.

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