Charts Make a Case: Shrink Federal Debt

ROSS PEROT flashed his familiar charts to viewers during his televised debate Tuesday with Vice President Al Gore Jr. on the North American Free Trade Agreement (NAFTA). It is a technique Mr. Perot may have learned from investment banker Peter Peterson more than two decades ago.

Mr. Peterson, then Secretary of Commerce under President Nixon, prepared charts on the economic position of the United States. They proved so popular that the government printing office made them into a booklet and sold 35,000 copies. ``I told Perot about those charts,'' Peterson says.

Peterson, now chairman of the Blackstone Group, a private investment bank in New York, is traveling around the country promoting his new book, ``Facing Up: How to Rescue the Economy from Crushing Debt & Restore the American Dream.'' The book's message is somewhat the same as the one Perot made when he was running for office: The nation needs to tackle the federal deficit to get back into good economic shape.

At the back of the book there are more than 60 pages of charts (A Visual Guide to America's Real Leading Indicators) on glossy paper and in color. Speaking of the publishers (Simon & Schuster), Peterson says, ``When I said color, I thought they were going to die.'' Such expensive charts in a non-art book are unusual. They portray a gloomy picture of weak productivity growth, stagnating wages, minor gains in living standards, younger Americans hurting economically compared with their parents, a falling savings rate, too much consumption, inadequate investment, burgeoning private and government debt, massive deficits, swelling entitlements including out-of-control health costs, and worsening prospects for the future generation.

This dismal view hangs to a considerable extent on the argument that the US is not saving and investing enough to provide a more affluent future.

That may be, says economist William Dewald at the Federal Reserve Bank of St. Louis. But he finds that the bottom has not fallen out of capital formation. ``The country is doing a lot better than people are giving it credit for,'' he says.

Mr. Dewald abandons the conventional method of assessing the nation's investment performance, which is to examine its ratio of gross private domestic investment to gross national product (GNP) in current dollars. By this measure, US performance in the 1990s is the worst since World War II. Instead, Dewald takes into account the decline in the relative price of investment goods - machinery, buildings, computers, etc. Using that method, there has been little change (though investment levels always drop in recessions). The average proportion of real gross private domestic investment to real GNP averaged 16.58 percent in the 1950s, 17.03 percent in the 1960s, 17.89 percent in the 1970s, 17.81 percent in the 1980s, and 16.17 percent in the 1990s with a recession and a record-slow recovery.

All that doesn't mean Peterson is wrong in urging the Clinton administration to do more to bring down the deficit. A longtime Republican, Peterson may annoy some of his well-to-do friends by approving President Clinton's effort to cut the deficit by placing more of the tax burden on the rich. He welcomes the president's move to reform health care, though he holds that it would have been better if Mr. Clinton had proposed for a start a ``no frills'' plan with all kinds of cost-control measures. Because of the new entitlements in the Clinton plan, Peterson calls it ``a riverboat gamble'' that could escalate rather than hold down costs.

Peterson cheers Clinton's appointment of an Entitlement Reform Commission to explore the problem of high costs for government programs such as Medicare, Medicaid, and Social Security. ``It is a subject whose time has come,'' he says.

Peterson maintains that entitlements for the middle class - the ``third rail'' for politicians - must be touched to bring the deficit down to zero. He suggests a steeply graduated ``affluence test'' on a program for reducing government benefits (including tax deductions on mortgage interest) by $260 a year, or 1.1 percent, for those with annual incomes in the $30,000 to $40,000 range, rising to cuts of $8,050, or 40 percent, for those in the $100,000 to $200,000 bracket.

Peterson clearly isn't running for office.