Economists Rate Clinton After a Year in Office
Views vary on his success, but he gets an `A' for trade policy
OUR job as economists is to explain, not complain,'' says Allan Meltzer, an economics professor at Carnegie Mellon University in Pittsburgh.
But as President Clinton's first year draws to a close, economists are doing plenty of both.
A sampling of economists found agreement that Mr. Clinton's health-care reform package should not pass in its present form; most praise the administration's handling of trade issues thus far. But when it comes to the overall state of the economy, Clinton's budget decisions, and his administration's monetary policies, economists head down separate paths.
As Nobel laureate Robert Solow, professor of economics at the Massachusetts Institute of Technology in Cambridge, Mass., says, ``Any kid ... could have predicted 12 months ago what each of us would say.'' Mr. Solow spoke at last week's meeting of the American Economics Association.
Most discussion about economic policy is about distribution and redistribution of income, Mr. Solow says. ``I give him [Clinton] credit for redistribution without disguising it,'' he says. ``His concept as a candidate was the need to shift the composition of gross domestic product toward productive investment and away from public consumption.'' Solow praises Clinton for his role in the budget debate, for helping to keep interest rates low, and for strengthening US investment.
Where the Clinton administration has failed is in providing unemployed workers with training or other educational resources, Solow says. ``United States citizens are not prepared to tax themselves for educational purposes,'' he says.
There needs to be a shift to more public spending in education and infrastructure, but Clinton is just beginning to implement his objectives, says Robert Eisner of Northwestern University in Evanston, Ill.
``The administration's aim is not expenditure reduction but expenditure switching, not deficit reduction but expenditure change - new forms of spending,'' Mr. Meltzer says. ``This will be mainly consumption spending, described as investment.''
The principal changes in resource use since Clinton took office are cutbacks in defense spending and increased spending on entitlements and transfers - resulting in a $240 billion tax increase that ``falls mostly on those who save most,'' Meltzer says. Furthermore, if the Clinton administration's health proposal is adopted, entitlements and consumption will grow significantly, he predicts.
What Clinton is offering Americans as health-care reform is ``recklessly expensive, murderously ineffective, and ... the means are so far away from economics that they are frightening,'' says Rudiger Dornbusch, a professor of economics at MIT and a Clinton supporter.
Politics, more than economics, drives the administration's effort in health care, says Glenn Loury, an economics professor at Boston University. The president is trying to secure his reelection by creating a sense of crisis around the health-care issue, Professor Loury adds. ``I don't think there were many economists in the room when the policies were formulated,'' he says.
Redistribution of health costs is unavoidable, Melzer says, but it must be done in the least harmful way. ``The Clinton health care program will not control costs with or without price controls,'' he says. ``Increased demand and reduced supply will yield higher cost and less quality.''
The health-care debate is a good example of the current administration's emphasis on increased government intervention, says Robert Barro, a professor of economics at Harvard University. This is ``the kind of increase in the scope of government involvement that Bush never would have contemplated,'' he says. Mr. Barro says he is concerned that the Clinton administration will use the country's expectation of good economic performance and strong financial markets as an opportunity to implement policies that ``have very adverse effects on the economy in the long run.''
A serious negative is the Clinton tax plan, Barro says. The plan increases tax rates on the wealthy, causes distortions, and in the end will not raise any revenue, he argues.
An early attack on the budget and a willingness to use taxes were a powerful political decision with an early payoff, Mr. Dornbusch counters. Certain budget moves were thought to be politically impossible, he says, but nothing else could have gotten the economy growing as rapidly as it is now. ``Lower interest rates might not have continued without budget cuts,'' Dornbusch says.
The economy started to grow before President Bush left office, Loury says, and the tax effects have not yet been felt.
These economists agree that the Clinton administration's trade policy is one of its greatest strengths. The commitment to free trade was ``a bold move by the Democratic administration,'' Dornbusch says.
Barro says he evaluates the Clinton's economic policies along the lines of a ``misery index,'' measured by changes in inflation, the unemployment rate, and long-term nominal interest rates. During Clinton's first year, the misery index declined by half of 1 percent. But politics are not far removed. ``It's only one year ... and most of what occurred in the economy no doubt had little connection with the policy good or bad that's been implemented,'' Barro says.