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Job One: The Economy


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JOB ONE: THE ECONOMY

Many words have been fixtures in the Democrats' dreary political lexicon through their long White House exile. Words like "loser." Or, to cite George Bush, "clown" and "bozo." But until Nov. 3, "landslide" never appeared in any modern Democratic dictionary.

Bill Clinton changed all that on Nov. 3 with a crushing coast-to-coast electoral victory. The man who began his long march to the Presidency from the Arkansas statehouse amid pundits' yawns and Republicans' incredulous stares rolled up a huge Electoral College majority, beating George Bush by 370 to 168. He did it by pounding away at Bush's economic record and by vowing to convert a sputtering economy into a shiny new engine of growth.

Clinton and running mate Al Gore made some history in their election romp. The duo swept the Northeast and Midwest, picking off such Republican strongholds as New Jersey, Ohio, and Missouri. They cleaned up on the West Coast, capturing California, Washington, and Oregon by huge margins. The Democrats also cracked the GOP's grip on the South and Mountain West. Aside from taking their home states of Arkansas and Tennessee, the "Double Bubbas" picked up Georgia and Louisiana. Colorado, New Mexico, and Montana went Democratic, to the amazement of party pros.

ACROSS THE BOARD. Republicans are making much of the fact that Clinton failed to win a majority of the popular vote, besting Bush by only 43% to 38%. One reason for that is Ross Perot. The Texan spent an estimated $60 million on his independent bid--and captured an impressive 19 million votes (page 33).

But the breadth of Clinton's win was stunning, nonetheless. He rolled up pluralities with most voter groups in nearly all regions. For instance, he persuaded more than 50% of Democrats who had voted for Bush in 1988 to come home. Clinton won the independents, got a lopsided share of the women's vote, scored well with younger voters, and did better among whites than any Democrat since 1964. Clinton got nearly as many first-time voters as Perot and Bush combined.

Although his voice has been reduced to a raspy whisper, Clinton won't rest for long. Hours after his triumph, he began to confront the central challenge of his Presidency: The same sickly economy that helped him win has now become his greatest enemy. "Clinton has a long list of promises and numbers that don't compute," says Ryal R. Poppa, chief executive officer of Storage Technology Corp., in Louisville, Colo. "Now, he has to deliver."

Two straight months of declines in the index of leading indicators haven't made his job any easier. Yet Clinton is no pump-priming Keynesian traditionalist. His approach relies on years of targeted spending on education, training, and the "knowledge base" of the economy--investment that will pay off only in the long term.

That's not to say that Clintonomics ignores the short term. The centerpiece of his economic-recovery strategy is a double-edged plan that seeks to spur new investment right away, while building for future growth (table, page 32). The key elements, which will be presented in a detailed legislative package soon after the new Congress convenes in January: a tax credit for business purchases of new plant and equipment; $20 billion a year in infrastructure spending; a new job-training trust fund paid for by employers; overhaul of the health-care system; and Clinton's cherished plan to provide college-education loans for all.

Clinton and his advisers promise to pay for all this and still come up with a newly explicit plan to halve the deficit over four years. Says Clinton Policy Director Bruce Reed: "This is going to be the most ambitious 100 Days since Roosevelt."

The trick will be to put together a responsible package. After 12 years of divided government, Capitol Hill Democrats have a huge wish list. And though Democrats are delirious in victory now, many of the party's interest groups, among them gay activists, blacks, feminists, and union members, believe they helped put Clinton over the top. They may choose to overlook the new President's focus on the long haul in favor of calls for instant gratification.

The Clintonites are aware of the pressures--and the risks of yielding to them. If credit markets suspect that a Clinton Administration is caving in to pleas for budget-busting stimulus, interest rates will spike and the dollar will gyrate.

Despite the risks, a surprising number of corporate leaders are crossing their fingers and cheering Clinton on. "We're looking to the new President with optimism," says Albert Hoser, CEO of Siemens Corp. "He's smart, and he knows business." Corning Inc. Chairman James R. Houghton says: "We do need something to get the economy going again. Maybe Clinton's victory will push up consumer confidence."

Although a number of foreign governments remain concerned about the Arkansan's inexperience, there's plenty of pro-Clinton sentiment overseas, as well. "If you look at what's pulling the world economy right now, there's only Southeast Asia and perhaps North America," says the president of a large French bank. "If Clinton does boost the U.S. economy, it would be very helpful." And the Russian Parliament greeted Clinton's victory by finally ratifying the Strategic Arms Reduction Treaty.

There are several ways the President-elect plans to boost public confidence over the coming weeks. For starters, he will make an early announcement of his key economic appointments (page 36). "At Treasury," a key aide promises, "you'll see a person who engenders instant business confidence."

`FIRST PRIORITY.' But confidence must be earned by President Clinton's legislative mastery--and by the effectiveness of his interconnected economic proposals. He'll try to push both his recovery plan and a deficit-reduction strategy in tandem. But there is no doubt which one tops his immediate agenda. "My first priority," Clinton says over and over, "is a jobs and incomes program."

That means a tax bill built around a permanent investment tax credit for business purchases of new equipment. The Clintonites hope that proposal alone will add nearly 1 million jobs over the next two years. They'll also include a cut in capital-gains taxes for owners of startup businesses, and, very likely, a boost in the earned-income credit to reduce the tax burden on the working poor. It will be paid for, as Clinton has said for months, with rate hikes on taxpayers earning $200,000 a year or more and by increasing taxes on foreign corporations that do business in the U.S.

Clinton's recovery program will also include a $20 billion-a-year boost in government spending for public works. He will want to spend some of that money right away by increasing funding for existing roads, bridges, and mass-transit programs. "The idea is to provide a bang to the economy," says Clinton economic adviser Gene Sperling, "not by increasing consumption but by investing in things you've got to do anyway."

The third leg of the plan will concentrate on education and training, including financial aid for college students, worker retraining, and apprenticeship programs. The Clintonites are counting on these "human capital" investments to boost U.S. competitiveness. But the results may be years away. "The danger is that everyone expects quick returns," says Van Doorn Ooms, senior vice-president of the Committee for Economic Development. "These things have very long-term payoffs."

Clinton also may show surprising vigor in his assault on the deficit, an issue he soft-pedaled during the campaign. Clinton is no deficit hawk, and he firmly believes that economic growth is the best road to fiscal responsibility. Yet while it's unlikely that serious deficit-reduction would bite before fiscal 1994, which starts next October, Clinton knows the markets expect him to put a plan on the table right away.

The President-elect has taken to heart the painful lesson he learned last month, when long-term interest rates shot up on fears that Clinton planned a costly new stimulus program. "If you don't do a fiscal-stimulus package in combination with longer-term deficit reduction, you could scare the hell out of the financial markets," says Urban Institute economist Isabel Sawhill. "It could all be counterproductive."

SURPRISE? As it is, Clinton has little maneuvering room. He has promised to reduce the red ink by half in four years. That's tough enough, but he also has proposed $220 billion in new investment incentives and spending programs. And he has all but acknowledged that the limited tax increases he has proposed won't cover the tab. What will he do?

Clinton aides are divided on the answer, but there are indications that the new President will surprise both friends and foes by cutting spending even more than he has acknowledged. Clinton has dropped hints that he would pay for part of his infrastructure program by wiping out some congressional pork. He already has promised to cut planned defense spending by $50 billion more than Bush would have over four years.

The President-elect also has dropped hints that he may tackle programs such as medicare and farm subsidies. Some observers believe that only a Democratic leader can get a handle on medicare, medicaid, and the other so-called entitlement programs. Says former Reagan economist William Niskanen: "There is this sense of Nixon going to China."

Clinton may well shift spending priorities by redefining the budget. Aides are considering sending Congress separate budgets for operations, investment, and past obligations, such as the savings-and-loan bailout. That might give Clinton the leverage he needs to cut discretion'ary spending and, not incidentally, stave off GOP efforts to saddle him with a balanced-budget constitutional amendment. The idea: accept an amendment requiring balance only in the nation's operating budget--the same requirement most states impose on their governors.

Clinton's stress on public investment as the spark plug of growth represents a radical departure from Reagan-Bush laissez-faire. So does his trade policy. While he is loath to use the term, the Arkansan plans to put in place an industrial policy that will steer U.S. investment into critical technologies and try to stoke up civilian research and development. On the trade front, Clinton has promised to push for ratification of the North American Free Trade Agreement, but he'll seek more assurances from Mexico on worker and environmental protection.

UNCANNY EMBRACE. Both domestically and internationally, this blueprint for change is extraordinarily ambitious, even for a policy wonk such as Clinton. It all risks flying apart if, as President, he falls back into his campaign pattern of trying to appease incompatible factions. But it is part of Clinton's magic--and a key reason for his election triumph--that he has an uncanny ability seemingly to embrace all points of view.

It's not Clinton's political skills that are in question. What remains unknown is whether he can cut through his bundle of good intentions, alienate some powerful allies, and retain his relentless focus on long-term investment.

Weeks before the election, Clinton struggled to cool the public's clamor for a rapid economic upturn by cautioning that it will take years to climb out of the dark pit dug by Ronald Reagan and George Bush. Amazingly enough, many voters seem to be buying it. Says Ann Pallante, a Philadelphia hospital worker who caught a glimpse of Clinton at a local diner: "He's not a miracle man. He won't change things overnight."

If that tolerant view takes hold, Clinton may have a chance to put in place his methodical, step-by-step approach to economic growth. Heretofore, patience has not been a prominent feature of the American character. So Cheerleader-in-Chief Clinton will have to keep up his marathon stumping to rebuild a nation's shaken confidence in its economic future. If Clinton can pull off that feat--and his investment strategy works as planned--Democrats may find a new name for a White House that for so long has been just a tourist attraction to them. That name is "Home."CLINTON'S PRIORITIES

THE FIRST 100 DAYS

PRIVATE INVESTMENT A tax credit for business purchases of new equipment, a

capital-gains tax cut for investment in startup companies, an extension of the

research and development tax credit for business

PUBLIC INVESTMENT $20 billion a year in new money for public infrastructure,

including roads, bridges, and environmental cleanup technology. Shift defense

research to high-tech civilian programs

TAXES A tax rate hike for couples earning $200,000 or more, a millionaire

surtax, and new taxes on foreign companies doing business in the U.S. Modest

middle-class tax cuts, expanded earned-income tax credit for the working poor

EDUCATION AND TRAINING Federal aid for college tuition, a national

apprenticeship program in high-skilled jobs, and a requirement that businesses

set aside 1.5% of payroll for worker retraining

HEALTH CARE Develop a detailed plan for universal health coverage and cost

containment. Encourage use of managed-care networks. Clinton has not yet said

how he plans to finance this system

ON THE BACK BURNER

TRADE Wrap up the North American Free Trade Agreement, adding beefed-up

environmental safeguards. Expand retraining for U.S. workers displaced by NAFTA

THE BUDGET Move to halve the deficit in four years. New defense cuts, possible

domestic cuts. Clinton may also shift priorities by redefining the budget

SOCIAL PROGRAMS Mandate family leave, reform the welfare system, expand local

police forces, expand training programs

LABOR RELATIONS Jawbone for greater labor-management cooperation, limit tax

breaks for executive pay over $1 million

DATA: BW

Howard Gleckman in Washington, with Susan B. Garland in Little Rock, Dean Foust in Houston, and bureau reports


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