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Mr. Clinton, The People Said: `Think Small'


Economic Viewpoint

MR. CLINTON, THE PEOPLE SAID: `THINK SMALL'

The Democratic Leadership Council, which claims President-elect Bill Clinton as its moderate standard-bearer, is already in trouble. The party's liberal wing, which the DLC was formed to combat, is claiming that Clinton's 43% of the popular vote (less than Michael Dukakis') is a mandate for change. The problem lies in what the liberals mean by change: faster-growing government.

Exit polls on Nov. 3 clearly showed an electorate in no mood to embrace large-scale new spending programs. When presented with a choice between government that provides "more services but costs more in taxes" and one that provides fewer services and costs less, voters favored smaller government by a margin of 3 to 2. Liberals, however, such as columnist A.M. Rosenthal of The New York Times, have convinced themselves that Clinton's victory means a departure from the philosophy that "government and taxes are the ruination of America."

Liberals call this view "the Reagan-Bush philosophy," but by any measure, government has grown under George Bush. He took government spending, measured as a share of gross domestic product, to record levels. This ratio is high partly because of low economic growth, but the poor growth performance may itself reflect Bush's pro-government policies.

In testimony on Nov. 6 before the congressional Joint Economic Committee, economist Richard W. Rahn showed that the postwar U.S. economy grew fastest during the Kennedy and Reagan years. These periods were characterized by tax-rate reductions and declines in government spending as a percent of GDP. Under Carter and Bush, by contrast, the government took a rising share of the economy, and growth faltered.

BUDGET TRICK. Measured in real, inflation-adjusted terms, the compound annual growth of federal outlays under Bush was 3.2%. This is higher than Ronald Reagan's 2.5% or Nixon-Ford's 2.7%, but less than Jimmy Carter's 4%. If the cost of the deposit insurance bailout is excluded, Bush's figure drops to 2.6%, close to Reagan's. Reagan's spending record, however, reflects a defense buildup that helped to bring down the Soviet empire, while Bush's record benefits from a defense build-down. Bush is clearly no Reagan, and to speak of a Reagan-Bush record is to combine apples and oranges.

Many conservatives believe that the purpose of the infamous 1990 budget deal, which required Bush to break his no-new-taxes pledge, was to remove the Gramm-Rudman caps on spending. There are grounds for this suspicion. A comparison of the Congressional Budget Office's August, 1992, budget estimates with its January, 1989, estimate (prior to the budget deal) shows a $226 billion increase in federal outlays for the 1990-93 period. Despite the tax increase that was part of the budget deal, federal revenues for the period are now projected to be $363 billion lower. Consequently, the deficit widened by $589 billion during the four-year period--a far cry from the promised $500 billion reduction.

Regulation is another measure of the growth of government. Under Bush, regulatory costs exploded. These costs have hit small businesses--the main engine of job creation--particularly hard. In a study for the Joint Economic Committee, economists Lowell E. Gallaway and Gary M. Anderson compiled an index showing an extraordinary jump in the tax and regulatory burdens per worker, from less than $4,000 in 1989 to $5,300 in 1992. Profit per worker fell, from $3,000 in 1989 to less than $600 in 1992. This combination took the steam out of job and economic growth.

POOR PUNDITRY. Both Carter and Bush were one-term Presidents. Carter was bounced because, under his mismanagement, government grew faster than the economy. Reagan reversed Carter's course--the economy grew faster. But Bush reversed the Reagan course, and the increase of the government's budget outstripped economic growth. If people this year have voted for change, they expect Clinton to return to Reagan's policy of emphasizing economic growth.

But this is not what the liberals mean by change. To hear them tell it, Bush is a continuation of Reagan. But it flies in the face of the facts to argue that Bush has strangled the government, deprived it of resources, and let "pressing public needs go unmet."

Clinton needs to understand that the resources that are used to feed the growth of government cannot simultaneously feed the growth of the private economy. The increase in taxes, borrowing, and regulation required to direct more resources to the government sector would take the same toll on the economy under Clinton as under Bush or Carter. If pundits convince Clinton that change means more of the same, then he, too, will be a one-term President.

From the tip of South America up through Mexico to Sweden and across Russia to China, the world has concluded that government is the problem. But if those Clinton advisers who believe bigger government is the solution prevail, change will mean the tired solutions that the rest of the world is abandoning. In this case, the Americans who will prosper will be the organized special-interest groups that live off the taxpayer.Paul Craig Roberts


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