Every election creates the illusion that the president deserves full credit or blame for the economy. In truth, the president doesn’t create growth or jobs. All he does, through government, is influence how consumers and businesses act. The personalization of policy (from Reaganomics to Clintonomics) obscures this modest impact.
Both George Bush and Bill Clinton prove the point. Bush didn’t create the recession. He simply arrived at the end of the 1980s boom. Business cycles happen; governments can’t yet prevent them. Or take Clinton. The debate over how good-or bad-a governor he’s been misses the larger point. His policies haven’t fundamentally altered the state’s economic well-being. In 1991, Arkansas’s per capita disposable income was 79 percent of the national average-the same as in 1979.
And yet, the campaign has generated a genuinely important debate over economic policy. The candidates have deep philosophical differences over government’s role in nurturing growth. The differences may not matter so much in the next year as in the next decade.
Of the major candidates, only Ross Perot acts as if reducing budget deficits would help growth by raising national savings and investment. Clinton subordinates the deficits to bigger and more activist government-an approach that the Financial Times (London) terms “distinctly European.” Spending more now on roads, education and new technologies, he argues, will foster a more skilled and productive private sector. A lot of Clinton’s intervention would occur outside the federal budget. Much of his health-care plan, for instance, would be imposed as a mandate on business. He would sign parental-leave legislation, create 100 community-development banks to invest in poorer neighborhoods and index the minimum wage to inflation.
By contrast, Bush’s pitch is standpat: rely on business to create jobs; resist higher government spending. Bush says that Clinton’s program, rather than improving growth, would stifle it. Higher taxes and more regulations would overburden companies and dampen risk-taking. Indeed, he proposes lower taxes to spur growth.
Both Bush and Clinton have overpromised. Bush’s tax cuts would require steep spending cuts that Congress would probably reject. Clinton’s programs are so expansive in purpose and so vague in detail that it’s impossible to tell what they mean. Consider his plan to require firms to spend 1.5 percent of payroll for worker training. In 1991, that would have been $42 billion. But companies already spend about $30 billion. Depending on how the rules are written-which companies are covered, what spending qualifies-new spending could be huge or negligible.
But this clouds the larger issue. Each candidate wants to move the country in a dramatically different direction. The wrong question to ask is: who will help the economy most now? None of their plans would work wonders. The economy isn’t that pliable.
What matters more is how differences in policies, for better or worse, cumulate over time. Clinton adviser Robert Reich recently put it this way: “The Clinton plan calls for more than $200 billion of new public investment in education and infrastructure, spread over four years. This sum is not enough to yield dramatic improvements in growth anytime soon, but it marks an important start.” Agree or disagree, the same caveats apply to the Bush and Perot approaches. Even enthusiasts of deficit reduction concede that higher investment and savings would improve living standards only slowly. And if Bush is correct about Clinton’s plan, the effect would occur gradually as companies are overwhelmed by taxes and regulations.
The economy may now be stronger than most Americans suspect. Sluggish growth has cut inflation and made companies more productive. The dollar’s decline on exchange markets has restored U.S. export competitiveness. All the electorate’s anxieties focus on the here and now. But the truly important economic consequences of Bush, Clinton or Perot are for the long term. The election is a huge gamble. Unfortunately, we may not know for a decade whether we won or lost.
