Clinton's Supply Side
BROCKWAY, GEORGE P.
The Dismal Science CLINTON'S SUPPLY SIDE BY GEORGE P. BROCKWAY The Little Rock "economic summit" was one of the most moving and inspiring and uplifting events in recent public life....
...It was explained that, whether by stepping up spending or reducing taxes, stimulation would increase the deficit, which would scare the "market" into increasing long-term interest rates, which would spur short-term rates, which would renew or deepen the recession...
...A few spoke scornfully of trickle down economics, and several spoke approvingly of the middle class...
...That's not bad—provided you're not one of the 6 or 7 million who would still be unemployed...
...Either way the deficit had to be reduced...
...There was remarkable agreement among the business executives, bankers and economists present...
...Earnest men and women dedicated to serving their fellows, some of them obscure, were able to explain their goals and difficulties to a President-elect who plainly shared their goals and had a sympathetic understanding of their difficulties...
...But I fear that the economic rebirth we long for will continue to elude us...
...In fact, if you closed your eyes, there were times you could easily have imagined you were listening in on a planning session of Ronald Reagan's early advisers, or perhaps a meeting of the Business Roundtable...
...They should listen to the tapes...
...Speaker after speaker warned against overstimulating the economy...
...Second, the longterm market is effectively merely the market for 30-year Treasury bonds...
...Nevertheless, it was the same old story...
...Well, unpaid compassionate leave will be available to corporate employees...
...I don't get your question," he said...
...Let's look at the stimulation, to be produced by expanded public works...
...so renewed inflation will not be a danger, and interest rates need not be raised...
...Taking one thing with another, my sorrowful conclusion is that the Clinton economy is not going to be sensationally better than the Bush economy...
...and something will be done about medical insurance...
...He did not seem impressed by the counterobservation that a lot of demand for consumer goods would be released now if the unemployed had jobs...
...family planning will again be a virtue...
...One after another, the bankers wailed about regulation and boasted cheerily of what they could do if government could be gotten off their backs...
...For it was the supply side all over again...
...The interest rate also was lower than today's in every year except 1968, '69 and '70, and the inflation rate was lower in every year except 1948, '51 and '70...
...As our economy is now organized, wages and salaries are about 80 per cent of GDP...
...All of those are bum Reaganesque ideas that we have already tried and found wanting...
...I imagine most of the speakers would be shocked to be called supply-siders...
...in close calls, the decision will usually go to the otherwise disadvantaged...
...NL, August 10-24, 1992...
...we have lived without them far too long...
...It was almost a case of the dog that didn't bark...
...So where is the change that Candidate Clinton promised us so tirelessly...
...The rebirth will be aborted because the new supply-siders have, so to say, a monetarist side...
...Common sense and common decency are no small things...
...The largest sum I heard mentioned was $50 billion, with most of it going to state and local governments to restore services and repair infrastructure neglected under Reagan-Bush...
...Factoring in the "multiplier," these totals might double, although not at once...
...And of course much of the stimulus would go to people who are employed...
...It was, as I say, a dismal performance...
...The rhetoric was different, but the theory was substantially the same...
...One of the mainstreamers observed that the postwar prosperity was driven by the demand for consumer goods pent up during World War II...
...Even so, I would not have been satisfied, as I made clear in subsequent columns, for $63.1 billion may seem like a lot of money, but it is only about 1 per cent of our gross domestic product (GDP...
...and any way the deficit was reduced, the economy could not be stimulated...
...Saving was soberly praised, and a word or two was said in favor of reduced capital gains taxes...
...That's a dilemma for you...
...Nothing like this has occurred before in our history...
...One of the references suggested that things would change when we got "our" Board (unhappily, not an immediate possibility...
...Why not do so...
...The median income for fullyear male workers over 15 years old is about $30,000...
...The Clinton-Gore book title had it right: We should be Pulling People First...
...I wasn't able to watch the complete proceedings, but while I watched I heard only two bankers and three economists interpose objections to the mainstream that was rushing by...
...To be sure, there were ripples in the mainstream—quibbles about details—yet the fundamental message was clear...
...With a few exceptions, all the business and economic people fretted over the perceived necessity to stimulate the economy and the corresponding horror of failing to reduce the deficit...
...Second, a long-term, foolproof deficit-reducing program should be enacted to convince the market that the deficit is on the road to reduction...
...Putting all these guesstimates together, I conclude that a $50 billion stimulus would directly create about 2 million jobs, while $63.1 billion would directly create about 2.5 million jobs...
...The words "supply side" could not be read on anyone's lips...
...You will note that I proposed spending at least 26 per cent more than did the most spendthrift speaker at Little Rock...
...Some of the economists saw Head Start as an "investment" in future productivity...
...the environment will not be a dirty word...
...I can't say that's a bad idea because a little over a year ago in this space ("Taxing Our Credulity," NL, December 2-16, 1991) I wrote, "If Federal grants to state and local governments were restored merely to the same proportion of Federal expenditures as in 1980, a sum of $63.1 billion would be available to break the back of the recession...
...If there were no 30-year Treasuries, there would scarcely be a long market at all...
...The proposed solution was twofold: First, the economy should be stimulated, but cautiously...
...Their recovery will make the Clinton Presidency worthy of being remembered...
...The budget deficit, which had reached the vertiginous height of $3.1 billion in 1936, was converted to a surplus (yes, surplus) of $300 million in 1937...
...At the same time, and from the point of view of this column, the economic summit was one of the most depressing and disheartening—and dismal—events in recent public life...
...Face to face with an ordinary citizen during the campaign, President Bush was puzzled...
...there will be less overt or covert endorsement of racial, sexual and ethnic cleansing...
...The other reference was a brief but remarkably comprehensive paper by a former governor of the Board...
...Nonetheless, most of the money—and it will not be a trivial amount...
...no one traced a laughable curve on a cocktail napkin...
...At the end of a year there will be little or nothing tangible to show for these expenditures...
...One after another, the business executives and economists hailed the glories of investment (especially in the interest of "productivity") and excoriated the seductions of consumption...
...I fear that it is not real to most mainstream economists, especially those who believe in the "natural rate of unemployment...
...Beneficiaries of an economy-stimulating program might be paid less than the median—say, $20,000 as the average for both sexes...
...I fear that we're getting ready to do it all again, and with far less excuse...
...Theresuit was a sharp recession within the Depression...
...The awesomeness of this organization and the power of the Federal Reserve Board practically guarantee that the economy will get only a minimal stimulus, and that for only a minimal length of time...
...the corresponding figure for females is about $20,000...
...Acurious fact about the conference was the virtual absence of any reference to the Federal Reserve Board...
...and the ideas were restated less breathlessly than Jack Kemp does...
...that goes into Head Start will immediately go out to teachers' or leaders' salaries, to snacks and lunches, to consumable supplies like finger paint and soap, and to low-tech and expendable furniture and decorations...
...He made two main points: First, the longterm rate remains high because the Board keeps hinting the short-term rate will be pushed up to meet it (although there is plenty of room for the short rate to come down further...
...But one sound proposal, calling for full funding of Head Start, was generally endorsed at the economic summit...
...The Treasury raises only about 7.5 per cent of its funds long term and would save money if it gave them up...
...Their supply-side bias blinded them to its certain contribution to economic recovery...
...There was a good deal of talk about the interest rate, but I heard only two participants refer to the agency that sets it...
...I regret to report that Secretary of the Treasury-designate Lloyd Bentsen did not respond, nor did President-elect Clinton...
...Few of our Presidents would have been capable of it...
...A couple of the Little Rock economists pointed out—as I have done here many times (thus showing how obvious the point is)—that the debt and deficit ratios to our gross national product (GNP) were about twice as high in 1947 as they are at present, yet we proceeded to save Europe with the Marshall Plan and enjoyed a quarter-century that never saw the unemployment rate come close to what it is today...
...I don't believe in the second part of the solution any more than I did in GrammRudman...
...See "Are You Naturally Unemployed...
...Practitioners of economic science have dismally short memories...
...According to a slightly different explanation, increasing the deficit would require increased borrowing by the government, and the increased demand for loans would force up the interest rate and push private borrowers out of the market, which would impede private enterprise and renew or deepen the recession...
...The National Bureau of Economic Research (not an "official" body, regardless of what the New York Times says) thinks you can have a recovery with both wages and profits falling and 10 million unemployed...
...In issues like these (except, perhaps, for the last named), we can expect common sense and common decency to prevail...
...Please read and reread the previous sentence until its meaning in human suffering starts to become real to you...
...In 1937 the GNP jumped up 7 per cent, whereupon the New Deal rushed to mollify Wall Street by cutting relief programs...
...Yet such profligate consumption (if it actually happens) will do more to stimulate the economy this year, and every year of the program's existence, than the schemes to restore the investment tax credit, to rehabilitate IRAs, and to cut taxes for the middle class...
...In the eye of an accountant the whole thing will seem like consumption of the most profligate sort...
Vol. 76 • January 1993 • No. 1
