Better Economy, But Can Clinton Take the Credit?

Bill Clinton ran for the White House four years ago by waging a campaign based on George Bush's management of the nation's economy.

In presidential politics, the economy has long taken a defining role - Americans often vote with their pocketbooks. Now the critic has his own track record to defend. So, it is fair to ask: How has the former governor of Arkansas fared as an economic steward?

The short answer: Better than most modern presidents.

The unemployment rate has dropped from 7.1 percent to 5.4 percent, under President Clinton. The nation's gross domestic product (GDP), a measure of its production of goods and services, has shown modest but steady growth compared to a roller coaster ride during the President Bush's years. And, the Misery Index, the sum of the unemployment rate and the inflation rate - once employed by Ronald Reagan to embarrass President Carter - is at a miserly level.

"You have to give [this administration] pretty good grades. Frankly we have not had a better combination of low inflation and low employment in maybe 40 years," says Edward Gramlich, dean of the School of Public Policy, University of Michigan in Ann Arbor.

But few economists credit Mr. Clinton with a strategic vision that produced the results. Like his politics, his economic philosophy seems more pragmatic than dogmatic. He is not a supply-sider or a traditional Keynesian, who believes in government intervention.

"He gets pushed around from issue to issue and tries to achieve the compromise," says Mickey Levy, chief economist at NationsBank Capital Markets in New York.

Still, when the economy is ticking along well, moderate moves might just be the best strategy.

"He didn't do anything to muck things up," says Lyle Gramley, a former member of the Federal Reserve. He notes that President Nixon enacted disastrous wage and price controls in the early 1970s. And, President Reagan cut taxes without cutting spending.

In fact, Clinton is acutely interested in understanding economic issues, according to Robert Shapiro, who helped the Clinton team formulate their economic game plan before taking office. "He does not take on faith the views of his advisers. It's always remarked that Clinton wants to understand policy," says Mr. Shapiro, a fellow at the liberal Progressive Policy Institute in Washington.

As economists are quick to point out, however, there is a limit to how much the president can actually do to influence the nation's $7 trillion economy. After all, the president does not persuade Americans to go out and buy a new car or house, or tell them which stocks to pick.

But the president can make appointments to the Federal Reserve Board; proposes, vetoes, or approves congressional budgets; and promotes certain pieces of legislation. Clinton has done all of these. Here's how economists rate him on some of these key elements:

*The Federal Reserve Board. As president, Clinton has reappointed Alan Greenspan as chairman, and added Janet Yellen, Alice Rivlin, Lawrence Meyer, and Alan Blinder as members. Most economists consider the Greenspan appointment the most important. "It outweighs any other decision, he could have made," says Mr. Levy.

Even the other appointments - including Mr. Blinder who has subsequently left - receive high marks, though. "They are all mainstream Democratic economists who are concerned about controlling inflation as well as output," says Mr. Gramley, a consulting economist at the Mortgage Bankers Association in Washington.

In addition, Clinton has not tried to second-guess the Fed on interest rates. Bush, for example, sometimes criticized Greenspan for interest-rate moves. Fed watchers are pleased that Clinton has supported the Fed, which has given the central bank increased credibility.

*Fiscal Policy. The budget deficit has shrunk every year of the Clinton administration. From a high point of $290 billion in the last year of Bush's term, the deficit has now come down to $117 billion in the current fiscal year.

"By any measure he is the biggest deficit cutter we have ever had," says Stanley Collender, a budget analyst with the accounting firm of Price Waterhouse in Washington. In 1993, Clinton persuaded Congress to pass a $540 billion deficit-reduction plan that included tax increases.

The deficit reduction was aided by a strong economy, which has kept unemployment low. In addition, the red-ink reduction allowed Greenspan to lower interest rates. This, in turn, helped to lower the deficit since a significant portion of the deficit is interest payments. But, as Mr. Collender observes, "the deficit will rise further without additional changes, and by the year 2020 there will be big problems as the baby boomers begin to retire." Mr. Shapiro expects another round of deficit cuts if Clinton gets a second term.

*The North American Free Trade Agreement. Despite the opposition of organized labor and many Democrats, Clinton signed on to NAFTA. Reform candidate Ross Perot maintains "the sucking sound you hear" are American jobs moving to Mexico. The Economic Policy Institute (EPI), a liberal Washington-based think tank, in a recent report estimated the loss of between 392,000 and 484,000 jobs in the first two years of the agreement. The EPI reached this number by estimating the US trade deficit with Mexico and Canada and figuring a loss of 15,382 jobs for every $1 billion of imports. (The latest Commerce Department estimate is that for every $1 billion of exports 14,200 jobs are created.)

But one Commerce Department official disputes the EPI methodology. He says the product mixes between imports and exports are very different, making it inaccurate to use export-employment numbers for imports.

In addition, some companies have moved factories from Asia to Mexico to take advantage of NAFTA. This did not result in a job loss in the US. And, he points out, the Mexican economy fell into a near-depression in 1995. This resulted in a huge drop in demand for US-produced goods. Since then, exports to Mexico have picked up.

If Clinton is reelected, Shapiro says Clinton will try to expand NAFTA to include Chile.

*Minimum Wage. Last week Clinton signed into law the new minimum wage, which will raise the working poor's income.

There won't be much of an impact before election day. "We could find it is a good thing for the country, but it does have its cost," says Mr. Gramlich. The wage, raised from $4.25 per hour to $5.15 per hour over two years, will affect about 5 million people who earn roughly $8,500 per year.

The minimum wage debate underscored the growing gap between the rich and poor. "There does seem to be an increasing premium paid to those who have skills and can handle a knowledge society," says Gramlich. Shapiro says a second Clinton term would focus more on training and education to try to resolve this tricky economic problem.