WASHINGTON -- President-elect Bill Clinton said yesterday he still has not made up his mind on what kind of budget program he will seek to provide a quick lift to the economy.
In the second and final day of an economic conference in Little Rock, Clinton heard direct appeals from two advisers to push for a fiscal stimulus package that would raise the budget deficit by as much as $60 billion.
But he declined to say what his strategy will be when he submits his budget to Congress in late January.
"I haven't made the decision about how much and what," Clinton said after he heard from James Tobin, an economics professor from Yale University, and Allen Sinai, chief economist from the Boston Co.
Tobin said a stimulus package of $60 billion may be needed during the President's first year in office. He said it would take that much to get the economy growing between 3.5% to 4% annually and to bring the unemployment rate back down to the pre-recession level of 5.5%. Economic growth of less than 2% "is a failure" and would not make up for the production and income lost during the Bush administration, he said.
Economists generally agree that the economy has the capacity to grow around 2.5% over the long term without rekindling inflationary fears.
Tobin said Clinton has the capacity to press for a "catch-up recovery" that will not stir inflation if it is accompanied by credible deficit cuts beginning two years later. To help keep long rates down, he recommended that the Treasury stop issuing long-term bonds "at excessively high interest rates."
Sinai recommended a fiscal stimulus package of $25 billion to $30 billion -- which would be much more in line with bond market expectations.
The larger package of $60 billion proposed by Tobin, Sinai warned, "would send the wrong signal to the financial markets" and might run into bottlenecks in terms of the government's ability to get the money spent efficiently. And, he added, too big a package could undermine the credibility of the new administration in the eyes of foreign allies.
Sinai said the economy could grow by a much as 3.5% "in the next year or so" without raising inflationary fears. At the same time, he recommended triggering cutbacks in spending once the unemployment rate is back down to 6.5% and heading lower. The current rate is 7.2%.
At several points in the discussion, Clinton seemed inclined to favor some kind of fiscal stimulus package. He noted yesterday's announcement by International Business Machines Corp. to cut 25,000 jobs. Later, he called the $30 billion plan offered by Sinai on "the low side."
At other times, Clinton sought to put the budget choices and conflicting trade-offs in a broader picture. A budget stimulus program is "peanuts" compared to other steps that might be taken to revive the economy, such as relaxed restrictions on bank lending, he said after hearing another round of complaints from bankers about the credit crunch and the burden of federal banking rules.
But Clinton also expressed a determination to find ways to come up with money for infrastructure and other programs he considers vital to economic revitalization. "We are kidding each other -- we are all just sitting here making this up if we think we can fiddle around with entitlements and all this other stuff and get control of this budget if you don't do something about health care," he said.
Henry Aaron, director of the Brookings Institution, told Clinton that given signs the economy is getting better, a stimulus plan "should be extremely small or possibly scrapped."
Clinton had no comment, but he agreed with Aaron when the economist dismissed arguments in favor of splitting the federal budget into current spending and investment accounts. The idea is advocated by some as a way of earmarking outlays for long-term programs that help the economy, and is used widely by state governments.
But states have the discipline of the bond market to control spending, and they cannot print money, Aaron noted. Clinton agreed, saying, "If we have too much debt in my state, the bond market will blow my brains out."
Several of the more than 300 conference participants urged Clinton to move promptly on his budget and take advantage of the political goodwill accorded any new President to press for unpopular budget cuts.
"I believe all Americans want tough, real deficit reduction," said William Gray, president of the United Negro College Fund and formerly chairman of the House Budget Committee. "But they also want shared sacrifice."
Leon Panetta, current chairman of the committee and named by Clinton to become director of the Office of Management and Budget, said the larger a package any President presents to Congress, the longer it could take to get enacted. "Congress loves to pass the sugar, but hates to deal with the vinegar," he added.
