Candidates Avoid Debate on Future Economic Woes

WASHINGTON — From the way they are behaving on the campaign trail these days, the likely presidential candidates of both major political parties seem to have reached a cynical conclusion: The less said about the economic problems facing the next President, the better.

And the decision is not without its defenders.

“The last thing you want is an economic debate in this campaign,” says Martin Feldstein, a principal economic adviser to Vice President George Bush, the Republican nominee-apparent. “That would just lock the candidates into the wrong positions.”

Similarly, Democratic strategist William A. Galston says current U.S. economic problems demand uncomfortable solutions that no politician wants to advocate--tax increases, spending cuts, reduced domestic consumption and restrained economic growth. “A political campaign is not a suicide pact,” Galston asserts.

Yet whatever the short-term wisdom of such thinking, other economists and political strategists from across the political spectrum fear it may ultimately prove to be a grave handicap for the next President--Republican or Democrat.

The biggest economic challenges facing the next President, almost all analysts agree, are improving U.S. economic competitiveness worldwide and narrowing the outsized foreign trade deficit.

The solutions, these economists say, entail some short-term hardship. Americans will need to consume relatively less so that more resources can be used to manufacture goods for export and to invest in the economy’s future. If Bush or Massachusetts Gov. Michael S. Dukakis wins the White House without addressing these issues candidly and specifically, these analysts warn, the new President will not have the mandate, or base of popular support, needed to take effective action.

“What will happen is that by not making economic policy the centerpiece of the campaign, whoever gets elected will have a mandate to do nothing,” warns Stuart E. Eizenstat, chief domestic adviser to former President Jimmy Carter. “If a would-be President wants such a mandate, he has to seek it while he’s a candidate.”

Frank Wycoff, an economics professor at Pomona College in Claremont, Calif., who specializes in the politics of economic issues, said: “The economic issues and the political campaign are extremely incompatible. We’ve got things way out of whack. We’re consuming too much while not producing enough, borrowing more than we’re saving and relying on foreigners to make up the difference. But neither the Republicans nor the Democrats are telling us what they would do about it.”

Avoiding Specifics

Certainly Bush and Dukakis have seemed determined thus far to avoid getting specific.

Democrats generally are trying to take advantage of the public’s growing uneasiness over the future health of the economy. But analysts say their stump speeches ignore or slide over the fact that the biggest issues facing the next President will probably be far different from those of the recent past.

On the campaign trail, for example, Dukakis plays to traditional Democratic crowds by promising to create more jobs and rebuild industrial America. “You’re going to have a President who knows how to create jobs and how to save jobs,” he declares.

Yet job-creation does not really seem to be the main problem in today’s economy. The unemployment rate is already down to 5.4%--a 14-year low. That may be approaching the almost-irreducible minimum; trying to push it lower, many analysts believe, would be to court renewed inflation.

Worse yet for the Democratic strategists, the economy continues to spawn hundreds of thousands of jobs every month. And American manufacturing--fired by the new U.S. export boom--is rebounding smartly. Even many “rust belt” factories are running flat-out and straining their capacity.

For their part, Republicans are counting on being able to exploit the economy’s good performance. But when it comes to charting a course for the future, they are deeply divided on what needs to be done. And many analysts worry that, faced with these internal divisions, the GOP candidate will avoid choosing any comprehensive economic blueprint at all.

‘Jostling for Power’

“There’s probably less uniformity and more jostling for power among Republicans now,” says Alan Reynolds, chief economist at Polyconomics, a Morristown, N.J., consulting firm, and an adviser to former Republican candidate Jack Kemp. “The war for George Bush right now is between Jim Baker and Marty Feldstein. Fortunately, Feldstein is losing.”

Feldstein advocates a policy of tax hikes and spending cuts to slash the federal budget deficit, along with a sharp drop in the value of the U.S. dollar aimed at cutting the trade deficit.

Other key Republicans, particularly those on Wall Street, believe such an approach would undermine the global economy. Instead, they favor the efforts by Treasury Secretary James A. Baker III--a longtime intimate Bush adviser--to stabilize the greenback against other major currencies and oppose any significant tax increase.

John Makin, chief domestic economist at the conservative American Enterprise Institute, says: “We need to wake up to the fact that the Reagan fiscal revolution ended three years ago. We’re a lot closer to stabilizing the level of debt relative to our GNP than people realize. This is a difficult time when less is more. I hope we have the wisdom to avoid sharp changes.”

Bush Avoids Controversy

Caught in the middle, Bush has avoided almost all potential controversy. Earlier in the campaign when he still had serious rivals, the vice president’s advisers began outlining a specific plan for bringing down the budget deficit; but when his rivals faded, Bush decided to shelve the proposal.

Political strategists defend this avoidance of specifics, saying it may still be too early to expect much from the candidates. “There’s no reason to be out there sounding trumpets until they know what notes they can safely blow,” argues Kevin Phillips, a conservative political analyst.

But economists worry that neither of the leading candidates has even begun to lay the groundwork for an issue-oriented campaign that would allow the eventual winner to push needed changes through Congress quickly. And moving quickly, some say, is the key to getting results as a new President.

President Reagan used the 1980 campaign to muster support for his then-radical supply-side tax reduction program. Carter did the same with his economic stimulus program in 1976. “You can say we both were wrong (on the specifics),” Eizenstat acknowledges, “but at least we had mandates.”

Past Achievements

Bush, perhaps afraid that spelling out any strategy for coping with the economic choices ahead could cost him potential supporters, seems to be counting on the Reagan Administration’s past achievements to carry him into office.

“The good economy is Bush’s ace-in-the-hole. He needs it very badly,” says Mitchell E. Daniels Jr., a former political director in the Reagan White House who now heads the Indianapolis-based Hudson Institute.

For the moment, the economy’s performance could not be better for Bush. Unemployment is at its lowest point since 1974 and inflation still remains at moderate levels. The expansion is in its sixth year with no downturn in sight. Personal income is rising strongly and consumers appear to have shrugged off any lingering worries about last October’s stock market crash.

“The challenge is to extend the recovery while trying to make sure the budget deficit comes under control,” says Michael Boskin, a Stanford economist who is considered by insiders to be Bush’s leading adviser on the economy.

Boskin differs significantly from Feldstein on some issues, arguing, for instance, that “the dollar does not have to fall much further in real terms for us to turn the corner on trade.” Boskin also says that any budget reduction program should focus on curbing the deficit “over a span of four or five years,” primarily by imposing a “flexible freeze” on spending that would prevent most federal expenditures from growing faster than inflation.

Anxieties of Electorate

But despite the advantage the strong economy gives the GOP, Bush remains vulnerable to the anxieties of the electorate about the nation’s economic future.

“Bush can’t simply say things are great,” says conservative political analyst Phillips. “We’ve never seen so big a gap in the polls between the economy itself and the public’s sense of unease that it can’t last. Given that neither party appears to have the answers, a lot of people will be tempted to vote for change.”

In addition to widespread pessimism about where the economy is headed, polls taken throughout the 1988 campaign have also shown a broad consensus that the trade and budget deficits are among the most serious problems facing the nation.

While aware of this, strategists for both Bush and Dukakis also realize that the surveys show no comparable agreement on specific solutions, or any sign of a national willingness to make the sacrifices--in the form of tax increases, reduced consumption and lower federal spending--that most economists think would be necessary to bring about significant reductions in the twin deficits.

Democrats hope to exploit the vice president’s stand-pat position on the economy. But at the same time, Democratic campaign planners have flatly rejected pleas from party economists that the candidates do more to address the real issues. Earlier this year, the Democratic Leadership Council, an organization of moderate Democratic politicians, fell out with its chief economist, Michael Barker, over just that point.

Prolonged Squeeze

Barker insisted the party’s candidates had better start talking plainly about what he saw as the prolonged squeeze on living standards that America faces. Top DLC officials disagreed.

Dukakis’ campaign has ignored similar advice from Larry Summers, a leading economist at Harvard who has proffered advice to Dukakis.

In purely political terms, shunning the guidance of people such as Summers and Barker makes a certain amount of sense. They remember all too clearly that former Vice President Walter F. Mondale in 1984 offered the bitter medicine of higher taxes as the cure for the government’s record budget deficits--and lost to Reagan in 49 states.

“The person who wins is the one who is going to be the most persuasively upbeat about the long-term prospects for the economy,” ex-DLC economist Barker concedes.

Former Reagan political director Daniels also warns that the Democrats cannot afford to make Mondale’s mistake. “If the Democrats give even a hint they are interested in turning back the clock, they are in trouble,” Daniels says. “Whatever conclusions people draw about the Reagan years, they won’t decide they were better off under Carter.”

Consensus Elusive

Then, too, while Democrats agree that the Reagan Administration’s policies have created serious economic problems for the country, they have their own internal divisions that make forging a consensus difficult.

Democratic economists generally favor broad-brush approaches such as cutting the budget and spurring more saving.

Moreover, these Democratic analysts warn that if the new Administration does not persuade Congress to enact the necessary programs to tilt the economy toward more savings and investment and away from consumption, the narrowing of the trade imbalance between the United States and the rest of the world could be dictated by the foreign currency markets.

If the trade deficit is not narrowed rapidly enough, market pressures could well push the dollar downward to force a faster reduction. Under that scenario, the Federal Reserve Board would be under new pressure to raise U.S. interest rates, sending the economy into a recession.

All that may be standard economic theory, but it is a little on the austere side for many Democratic politicians--at least in an election year.

Protection From Imports

Instead, most of the party’s politicians favor narrower-gauge proposals such as more government subsidies for hard-hit industries or protection from imports. Such steps would only shift the imbalance from one industry to another and do little to reduce the overall trade gap, economists complain; but politicians note that economists seldom run for office.

Kirk O’Donnell, director of the Center for National Policy, a Democratic think tank, concedes that the two surviving Democratic candidates, Dukakis and the Rev. Jesse Jackson, “are structuralists”--that is, more inclined to favor the narrower-gauge proposals--and insists that “politically it makes sense.”

Dukakis has not spelled out his economic program in detail, but he has said he favors creating a new $500-million fund to help “rebuild” industrial America through “economy-building, job-creating” partnerships, and he has called for “limited” trade protection for import-plagued industries.

Dukakis, like Bush, wants Congress to provide the President with a line-item veto to help control spending, but he favors a number of potentially costly new programs that could overwhelm any savings from selective spending cuts.

Crackdown on Cheaters

And the Democratic front-runner has shunned discussion of what programs he would cut to help pare back the budget deficit. He opposes enactment of a value-added tax as unfair to the poor, and his major proposal for reducing the deficit would be to intensify efforts by the IRS to crack down on tax-cheaters. Most analysts contend that would net only a few billion dollars at most.

As conservative analyst Phillips contends, it is still too early to tell what form the debate over future economic policy will take when the two parties’ candidates are actually nominated and facing each other next fall.

Thus far, it is not moving the candidates--or the electorate--any closer to resolving the nation’s economic problems. And William A. Niskanen, a former Reagan Administration economic adviser, concedes that the candidates may get away with skirting the issues all the way to Election Day.

After that, however, with or without a mandate, the next President will have to face the music. As Niskanen put it:

“They can’t put it off very long after they’re elected.”