The Political Interest: Who Has the Best Plan for Fixing the Economy?

Two guys with booklets itching for a fight. That’s what it’s come down to. Two candidates who have specific ideas for fixing an economy both describe as near collapse and who view each other’s prescriptions as deficient. “At some point,” says Paul Tsongas, “we’re going to have to go head to head on economics.” The sooner the better, says Bill Clinton.

Well, if it’s a debate they want, let it begin.

Note first that Clinton and Tsongas are new-breed Democrats. As they seek to craft a different relationship between government and the private economy, they challenge their party’s traditional orthodoxy. In some ways (and especially when Tsongas touts his unabashed probusiness views), they sound like moderate Republicans, that nearly extinct species whose nostrums George Bush once championed. Tsongas enjoys a reputation as a hard-nosed economic truth teller, largely because he never tires of self-righteously describing himself in those terms. Clinton, on the other hand, suffers from what Mario Cuomo calls the “dumb-blond syndrome”: If you’re good-looking, you can’t be smart. In fact, though, if deep-think and specifics attract you, Clinton is the more forceful and articulate.

If you read their books, study their speeches and consider their extemporaneous remarks, Tsongas most often delivers topic sentences, while Clinton fills in the details. Tsongas’ writings are full of “we should consider this” and “we should think about that,” and the latest addendum to his 85-page booklet, A Call to Economic Arms, casually borrows some of Clinton’s stronger proposals — but only, it seems, for political cover, since Tsongas’ transparent me-tooism is only sporadically fleshed out. On some matters, however, like the wisdom of a middle-class tax cut (which Tsongas opposes and Clinton supports) and the idea of adjusting entitlement-program payments like Social Security to a person’s income (which Tsongas is more willing to consider), Tsongas is clearly the more courageous.

, TAX CUTS. The sexiest difference between the two men’s views involves a tax cut for the middle class. Clinton favors a revenue-neutral reduction in rates: the 15% tax rate would fall to 13.5%, the 28% rate to 26.5%. The net loss in Treasury receipts, about $30 billion, would be recaptured by raising the top income tax rate to 38% on earnings above $200,000 a year. On average, a middle-class family would gain about $350 a year, a “paltry” 97 cents a day, says Tsongas, who decries Clinton’s plan as a “pandering, poll-driven gimmick” that “won’t create jobs or help our economy.”

For a brief time (and then only in private), Clinton conceded Tsongas’ critique. He admitted that his plan was mostly symbolic. Political exigencies, he explained, required his signaling sympathy for the economically stressed. For public consumption, a rationale beyond sympathy is needed. So with a straight face and a fair amount of feigned indignation, Clinton regularly swipes at those who pooh-pooh his idea. “That $350 a year may not sound like much,” says Clinton, “but for many, it’s a month’s mortgage payment — and that’s nothing to sneeze at.” Suffice it to say that in New Hampshire, where the economy has moved from recession to depression, most Democratic voters seemed to side with Tsongas.

INVESTMENT. Tsongas’ aversion to a tax cut, his opposition to an increased tax exemption for children (which Clinton favors) and his proposal for a yearly 5 cents-per-gal. gasoline-tax increase (which Clinton opposes) illustrate the considerable philosophical gulf between the two candidates.

Much of what Tsongas believes and proposes smacks of trickle-down economics. “My job as President,” he says, “will be to grow companies.” Only later “will I turn my attention to things like tax cuts.” Tsongas’ neo- Republican view sees the cost of capital as the crucial force in economic growth. To lower these costs and thus induce investment, he would use the powers of government to cut the tax bite on venture capital. But this direction has been tried before with little success. From the mid-1970s until the 1986 tax-reform act took effect, the tax burden on capital was reduced, but the rate of growth of investment during those years was half of what it was in the 1950s and 1960s.

It should be clear by now that the post-tax cost of capital has relatively little influence on both the overall level of investment and the uses of invested funds. In fact, the greatest influence on investment is the prospect for pretax returns. The key questions concern how good a new idea is, how much of a market there is for a particular product and how productively it can be created. The issue — as Clinton understands far better than Tsongas — is how to make the entire economy more productive, not how the tax code can be jiggered to induce the wealthy to buy stocks instead of yachts. Both men, by the way, favor a capital-gains tax cut, but Clinton would target his break toward the creation of new businesses, while Tsongas’ cut would apply primarily to securities purchases.

INDUSTRIAL POLICY. Although he usually avoids the term on the stump, Tsongas favors a national industrial policy, and his campaign literature makes his preference clear. “American companies need the United States Government as a full partner if they are to have any hope of competing internationally,” he says in A Call to Economic Arms. “That means an industrial policy.” Tsongas traces his affinity for government involvement in the private sector to the 1979 Chrysler bailout. He applauds his own leadership on the issue, but the driving force was really Senator Richard Lugar, an Indiana Republican. “Tsongas was important to show bipartisan support,” says Roger Altman, the former Assistant Treasury Secretary in charge of the Carter Administration’s effort to save Chrysler. “But it was Lugar who really made the deal fly by insisting on some fairly impressive union givebacks and other concessions.”

One area particularly in which Tsongas would have the government take a leading role is in the creation of nuclear power plants. He wants the U.S. to become energy independent, and he views nuclear power as a crucial part of the mix. Adopting the nuclear option may accommodate an economic truth, but Tsongas has been quick to recognize a different, political truism: the fact that many Democratic voters abhor nuclear power. His speeches these days downplay nuclear’s role in achieving energy independence, but on paper Tsongas notes that America’s 112 nuclear plants produced the energy to cut the U.S. oil-import bill by $4.7 billion in 1989. On the basis of these figures, substituting nuclear power completely for oil imports would require more than 1,000 new nuclear plants. Even that estimate is low, since Tsongas calls for building 300-MW-to-500-MW plants rather than the current 1,200-MW models.

Tsongas’ true industrial-policy ambitions are even larger. He is positively intrigued by the idea that the government identify a broad range of economic winners, who then would be helped with tax breaks and investment assistance. Few economists have much faith in the government’s ability to predict strong economic performers, and when it comes to health care, even Tsongas agrees. In knocking Bob Kerrey’s national health-insurance scheme, Tsongas says, “If anyone thinks the words government and efficiency belong in the same sentence, we have counseling available.” There’s an inconsistency here, of course, but Tsongas ignores it.

ANTITRUST. Both Tsongas and Clinton are ardent free traders, but only Tsongas sees the antitrust laws as inhibiting the nation’s ability to compete abroad. “Current antitrust laws,” he says, “prevent American companies from joint venturing in almost any area, including such critical ones as research and development.” On this, Tsongas is just dead wrong. Even the American Bar Association’s antitrust contingent, which is heavy with attorneys who represent manufacturing clients, and which therefore supports the fewest obstacles to unfettered business enterprise, has concluded that the law is fine as it stands. “He’s just plain misinformed,” says Stephen Axinn, one of the nation’s leading antitrust lawyers. “Since 1984 there have been virtually no impediments to R. and D. joint ventures. What’s more, the current state of play is good public policy. A wholesale wiping out of the review process for prospective joint ventures, which Tsongas wants, might lead to a better ability to compete globally, but it could also cause skyrocketing prices at home and layoffs as companies combine. The only responsible way to approach joint ventures is on a case-by-case basis, and that’s proceeding very well now.”

ENTITLEMENTS. Significant increases in capital will be possible only when the deficit is controlled, a difficult task when the costs of entitlement programs continue to spiral. To his credit, Tsongas has flirted with capping cost-of- living adjustments at 1% below the inflation rate, and he seconds Bush’s desire for a greater contribution to Medicare from those who earn more than $125,000 a year. He has backed off an earlier call to means-test Social Security, an idea that views as folly the right of rich and poor to draw equal retirement stipends. But at least Tsongas is talking about the problem. Clinton has run away. At a dinner in New York City a year ago, Clinton responsibly endorsed Bush’s Medicare plan. Since then, however, he’s been mum.

EDUCATION AND JOBS. While Tsongas worries about the cost of capital, Clinton’s focus is on human resources. His coherent, systematic approach to improving education at all levels revolves around apprenticeship programs for those who choose not to attend college and a universal loan program that would guarantee a college education to all who want one, in return for an extended repayment schedule or a period of national service. Clinton has also developed a worker- retraining plan that would force companies to spend equally for this purpose. Current worker-training schemes are virtually useless, he notes correctly. “Roughly 70% of corporate training expenses serve only 10% of employees,” explains Rob Shapiro of the Progressive Policy Institute, a centrist think tank that is advising Clinton. “Companies are loath to train lower-rung employees for fear they’ll leave for other jobs once their skill levels improve. Compelling all U.S. corporations to spend similarly on training will help.”

Astutely recognizing smart ideas when he sees them, Tsongas has lately bowed to these needs as well, but only with bland, content-free bromides. His recognition of the skills gap, for example, is currently contained in just half a sentence: “Americans . . . must also receive continuing education and training to keep up with the latest technologies.”

Marry Tsongas’ emphasis on capital formation with Clinton’s concern for human capital, and voters could have a compelling alternative to the policies George Bush labeled “voodoo economics” before he adopted them as Ronald Reagan’s 1980 running mate. All that’s needed now is for Tsongas and Clinton to actually engage in the debate they profess to crave — that and two open minds.

CHART: NOT AVAILABLE

CREDIT: Asked among 471 registered Democrats and Democratic-leaning Independents. Sampling error is plus or minus 4.5%.

CAPTION: Are you satisfied with the field of Democratic candidates running for president?

Which is more important: Choosing the Democratic candidate who has the best programs for solving the nation’s problems, or choosing the candidate who has the best chance of winning in November?