COLUMN LEFT/ ALEXANDER COCKBURN : A Battle Not Likely to Be Fought : Democrats lack the courage to attack on the economy issue.

The Democrats, buoyed by such omens as the victory of Harris Wofford in Tuesday’s senatorial vote in Pennsylvania, think their time is come at last, surging in on the flood of economic discontent. The air is thickening with talk of a “new populism,” of “looking after our own people” and the kindred rhetoric of Democratic candidates in primary season.

The Republicans have good reason to be worried. Industrial production is flat after rising for three months, as is job growth. Consumer confidence has turned down sharply and there’s no clear evidence of impending recovery. The stage is set for a real battle about economic priorities, but the battle is unlikely to be fought.

Democratic populists will retreat to fiery pledges to fire Alan Greenspan, chairman of the Federal Reserve Board and all-purpose bogyman. Zeal to curb speculative finance will dwindle the day each Democratic candidate has his first serious meeting with the Wall Street crowd. In the end, all that will be left will be expiring balloons of hot air about fairness.

But the system is in crisis and all the current recipes for long-term recovery have failed. Each recession is worse than the last. Despite all the government talk about a moderate downturn, the 1990-91 slump has produced greater declines than the downturns of 1973-75 and 1980-82. By rights, our deficit spending should be doing its job of reflating the economy, but the swelling size of the deficit shows the increasing difficulty of jolting this economy back to life.

Is the economy qualitatively changing? There’s evidence, developed by professors Robert Pollin and Gary Dymski of the economics department at UC Riverside, to suggest that this is the case.

Between 1875 and 1941, Americans lived in an age of small government, whose spending as a component of the GNP amounted on average to only 5%. All this changed with the onset of World War II. Between 1942 and 1989, the government’s share of GNP went up fourfold, to an average 22% a year. Big government, most crucially with its military procurements, became the guarantor of the economy.

Things did become more stable. Between 1875 and 1941, an average of 166 banks per 10,000 failed each year. In the big government era from 1942 through 1979, this figure dropped to four a year. Business failures and unemployment dropped, too.

One of the most striking measures is the shift in real interest rates. In the small-government era of 1875-1941, the average real interest rate (the borrowing rate minus inflation) for corporate bonds was 4.4% The big-government era of 1942-1979 saw this rate drop to an annual average of 1.2% The shift means, essentially, that people had more confidence in the system.

So big government brought stability, but at a price. Once, the system was periodically purged by failure. Not any more. In the Wall Street crash of 1987, the Federal Reserve guaranteed cash to any significant firm in trouble. Such safety nets of course encouraged further speculation.

By the 1970s, the postwar system was beginning to fray and the drop in pretax profits helped usher in the Reagan assault on regulation and big government. The ensuing decade has brought us back to the financial terrain of that earlier small-government time. Bank failures are up again to an annual average of 69 per 10,000; business failures and unemployment rates are also up. Real interest rates in the 1980s averaged 7.2%, a level that discourages long-term investment. Even the relentless assault on wages and costs has not boosted pre-tax profits by much more than a percentage point.

The Reagan-Bush strategy has clearly failed, and all that traditional Democratic strategists can offer in answer are the very recipes that produced the Great Depression. From the Brookings Institution, the elite Democratic think tank, comes this agenda: Balance the budget (a plan that will merely deepen recession).

The only coherent strategy is a long-term one with short-term payoffs, namely to force the economy’s enormous financial resources out of speculation and into productive activity. This means spending that will convert the economy from high-tech military spending to high-tech environmental sustainability. It also means curbing Wall Street. In the Reagan-Bush years, the lion’s share of corporate borrowing went into mergers and buyouts of the sort that saw Robert Maxwell go to his death with business debts near double the value of his assets.

In other words, the program for renewal has to be as serious and far-reaching as that launched by President Roosevelt in 1933. It amounts to a lot more than talk about fairness and pledges to fire the chairman of the Federal Reserve.