Friends of ‘60s Shape Clinton’s Economic Plan

When Vice President Dan Quayle recently charged on national television that Bill Clinton had raised the tax burden for Arkansas residents, the Democratic candidate’s economic machinery clicked instantly into gear.

Gene Sperling, a staff member in Clinton’s campaign, got hold of tables put out by the U.S. Commerce Department in an effort to rebut the charge and faxed them to reporters within hours, “so we could show that the tax burden had actually gone down,” he maintains.

It was just one skirmish in a bigger economic war, a critical political contest in which Clinton has relied heavily on a small cadre of behind-the-scenes advisers, including some whom he has known for many years. Increasingly, however, their key role is coming out into the open, perhaps even as a campaign issue.

“From Santa Monica to Cambridge, my opponents are cranking up their models--ready to test them on you,” President Bush declared last week, in a scornful reference to Harvard political economist Robert B. Reich and Derek Shearer, who is a professor at Occidental College in Los Angeles.

Who, in fact, are these people? Clinton’s economic insiders are mostly successful men in their mid-40s who have been crossing paths since the 1960s. A few have been pals ever since they were Ivy League student leaders who opposed the Vietnam War. At least one now calls Wall Street home.

Together, they have attempted to come up with an economic strategy that would veer sharply from the Ronald Reagan-Bush years, yet still pass muster with skeptical voters and jittery financial markets. Critics, meanwhile, say Clinton is claiming more than he can accomplish.

In any case, the “FOB’s”--friends of Bill, the joke goes--also have their differences. Behind the scenes, the insiders have differed on crucial elements on Clinton’s economic agenda: how much tax relief to offer the middle class, how heavily to tax the rich, how much more to spend on education, training and the nation’s infrastructure.

A couple of the aides, including Robert J. Shapiro, vice president of the Progressive Policy Institute, are champions of free enterprise and cutting the federal deficit. Others, such as Reich, have advised Clinton to place greater priority on new government programs to spur growth.

“Of course, there are differences in emphasis,” says Roger C. Altman, an investment banker who worked in the Jimmy Carter Administration and became Clinton’s friend when they were students at Georgetown University in Washington. “But if you want to know if we’re having a slugfest, the answer is no.”

In recent months, Clinton has invited a wide array of experts to visit him in Little Rock, Ark., and sought memos on various topics, in a bid to keep expanding his circle of experts on the economy.

A tiny fraction would include Robert E. Rubin, co-chairman of the Goldman, Sachs investment firm--and a key Democratic fund-raiser on Wall Street--Paula Stern, former chairwoman of the U.S. International Trade Commission, Robert M. Solow, a Nobel laureate in economics, Alan S. Blinder, a Business Week columnist, Berkeley economist Laura Tyson and many others.

But there is a more exclusive clique that has had access to the governor for years, through academic, policy and even social circles. In some cases, Hillary Clinton has been a bridge between her husband and his advisers. Often, the tie was forged across the ocean at Oxford University in the late 1960s when Clinton was a Rhodes scholar.

Shearer, for example, met Clinton at Oxford, where Clinton was rooming with Shearer’s friend, Strobe Talbott (now of Time magazine, and married to Shearer’s sister). Today, Shearer, 45, is director of the International and Public Affairs Center at Occidental College and a trusted adviser to the Arkansas governor.

He also has found himself pilloried in the media for extremely liberal notions that he now says he has abandoned, such as the view that the U.S. government should own substantial stakes in major industries. A recent op-ed piece in the Wall Street Journal, for example, suggested that Shearer was a socialist, a description that Shearer emphatically disputes.

“You know how they went after Hillary?” he says of Clinton’s enemies. “They’re just looking for anything.”

Certainly, it has been a long, winding road for some of the aides, whose connections date back to the super-charged political atmosphere of the 1960s. Shearer, a Yale graduate--George Bush Jr. was his classmate--recalls the days when he, Reich (at Dartmouth) and another close Clinton aide, Ira C. Magaziner (at Brown), were student leaders who once signed a letter protesting the Vietnam War.

Shearer, a former planning commissioner in Santa Monica, whose wife, Ruth Yanatta Goldway, was mayor in the early 1980s, these days prefers to talk about the virtues of economic growth and entrepreneurship, favorite Clinton themes.

“We all bring our different histories and backgrounds to this,” he says. “Clinton takes what he likes.”

Altman, by contrast, has brought a more financially conservative philosophy to the table and has emphasized the need to cut the federal budget deficit to spark more savings and investment in the U.S. economy.

While he first met Clinton long ago, he “reconnected” with the Arkansas governor after Hillary Clinton joined Altman as a board member of Children’s Television Workshop, producer of “Sesame Street” in late 1989.

“The biggest reason living standards are falling is that productivity has declined, and the reason productivity has declined is that we’re saving and investing too little,” maintains Altman, 46, vice chairman of the Blackstone Group investment bank in New York and a former assistant Treasury secretary under Carter.

Magaziner, 44, a business strategy consultant, is another member of what some call the “Rhodes Gang.” Friends with Clinton since the Oxford days, he has shared thoughts with Clinton on defense conversion, technology policy, trade and other matters.

Magaziner also adds ammunition to Clinton’s invest-in-workers philosophy: In 1990, he was chairman of bipartisan commission on workplace skills that urged employers to invest 1% of payroll more in training their workers; Clinton has proposed that employers devote 1.5% of payroll to the task.

“The choice America chooses is a choice between high skills and low wages,” found the Magaziner panel, which Hillary Clinton later joined as a co-chair. “Gradually, silently, we are choosing low wages.”

Yet of all the thinkers Clinton has had the chance to hook up with, he gravitated first to Reich, who befriended the sea-sick Arkansas native 24 years ago, when both were young Rhodes scholars crossing the ocean on their way to Oxford.

Reich maintains that in a global economy--where factories can be shifted across borders like pieces on a chess board--a country’s prosperity depends on the quality of its work force and the infrastructure that supports it.

Clinton even gave a speech at Harvard last year, on the occasion of Reich’s 1991 book, “The Work of Nations.” Reich explains the book’s overarching theme this way: “In a global economy, the only resources on which future standard of living is uniquely dependent are people--their training, skills and insights--and the infrastructure that supports them. All else is quite mobile.”

Last spring, when Ross Perot was preparing a detailed economic plan, Clinton directed Reich and Magaziner to spearhead a blueprint of his own, with the global vision set forth in Reich’s “The Work of Nations” as a key reference.

There began a series of conference calls and meetings at Clinton’s campaign headquarters in Little Rock, as advisers hashed out different cost options, and then ferried them over to the Governor’s Mansion, where Clinton had the final say.

At one time or another, participants included Magaziner, Reich, Shapiro, Shearer, Altman, Sperling--the on-staff economic specialist recently hired from New York Gov. Mario M. Cuomo--and campaign officials. Philosophically, Magaziner, Reich and Shearer leaned toward more spending, while Altman and Shapiro leaned more toward deficit-cutting, although participants say they ultimately reached a consensus.

But given the budget deficit and weak economy, not every interest could be accommodated: In mid-June, about 10 days before the blueprint was finalized, Clinton gave up on the goal that his four-year plan would have a balanced budget, recalled one knowledgeable insider. Another favorite of Clinton’s, the middle-class tax cut, had to be slashed in half in order to maintain credibility in the financial world.

New government spending also had to be scaled back from some recommendations, despite Reich’s view that such investments would pay off in long-term economic growth.

On June 22, after a four-day marathon of preparations, Clinton released his 25-page economic manifesto, “Putting People First.” It proposed, over a four-year period, more than $200 billion in new federal spending, largely on workers and infrastructure, new investment incentives for business, some $90 billion in higher taxes for the wealthy and a middle-class tax cut in the range of $60 billion, along with many other provisions.

“I think we put out the most detailed and full budget that anybody’s ever put out in a presidential campaign,” Sperling said.

Yet it is hardly the last word on Clinton’s economic policy or his advisers as Bush’s recent comments suggest.

Many economists contend that Clinton has been too optimistic in projecting that he will cut the deficit in half and ferret many billions of dollars of waste out of the federal government. Others wonder how well Clinton’s proposed investments in worker training and education--which sound appealing to many in the abstract--would work in practice.

“This sounds fine in theory, but in the real world, who’s going to get the money?” asks Richard B. Hoey, chief economist at the Dreyfus Corp. in New York.

Still others question whether Clinton’s proposal to raise taxes on households earning more than $200,000 a year will bring in much revenue, given the penchant of taxpayers to find ways to get around the Internal Revenue Service.

The rival presidential campaigns will continue to bat such issues back and forth, and each candidate will turn to his economic specialists to provide the necessary ammunition. But in the time-honored tradition of political advisers, the Clinton team will do its work out of the spotlight, leaving that role to the candidate.

“Clinton is his own guru,” maintained Shapiro one busy afternoon. “Nobody has to give him advice on what to do.”