Clinton Has It Harder Than Postwar Predecessors

One of the first problems baby boomer President-elect Bill Clinton will face, as he tries to revive the economy, is a shortage of baby boomers.

Unlike all his presidential predecessors in the post-World War II era, Clinton won’t have a tide of young people coming along to buy houses and furniture and provide a high-consuming economy. The household-forming 18- to 34-year-old segment of the population will grow about 1% in the 1990s, compared to much higher growth rates in the last two decades.

That translates into continued softness in house prices, making homeowners nervous and adding to deflationary pressures in the economy. Deflation--falling prices and business values--is already a threat because of an overhang of plants and equipment, in defense and other industries, left over from the Cold War.

So where Presidents going back to Truman were able to boost the economy by pumping money into housing, or giving big industry a tax break on depreciation, it will be harder for Clinton.

To revive growth and bring the country what he calls “high-tech, high-wage” jobs, Clinton, 46, will have to turn the economy into a producer of advanced, high-quality machinery, technology and consumer goods for mature, discriminating consumers at home and world markets everywhere.

That means doing things differently.

In housing, for example, he will have to devise programs to reach out to neighborhoods and people who weren’t counted in the grand condo and housing markets of the Yuppie ‘80s. That means mortgage programs and affordable housing for low-income, first-time home buyers.

Mass market housing will be the trend--and smart businesses will go after it. GE Capital Mortgage is already offering help with down payments for low-income families buying their first home.

In industry, Clinton will have to encourage new small businesses, because big companies will still be downsizing in the next four years. Significantly, in Little Rock on Wednesday, Clinton aides listed tax incentives for investment in business as among the highest priorities.

Without rapid growth at home, a Clinton presidency will have to look abroad. “He’ll need foreign investment,” predicts Stephen Robert, chairman of Oppenheimer & Co., an investment banking firm.

And trade will become even more of a priority for the U.S. economy. As if acknowledging that need, a Clinton aide said Wednesday that the President-elect will not seek to renegotiate--and thus threaten--the North American Free Trade Agreement with Mexico and Canada.

Above all, Clinton will have to fulfill his campaign pledges to improve education and training for the work force. High wages in high-tech industry can be won only by an educated work force.

So Clinton is on track with proposals for college loans, to be paid back in community service. He obviously hopes that the program will be the contemporary equivalent of the GI Bill, which gave veterans from World War II and other wars an open door to better jobs and living standards.

Again, Clinton’s challenge is different. His predecessors had to find jobs for new entrants to the work force, but the new Administration’s task “will be retraining old entrants to equip them for this new, changing economy,” says Prof. Daniel Mitchell of UCLA, an authority on industry and labor. The next four years won’t necessarily be bleak.

But as Clinton aides told reporters in Little Rock on Wednesday, there are no easy fixes. The best that Clinton can hope, says economist Charles Clough, investment strategist for Merrill Lynch, “is that he can effect change and improvement so that by 1995-96 we have a healthy, well-performing economy.”

The truth about this confusing time is that it’s a postwar period, following the 50-year global contest with the Soviet Union. Such times are tricky.

After World War I, the economy suffered from carelessness, a feeling that the transition to peacetime would be painless in a “world made safe for democracy.” Instead, the United States went into a deep three-year recession, with massive joblessness.

After World War II, by contrast, everybody expected a return of the Depression, so government was on its toes to help returning soldiers. The GI Bill was passed in 1946--the year Clinton was born--as well as a program giving veterans $2,000 down payments on new homes. Millions were housed. The economy--and the birthrate--boomed.

U.S. presidents for almost four decades had the benefit of pent-up demand for cars, housing and consumer goods from all those baby boomers.

But as Clinton takes office, demand is less pent up. So his is the greater challenge. If he can meet it, Clinton can run for reelection in a prosperous 1996; if not, he’ll probably be limited to one term--like most of his postwar predecessors.