It’s The Deficit, Stupid : Clinton is using all the red ink to remake the Democratic Party in his own image

The Democrats are like the children of Israel. They have been wandering in the desert for 24 years, waiting for Moses to appear, reveal the true faith and lead them out of the wilderness.

With the election of Bill Clinton, many Democrats dare to hope they are about to enter the promised land. Just as Moses came down from the mountain and disclosed the truth, so Clinton came down from the Little Rock and offered this revelation: “Whatever we do, we have to put it in the context of deficit reduction. We all understand the price we’re going to pay if we continue with this deficit.”

Deficit reduction? Is this the great cause for which Democrats have endured years of exile? Maybe Clinton is not Moses after all. Maybe he is the golden calf.

Fear not, O children of Israel. For Clinton has a plan. During the campaign, he called himself an agent of change. It is entirely possible that he was serious. Clinton wants to change the way government works in this country. He wants to change the way the Democratic Party works, too. For these purposes, the deficit is a powerful and effective tool--a mighty instrument of his will, so to speak.

The purpose of the deficit, Ronald Reagan’s budget director David A. Stockman told us seven years ago, was to make the Reagan Revolution irreversible. People who want more government have to accommodate one central fact: There isn’t any money. Now that the Democrats are finally back in, they seem to be trapped by the Reagan agenda.

Look at the debate over the so-called short-term stimulus package. The economy is in the doldrums. What could be more natural then for Democrats to pass a spending boost or a tax cut to get the economy moving? Clinton proposed both during the campaign: a $120-billion public-works spending program over the next five years and a tax cut for middle-income families.

Now he is backing away from both. Clinton told the Wall Street Journal last week, “There’s almost no enthusiasm now” for a tax cut. “I don’t think there’s anybody now who thinks it’s a very good way of getting the economy up.”

He was asked what he would do if he found that he couldn’t pay for a spending boost without increasing the deficit. “My inclination would be to increase spending less,” the President-elect replied.

Is the deficit really Clinton’s top priority? In fact, he is sending mixed signals.

Clinton appointed two well-known deficit hawks to run the Office of Management and Budget--Rep. Leon E. Panetta (D-Calif.) as budget chief and former Congressional Budget Director Alice Rivlin as his deputy. At the Little Rock conference, Clinton made a point of praising the testimony of John White, the author of Ross Perot’s painful deficit-reduction plan. White warned that by 1996, the deficit could be almost $300 billion.

On the other hand, Clinton has shied away from endorsing any tough deficit-reduction measures of his own. He refuses to support a gasoline tax. The tax increases and spending cuts he has proposed will hardly make a dent in the deficit. He has not recommended any major cuts in entitlement spending.

Political scientist Elaine C. Kamarck urged Clinton to use the “political capital” from his honeymoon to get through the “nightmare” that will result from making “honest-to-goodness, long-term deficit reduction.” But Clinton has shown no inclination to become a martyr.

Clinton has not adopted the Reagan agenda. And he has not endorsed the traditional Democratic agenda. What he promotes is his own agenda. He calls it “long-term structural change.”

“The most profound problems of our economy are longer term and structural,” Clinton said in opening the economic conference. That means things like health care, worker retraining, education, research, transportation and communications. Those things are called “investment,” and Clinton wants to spend money on them. During the conference, he repeatedly called attention to the “investment gap” that has emerged in this country over the past decade.

Clinton distinguishes government spending for investment and consumption. Consumption is spending for immediate needs and gratifications, like welfare payments and veterans benefits. That is exactly the kind of spending that interest groups like. The basic rule of Clintonomics, as George Bush might put it, is, “Investment--goood. Consumption--baaad.”

But does the deficit know the difference between consumption and investment? After all, spending is spending.

The difference, in the gospel according to Clinton, is that investment generates economic growth. Consumption does not. Therefore, it is good to spend money on investment, even if it increases the deficit in the short term, because a growing economy will eventually bring in new tax revenues.

Sound familiar? It’s the Democratic version of supply-side economics. Supply-siders argued that cutting taxes would bring in new revenues. How? By generating more economic activity. Ronald Reagan’s tax cuts did generate more economic activity for a while. But the deficit still went up.

Republicans found supply-side economics irresistible, not because they wanted to reduce the deficit, but because they liked cutting taxes. Democrats are attracted to Clinton’s plan, not because they want to reduce the deficit, but because they like government spending--oops, investment.

There’s one more dilemma Clinton has to face: Where’s he going to get the money he wants to invest? The best way to get it is--you guessed it--by cutting the deficit. It’s a circular argument. Economic growth will reduce the deficit. But you need to reduce the deficit to free up the capital needed to invest and grow.

The solution is to cut consumption. That’s why Clinton is willing to sacrifice the stimulus package. Here is how he explained it at the economic conference: “If you take any money you raise in taxes or any money you generate from spending cuts, and you divide it 50% for deficit reduction and 50% for public- and private-sector investment, that, by definition, is not a stimulus package. That increases the deficit. It may be the right thing to do.”

Clinton wants to change the way the government works by shifting resources from consumption to investment. The deficit helps him do that because it forces Congress to make a choice. Clinton wants government to get out of the business of endlessly expanding programs and into the business of promoting growth.

It’s really a political strategy to secure middle-class support for the Democratic Party. What the middle-class wants is prosperity. They want government to protect their jobs and keep their incomes secure from taxes, inflation and high health-care costs. If their income is secure, middle-class voters believe they can solve their own problems.

So who wants government programs? The answer is, liberal constituencies and special-interest groups. That’s Clinton’s second purpose--to change the way the Democratic Party works by curbing the power of special-interest groups. The deficit helps him do that. It forces Congress to make a choice between the demands of selfish interest groups and the needs of the whole society.

Rep. Vin Weber (R-Minn.), a leading conservative, explained the Clinton team’s strategy this way: “They’re not going to be able to satisfy traditional Democratic liberal constituencies on the spending side of government. You’ll see an attempt to satisfy those constituencies through other means, anything that tilts to the left but doesn’t have a direct price tag attached to it.”

Like appointments, for example. Clinton tried to buy off liberals, women and minorities by giving them authority over social policy (environment, justice) but not over spending. He invited trouble by boasting that his Administration would “look like America” and that, in the end, he would do better for women and minorities than previous Administrations.

When those groups insisted on holding him to his pledge, Clinton discovered it won’t be so easy to buy them off. They have been wandering in the desert for a long time. They want to see the promised land. After complaining about “bean counters” and “quota games,” Clinton relented and made more women and minority appointments.

Those constituencies are going to be tough for Clinton to deal with. You push them. They push back. But then, Moses had problems, too. The Lord told him to get down off the mountain and deal with the unruly children of Israel: “For the Lord said unto Moses, ‘I have seen this people, and behold, they are a stiff-necked people.” ’ As Clinton can testify, so are the Democrats.