Good News and Bad in Budget Plan : Economy: Stimulation of long-term growth and deficit reduction are pluses. But the benefits will be slow in coming.

Through all the lobbying, the haggling, the deal-cutting and the arm-twisting, only one question has really mattered: Will the huge budget plan that President Clinton and the Democrats in Congress hope to enact into law this week help or hurt the still-struggling U.S. economy?

The answer that economists give sounds like a surrealist version of good news-bad news jokes: There is good news and bad, but it’s not easy to tell which is which.

Yes, economists say with surprising unanimity, the massive package of tax increases and spending cuts hammered into final form by a House-Senate conference committee on Friday could produce significant benefits--curbing the federal budget deficit and stimulating long-term growth.

But yes, they also agree, any such benefits could be obliterated by unforeseen developments in the domestic or global economies--including a worsening of the worldwide recession. And in any case, the benefits are unlikely to come soon enough for Democratic lawmakers to get credit for them in next year’s elections.

In fact, in the short term, the Clinton blueprint--if approved before Congress begins its scheduled August recess at the end of this week--could very well put the brakes on whatever economic recovery is now under way.

“If the vote were in secret, all the Republicans would vote for it, and all the Democrats would vote against it,” chuckled David Hale, chief economist of Kemper Financial Services Inc. in Chicago. “By 1996, things will be OK, but if you’re a Democrat facing reelection in 1994, it’s a disaster.”

Yet economists agree with Administration officials that, unwelcome as some of the consequences of the Clinton plan may prove to be, nothing would be as great a disaster as having no deficit reduction plan at all.

“Failure to pass it would be bad for the economy, because it undoubtedly would push up interest rates substantially and it would leave the country without a real deficit-cutting program,” said Robert Hormats, vice chairman of Goldman Sachs International, who has held economic policy-making positions in both Democratic and Republican administrations.

In the short term, large tax increases and sharp government spending cuts are likely to produce what economists call “fiscal drag.” With the government taking more of business profits and reducing its own spending, demand will fall and the economic engine will run more slowly.

And many of the increased taxes will fall directly on small business--the sector of the economy that has been responsible for almost all of the job creation the U.S. economy has seen in recent years.

“It’s a negative you have to live with,” said Robert G. Dederick, a former Ronald Reagan Administration economic official who is now with Northern Trust Co. in Chicago.

But this effect could be offset somewhat if interest rates remain low or perhaps fall a bit further.

Hormats described it as “a race between the slowing effect of a fiscal contraction and the stimulus effect of lower interest rates.” Still, he and others agreed that the forces slowing the economy are likely to win out, at least for a while.

Moreover, betting on interest rates is tricky. Despite the Administration’s insistence that the plan will lower them, the Federal Reserve--increasingly concerned about inflation--has been threatening in recent weeks to raise them.

Fed Chairman Alan Greenspan warned that the central bank might raise rates if the deficit reduction agreement did not meet its five-year, $500-billion target, but he has offered no promise to lower rates if the target is hit.

The Fed’s hawkish stance on monetary policy raises questions about whether the Administration should count so heavily on expected interest rate reductions to result from its budget.

Economists said they believe that Greenspan’s warning is really a calculated effort to force Congress to pass the economic plan, rather than an indication of his actual intentions. “I don’t think it’s serious, but the problem is, we really don’t know,” Dederick said.

There also is the question of whether the agreement will actually come close to producing the deficit reduction it advertises. The 1990 budget deal claimed the same goal of roughly $500 billion over five years; instead, the deficit has grown--largely because of a stubborn recession and growth of entitlement spending, which was not capped in 1990 and will remain unchecked under the latest agreement as well.

Eventually, however, barring an economic catastrophe, economists say they believe that the beneficial effects of a program will kick in.

“In broad strokes, lower deficits, interest rates, long-term savings and investment prospects, productivity, energy conservation and long-term economic growth are all better off under this bill than they would have been if nothing was done,” said Perry Quick, national director of tax analysis and economics for the accounting firm Ernst & Young.

Dederick agreed: “It’s really a program to boost the economy’s potential.”

At the same time, it is important to remember that many of the most powerful forces sweeping over the economy are well beyond the reach of government. And most of them are in the direction of eliminating jobs, not creating them.

Recent years have seen major corporations shedding workers by the tens of thousands to make themselves more competitive against their foreign counterparts. And what investments they have been making are generally in labor-saving technologies.

Just last week, IBM--where being hired was once considered tantamount to lifetime employment--announced that it would eliminate another 35,000 jobs by the end of next year. Those reductions will come on top of earlier cutbacks, which saw Big Blue’s labor force shrink to about 250,000, from 400,000 in 1986.

So while the mantra is Washington may be “jobs, jobs, jobs,” Goldman Sachs’ Hormats warned, “I don’t think the economy, regardless of this budget, is going to be producing a lot more jobs.”

And that, said Washington political and social analyst Amitai Etzioni, is the real problem.

The Clinton plan, he said, is “a step in the right direction--several steps in the right direction. But it’s part of our system that we oversell everything. We have to promise the moon and the stars.”

Times staff writer James Risen contributed to this story.