Too Much Good News Upsets Clinton Agenda : Programs: With a brighter economic and health care outlook, support for his ‘security’ initiatives could fade.

This was supposed to be the year President Clinton got to do the fun stuff, to enact the activist agenda that helped him get elected.

After an initial 12 months in which he felt compelled to swallow the sour medicine of deficit-reduction, Clinton planned to focus this year’s domestic agenda on ambitious and upbeat initiatives in the areas of health care, welfare reform, crime prevention, education and job training.

Those policies provide the building blocks of what Clinton once called his “economic security agenda”--his Administration’s response to what it perceived as voters’ deep anxiety about the future.

Yet as Clinton prepares to outline his plans for 1994 in his State of the Union Address on Tuesday, he faces a dilemma rich with irony. Signs of growth and renewal are showing up in many quarters--earthquakes and cold spells notwithstanding.

Positive numbers are rolling in on employment, economic expansion, health care costs and America’s international competitiveness. In early January, consumer confidence rose to its highest level since before the Persian Gulf War.

But what is unquestionably good for the nation and its citizens could be bad news for Clinton and his “security” agenda.

With increasing evidence of economic revival, the sense of crisis that Clinton had counted on to generate support for his activist initiatives may quickly evaporate.

With the possible exception of a new infusion of federal funds for earthquake-ravaged Southern California, the public’s appetite for big government programs is likely to wane as its confidence rises on such key issues as job and income security, affordability of health care and the outlook for the economy.

In an acknowledgment of the improving national mood, Administration officials now say Clinton is backing off economic security as the unifying theme of agenda. They say he will downplay the security refrain in his State of the Union Address, a speech that will be dominated by the issues of health care and crime prevention.

“We found that ‘security’ went over like a lead balloon as a theme,” said one White House official. “I think you will see it only as a secondary component of the speech.”

There is far more than rhetoric and symbolism at stake for Clinton. Indeed, the President may be about to find out just how difficult it is to get Washington to take forceful action when there isn’t a sense of urgency in the air.

Just as the White House gears up for its big legislative push on health care reform, for example, the government’s statistical gnomes churn out data showing that the spiraling growth of health care costs is slowing.

The Labor Department reported earlier this month that medical costs rose 5.4% in 1993. Pharmaceutical prices rose 3.1%, less than half the rate posted in 1992 and the smallest increase in nearly 20 years.

The surge in medical costs over the past decade has been a key concern driving the debate over health care reform. A sustained reduction in the growth rate could raise new questions about the wisdom of the sweeping reforms proposed by Clinton.

The President’s plan relies heavily on government intervention in the medical marketplace, and critics already have accused Clinton of drafting a plan that is too radical to gain widespread support.

Indeed, the apparent taming of medical inflation has prompted one powerful lawmaker, Senate Finance Committee Chairman Daniel Patrick Moynihan (D-N.Y.), to declare that there is “no health care crisis” facing the nation.

“I think it is inevitable that slower growth in health care costs will have a major political impact on health care reform,” said Dr. Edith Rassell, a health care economist at the Economic Policy Institute in Washington and a supporter of health care reform. “There are lot of people who want to do nothing, and this gives them a perfect excuse.”

Moynihan and a handful of his moderate Democrat allies in Congress would much rather focus on the politically popular issue of welfare reform in advance of 1994’s off-year elections.

As a result, the Administration, which hopes to keep the issue on the back burner until Congress finishes with health care, may be forced to accelerate the timetable for welfare reform. The competing pressures over the timing of health care and welfare reform is shaping up as one of the first major legislative battles of 1994.

Similarly, the crisis atmosphere that once surrounded the issue of America’s ability to compete with its major trading partners seems to be waning as the economy rouses from its stupor.

International competitiveness is a theme that runs through virtually all of Clinton’s major initiatives, from health care reform to Labor Secretary Robert B. Reich’s ambitious plan to fund new training and re-employment programs for displaced workers.

But just as Reich is poised to release his re-employment program, new studies suggest that U.S. workers are widening their lead in productivity over their European rivals, while at least holding their own against the Japanese.

Germany’s post-World War II “catch-up” with America ended in the early 1980s, and the United States has increased its productivity advantage over Germany since then, according to a new study by the Brookings Institution.

As a result, “Japan and the United States are likely to share productivity leadership in manufacturing for some time to come,” German economist Bart van Ark said.

Separate studies show that the United States now enjoys some of the lowest manufacturing costs of any advanced industrialized nation; BMW and Mercedes-Benz are setting up shop in the South to escape the high costs of doing business in Germany.

Administration officials argue that much of the improvement in productivity has come at a high price: bankruptcies, layoffs and corporate restructurings that have left millions of Americans outside the economic mainstream looking in.

“Productivity is not the only measure of economic well-being,” said Laura D’Andrea Tyson, chairman of the Council of Economic Advisers. “The United States has had stronger growth in the past year, but you still see that wages and incomes have been growing very slowly.”

Still, the unemployment rate--6.4% in December--has fallen nearly one full percentage point over the past year, and monthly job creation in 1993 was double the pace of 1992.

“People are not as scared as they were a year ago. . . . People are feeling better, that looks to be dramatically true,” said one White House official.

While the sense of urgency underlying Clinton’s campaign proposals may be absent this year, the budget constraints that are facing the Administration remain very real.

Stringent new spending limitations imposed by Clinton’s five-year, $500-billion deficit-reduction package are already threatening Clinton’s ability to finance his legislative agenda.

White House Budget Director Leon E. Panetta warns that unless the Administration is successful in persuading Congress to cut spending on existing programs, there will be little money available to fund many of Clinton’s initiatives.

Already, the Administration has cut proposed outlays for Clinton’s new programs for 1995--from $29 billion to about $16 billion--and only five Cabinet departments received funding increases for next year.

Panetta had no choice but to slash funding for the new agenda to comply with a hard freeze on discretionary spending in next year’s federal budget, which will be unveiled Feb. 7.

The freeze will remain in place at least through 1998, raising questions about Clinton’s ability to fully fund his plans.

From a political perspective, the good news about the economy and health care is arriving nearly three years too soon. For Clinton, the state of the nation in late 1996 matters much more than its performance in 1993.

In fact, fast growth today could increase the probability that the economy could be hitting the skids again during the next presidential election campaign.

But good news, after all, is better than the alternative. So, aides say, Clinton will use his address to claim credit for the positive developments: low interest rates, rapid job growth, increasing business investment in factories and equipment, and a significant decline in the federal deficit.

Administration officials say he will stress that his deficit-reduction package is responsible for a sharp reduction in long-term interest rates, making it easier for consumers to spend and businesses to expand.

“I think he will tell the public that he has done wonderful things for them over the past year,” said a sardonic Martin Feldstein, a conservative Harvard University economist and former Ronald Reagan Administration official. “He will take credit for the business cycle.”

Countered Robert E. Rubin, chairman of the Administration’s National Economic Council: “How will we take credit for the economy? Easily.”