SHAKE-UP AT THE WHITE HOUSE : ‘Tiny Alice’ With the Big Economic Picture : Staff: Rivlin, the new OMB director, hewed to the cry for deficit reduction. She has won converts since last year’s bloody budget battle.

In the first months of the Clinton Administration last year, two camps waged a ferocious battle over the direction of the Administration’s first budget--and of the Clinton presidency.

One of the winners was Alice Mitchell Rivlin, a tenacious bureaucratic infighter and an unchallenged authority on federal spending, who on Monday was promoted to budget director.

Clinton’s campaign advisers had wanted a budget with an all-out tax attack on the wealthy and tens of billions of dollars in new spending for the poor and the beleaguered middle class.

But the President’s economic team wanted deficit reduction and more deficit reduction, to soothe the financial markets and win political support from conservative Democrats and anti-government Ross Perot voters.

The economic advisers won, decisively. And Rivlin, then deputy budget director, was in the vanguard.

The diminutive 63-year-old economist, known as “Tiny Alice” in her years on Capitol Hill, was often acerbic in defending the deficit-reduction strategy, belittling the economic ignorance of the political team in heated White House meetings on the budget.

One of those political advisers, senior campaign aide Paul Begala, believed Rivlin and the other deficit hawks were like evil spirits possessing the President’s soul, driving him away from the people and the ideas that elected him.

But Begala has since come to believe that Rivlin was right and--in what may be a first in American politics--has confessed the error of his ways.

“I’m not paid to see beyond the next election,” Begala said Monday. “She sees not only past the next election but into the next generation. She’s helped me see that paying down the deficit was a necessary first step to expanding the economy. And darned if she wasn’t right.”

The shift of Leon E. Panetta from director of the Office of Management and Budget to White House chief of staff and the elevation of Rivlin to OMB director was welcomed both in political and financial circles.

Her appointment, which requires Senate confirmation, means continuity in Administration fiscal policy and a continued commitment to taming the federal budget deficit, according to Robert D. Reischauer, director of the Congressional Budget Office, the nonpartisan analytical shop that Rivlin ran from its inception in 1975 to 1983.

Panetta and Rivlin “are actually quite different as individuals, but their concern about the deficit, their knowledge of what’s causing federal spending to rise and their ability to fashion solutions are very similar,” Reischauer said. “They both have considerable Hill expertise--Alice as a staff figure, Leon as a member--and that is a difference, but their similar views mean that we’ll likely see a continuity in policy.”

That was welcome news in the financial community, which has been closely monitoring the Clinton Administration for any signs of tax-and-spendism. As long as the White House remains committed to deficit reduction and spending restraint, Wall Street is prepared to reward Clinton with relatively low interest rates, analysts said.

Marianne Feeley, a senior economist at Fuji Securities in Chicago, said Rivlin’s appointment would reassure Wall Street that the Administration intended to continue along the path set in last year’s budget, which contained nearly $500 billion in deficit reduction over the next five years.

Rivlin, who holds a Ph.D. in economics from Radcliffe College and has worked for years as a senior economic analyst at the Brookings Institution in Washington, described herself in a recent book as a “fanatical, card-carrying middle-of-the-roader.”

At the CBO she refused to give policy recommendations, for fear of tainting the office’s objectivity, and would not allow her budget estimates to be twisted to support policies that she regarded as irresponsible. CBO budget estimates gained a level of credibility that they retain to this day, 11 years after her departure.

“Congress has fussed at us but never tried to change the numbers,” she once said in an interview. Her analyses also challenged budgetary claims made by former Presidents Gerald R. Ford, Jimmy Carter and Ronald Reagan, and she emerged unscathed.