By John M. Berry
Washington Post Staff Writer
Wednesday, February 2, 2000; Page E1 
 

President Clinton said yesterday that his administration has made "a substantial contribution" to keeping the current U.S. economic expansion going strong, but he shared credit with many others, including his Republican predecessors, for keeping the American economy open to the rest of the world.

The president expressed confidence that the expansion, now the longest in history, would continue without interruption, but he also said he is concerned about the nation's large trade deficit and the need to have a major inflow of foreign capital to finance it.

He told a small group of reporters in an Oval Office interview that he is optimistic the administration and Congress can agree this year on new "investments" in education, health care and several other areas and an "affordable" tax cut that will maintain government fiscal discipline. The president also met yesterday with congressional leaders to discuss his legislative agenda.

"We can deal with these things. We can have an affordable tax cut, and we can do it in a way that doesn't in effect make a lot of trouble for ourselves five years or 10 years down the road if the projections we have [of future budget surpluses] don't turn out to be right. I just want to see us do all these things within a framework which will not imperil our Social Security and Medicare obligations."

Clinton acknowledged that his budget, which will be sent to Congress next week, won't include the caps on discretionary spending that were set in legislation three years ago but were largely ignored last year when Congress labeled some spending, such as the cost of the decennial census, as "emergency" and thus exempt from the caps.

"I wanted to have fewer gimmicks in the budget than last year," Clinton said, describing how he arrived at the budget totals. "What I tried to do is . . . take the amount of money they spent last time and make it the baseline and then assume a reasonable amount of inflation based on the spending patterns of the last five years."

Some conservative commentators have shrugged off any claims that Clinton policies have contributed to keeping the 107-month-old expansion going, arguing that its genesis was the tax cuts and deregulation efforts of the Reagan administration.

The administration's key contribution was to shift the federal budget from deeply in deficit to today's rising surpluses, the president said. Other legislation deregulating telecommunications and financial services and opening trade opportunities--including the North American Free Trade Agreement and approval of the World Trade Organization--have also contributed to a competitive economic environment. In that environment, businesses have prospered and workers have found jobs.

"I think it is an American boom," Clinton said. "If you analyze what brought us to this moment, I think it was the general restructuring of the American private sector and the tough years of the '80s, when we had to become more competitive in the global economy. I think, even more, it was the explosion of the high-tech sector and those technologies rippling through the rest of the economy."

"American workers deserve a lot of credit because they became in the 1980s very sophisticated about the way the world economy works, and you haven't seen these enormous wage demands that would bring on inflation, even as the labor markets have tightened," Clinton continued.

Federal Reserve Chairman Alan Greenspan "deserves a lot of credit" because "he made decisions based on evidence over ideology," the president said. "That is . . . over conventional wisdom. Somehow he sensed somewhere along the way there was something fundamentally different going on, and he realized he did not have to stop it because we had X years at 3.5 or 4 percent growth, or some other indicator that always before had been a good rule of thumb."

"Something that I think my predecessors should get some credit for, is that we've had a bipartisan consensus in the White House toward open markets, and the open markets have helped to preserve this boom because they have forced us to remain competitive and they have been a powerful brake on inflation," he said.

Of his administration's contributions to the long-running boom, Clinton said: "What we did in 1993 and our subsequent actions all along the way have made a not-insignificant contribution" by moving the federal budget from deep deficits to rising surpluses.

When he was elected in 1992, he recalled, unemployment was still high. "Why? Because we had these very, very high interest rates because that was the price of the good times we bought with deficit spending in the early '80s."

While he would give his predecessors "due credit for keeping the markets open and encouraging competitiveness," they also left the nation "massive deficit spending" that was a major problem for the economy, he said.

Clinton's response was a 1993 deficit-reduction plan designed to turn around the budget and eventually make room for some spending initiatives in education, health care and other areas. The plan, which passed the House and Senate each by one vote and with no Republican support, included increases in personal income-tax rates that the GOP bitterly opposed.

"I remember when [Treasury Secretary] Lloyd Bentsen announced a lot of our economic program in December of '92, before we even took office, there was a big rise in the bond market, interest rates fell, and it just took off from there. And then when we actually passed it, people could see we were serious, and I think it was like just breaking through a dam. We got interest rates down," which helped generate "an investment-led recovery."

Clinton said that as well as things are going economically, he worries "a little bit" about the size of the nation's record trade deficit: "That's one of the reasons I hope we can get China into the WTO and open that market more, because it's the biggest source of our troubles."

The president is also concerned about the high level of debt, particularly business debt, and the extremely low level of personal saving from current income by American households. "The one thing that no one seems to know how to fix in America is how we get the personal savings rate back up," Clinton said.

"What bothers me . . . is that if we have a trade deficit of this size . . . and we have all this personal [and business] debt, all this stuff has got to be financed. And because our personal . . . savings rates are fairly low, about 40 percent of our debt is held by non-Americans." Should foreign investors decide for some reason to pull their money out, that could do major damage to the economy, he said.

"My concern is mitigated by the fact that the government is in surplus and we're paying down the debt, and that lowers our risk a little bit--quite a little bit." Moreover, he continued, "a lot of this money that's been borrowed has been borrowed for business investment and will have a growth component to it and will increase the long-term growth and stability of our economy."