Voters Seek Only Return of Prosperity

No need to bite your fingernails over what lies ahead for business and the economy after Election Day, Nov. 3.

Simply ask the question: What do the American people want? That’s what will guide the U.S. economy in the next four years.

It has happened before. In 1980, the voters’ desire to curb 12% annual inflation decided the election and the economic policies of the following decade.

This year again there is an overriding issue--economic stimulus. Voters want Tuesday’s victor to get things moving again.

That doesn’t mean necessarily they will vote for Democratic candidate Bill Clinton. President Bush has pledged to stimulate the economy by cutting taxes on income, business profits and capital gains. Voters would reelect him if they wanted to minimize government involvement in the economy.

An electoral nod to Clinton on the other hand would be a vote for more government involvement--although voters are not eager for more taxes.

As for Ross Perot, his candidacy is less a potential winner than an expression of how seriously the American people want to get the country moving. “There’s anger out there, more than the statistics on recession would lead you to believe,” says economist John Rutledge, a onetime adviser to Reagan. “A lot of Americans see their dreams shattered--and they want the dream back.”

So, stimulating the economy will be a priority no matter who is elected. And in terms of business and investments, that means higher interest rates, possibly higher taxes on small business owners, doctors and entertainers, and new techniques to make government budgets more businesslike--because the next President will need an unprecedented awareness of global financial markets.

Those markets are already speaking up. “The bond markets have concluded that the economy will move faster. That’s why short and long-term interest rates have been rising in the last month,” says Patricia Klink, head of Advisers Capital Management, a firm that counsels institutional investors on fixed income securities.

The markets are ambivalent--investors want to see the economy pick up, yet they fear it moving too fast. Klink believes rates will fluctuate as market fears swell and subside, but small investors would be unwise to lock into long-term bonds at today’s rates--although prudent to get a mortgage sooner rather than later.

But if Clinton spending programs or Bush tax cuts threatened to balloon the federal deficit, the international bond markets would stop them by sending interest rates through the roof.

Global investors are not devils. They are corporate and pension fund investors from the United States and other countries who depend on stable, non-inflationary returns because they have pensions to pay, obligations to meet.

Governments ignore them at their peril. In 1981, France’s first left-leaning government in 23 years tried to put socialist programs into effect. But the markets recoiled, interest rates soared, the French economy fell into recession and did not prosper until President Francois Mitterrand adopted conservative policies.

Clinton is aware, say business executives backing him, that his government would have to walk a fine line to boost the economy without disturbing global markets.

That’s one reason he would change federal accounting to introduce a capital budget for long-term investments. “In future, the government would only borrow to finance education and training, research and development and infrastructure,” says Robert Shapiro, a Clinton adviser from Washington’s Progressive Policy Institute.

The capital budget would include activities promising benefits over time--such as water treatment plants or college loans. The cost of such plants and loans could be amortized over many years, as a business would account for them. All other expenditures, including interest on the national debt, would be treated as current expenses.

The benefit of such budgeting is that it makes distinctions, as you do at home when you set different priorities for spending on education or home improvement and money spent on vacations or movies.

The effect of a capital budget, which business has urged on government for years, would be to restrict future borrowing and set limits on deficit spending.

But that’s the future. In the messy present there is a $300-billion federal deficit. Bush would reduce it by spending cuts--so far unspecified. Clinton says he would raise taxes on high incomes and on foreign companies. One proposal is real, the other is phony.

A hike on incomes over $200,000 would increase taxes on “owners of small and family businesses, attorneys, doctors and entertainers,” says Philip Holthouse of the Los Angeles accounting firm Holthouse, Carlin and Van Trigt. That may not do much for economic stimulus, but it would raise revenue. A new tax bracket would be created for higher incomes--”35% sounds about right,” said a leading Congressional Democrat recently.

But not much would be gained by trying to tax foreign multinationals, who have been in a long-running argument for years with the Internal Revenue Service--just as U.S. companies argue with foreign governments. If a Clinton government were looking for $45 billion in new taxes from multinationals, it would be disappointed.

But those are details. The big economic story will be a try for faster economic growth and the dream renewed. May whoever is in office succeed.