SYNOPSIS: Krugman discusses candidate Clinton's economic plan Republican contentions that Gov. Bill Clinton's economic program is based on reckless taxing and spending are predictable. More important are the concerns of moderates that the blueprint is less substantive than it first seemed -- that, unlike Ross Perot's program, it would do little to reduce the Federal deficit.

It is certainly possible to argue that the Clinton program would do little to hasten a reduction in the budget deficit. Still, the program is pretty good and represents a much-needed change of direction in economic policy. Leave aside Mr. Clinton's hope that he can cut $26 billion a year in non-defense spending as well as his claim that he can reduce the deficit by accelerating growth. There is still a sensible core to his program.

He proposes to invest moderate sums -- less than 1 percent of the gross domestic product -- in child care, education, training and infrastructure. To pay for these investments, he proposes tax increases for the affluent, reforms in taxing foreign corporations and spending cuts, primarily on defense.

The taxes and cuts would amount to $53 billion a year, and the new investment spending to $47 billion a year, so there might be some direct deficit reduction. But Mr. Clinton's main emphasis is on financing new investment, not on cutting the deficit.

The defense cuts are well within the range that reasonable experts believe is feasible. The added revenue from taxes on the rich means rolling back less than 25 percent of the tax break given in the 1980's to the 2 percent of families with the highest incomes. Only the extra revenue from foreign corporations looks shaky, but it is surely true that some additional revenue can be captured.

Investment in the nation's infrastructure, neglected for 12 years, is badly needed. So patching the holes in our fraying transportation, communications and sanitation systems means high payoffs. The evidence suggests that, with one-fifth of the nation's children below the poverty line, Head Start and other programs for children are also investments with high economic (not to mention human) payoffs.

But shouldn't everything else be put on hold until the deficit monster has been slain? The budget deficit, estimated at $372 billion for fiscal 1992, is serious, but it is not our only -- even our main -- economic problem.

Economists at the Federal Reserve Bank of New York recently estimated that the deficits of the 1980's reduced the growth rate of the economy's productive capacity in that decade by about 0.3 percent. This figure, which most economists would agree is in the ball park , is not insignificant. But it represents only a small part of the woes of an economy in which median family income rose 2.8 percent a year from 1947 to 1973 but has been virtually stagnant ever since.

There is no reason to think that eliminating the deficit would end our malaise. If we balanced the budget by 1996, instead of running the deficit the Congressional Budget Office projects, a reasonable estimate is that our long-term growth rate would rise by only about 0.25 percent.

A President with unlimited political power could balance the budget and simultaneously find the resources to spend on urgent investment needs. In the real world, choices must be made. If a President can save $1 billion through feasible cuts in spending or raise $1 billion by taxing high-income families, should that money be used to reduce the deficit or help repair bridges and finance Head Start? Mr. Clinton's answer is that investments should have first priority. He's right.

Ross Perot, with a single-minded focus on the deficit, proposed inflicting far more pain than Mr. Clinton is willing to consider. But that doesn't make the Perot program better. The Clinton investment plan would probably do more for growth than Mr. Perot's frontal assault on the deficit.

By contrast, President Bush has no economic plan at all. His only significant initiative is a proposal to cut capital gains taxes -- which would worsen the deficit, do little to stimulate private investment and do nothing at all to meet our increasingly desperate needs for investment in the infrastructure and in children.

Originally published in The New York Times, 8.04.92