Despite more than 27 years in the US Senate, many of them as part of the Republican leadership, Bob Dole's views on the economy remain surprisingly enigmatic. The most enduring theme of his period in the Senate was his conviction that America needed to live within its means and he has worked relentlessly, sometimes at odds with Republicans in the White House, to tame the US budget deficit and bring the levels of national debt under control.
In the years of the Reagan administration he never hid his scepticism about supply side economics, which let the budget deficit rip.
But Dole, who is trailing his Democratic opponent President Clinton by 15 points in the opinion polls, has a huge problem if he decides to make the economy the centrepiece of his campaign. Unlike 1992, when Bill Clinton rode into the White House on a wave of dissonance about George Bush's management of the economy, the 1996 election economy appears all but perfect.
'As a macro proposition, the economy is in the best shape for 30 years,' argued deputy treasury secretary Lawrence Summers in a recent interview. 'We have the first investment led, low inflation expansion since John Kennedy was President. Our history is that expansions end when inflation moves out of control. But at present we have low inflation and capacity rising rapidly.'
As one of the most senior members of the Clinton economic team, Summers is not simply beating the drum. At 5.6 per cent, the US unemployment rate is safely below the 6 per cent level most economists regard as the natural level of full employment. Since August 1993, 7 million jobs have been created. Inflation is well below 3 per cent.
The budget deficit has been cut in half to $130 billion, and now represents 1.7 per cent of gross domestic product, against 4.9 per cent when Clinton took over. And the Dow Jones has soared almost 80 per cent, enriching a broad group of American investors for whom the 'feel good' factor has returned.
On the global economic front, a combination of words and coordinated action among the G7 countries has lifted the value of the dollar, while bond yields have been ratcheted downward and Mexico has been rescued from near disaster. The Nafta and World Trade Organisation treaties have been ratified, securing Bill Clinton's reputation as a free trader. At July's G7 summit in Lyons, Clinton was at the forefront of the move to extend trade liberalisation to new areas including financial and other services.
Against this formidable statistical and policy backdrop, Dole must make the case in San Diego that he is better qualified to nurture economic expansion. He is, of course, not entirely without weapons. Quite apart from Whitewater and the character issue, there are a number of more subtle economic trends into which the Republican nominee may seek to tap.
Although unemployment is low, concern about job insecurity remains high, as symbolised by the June strike at aircraft manufacturer McDonnell Douglas, where workers demanded greater certainty. The present growth rate, estimated at 2.2 per cent, is significantly below historical levels, while productivity is disappointing and, for most Americans, real incomes have been flat.
In an effort to put some intellectual punch into a campaign going nowhere, Dole has taken the first steps towards forming a brains' trust of economists to direct him away from the focus on balanced budgets and towards a more broadly based policy that addresses some of the longer term weaknesses.
This group of prominent economists has come up with a menu of options from which the Republican candidate can choose. The remarkable aspect from Dole's point of view is that all the ideas are tax related. Among the most radical discussed was wholesale tax reform, which would move the US to a more European model in which direct taxes on income were partly replaced by a consumer tax, such as value added tax. This was seen as a valid approach in an economy in which the taxes on capital are among the highest in the Western world. But it was considered too contentious for the voters in 1996 though it may form part of a future Republican programme.
What is more likely to emerge is a more conventional group of reforms which includes reductions in tax rates, lowering capital gains taxes and the creation of new, tax sheltered savings vehicles.
Most of these ideas may seem unexceptional. But in the hands of Bob Dole, with his fixation on the balanced budget, they are potentially revolutionary. In language reminiscent of the Reagan era, those advising the Republican candidate in favour of the programme believe it could be self-financing. In their view extra revenues of some $90 billion a year could be generated, effectively wiping out the deficit, if the economy could be restored to trend US growth of 3.3 per cent, according to conservative economist Gary Robbins, of the Institute for Policy Innovation.
Ahead of the Convention Dole is undecided on which reforms to back. But the Clinton team is sharpening its stiletto, reminding those who will listen of the deficit dangers of a return to Reaganomics. If he is to win the economic debate Dole has a mountain to climb. Either way, however, the current expansion in the US economy, which already has created several million new jobs, looks set fair throughout 1997 at least.
Source: Airline Business