Slow Recovery Crimps Clinton's Selling of NAFTA White House and Critics Dispute Whether Economy Is Strong Enough to Risk Trade Treaty. FREE-TRADE OFFENSIVE

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WITH the critical House vote on the North American Free Trade Agreement just 10 days away, the Clinton administration is pressing its "no pain, no gain" economic message hard.

Top White House policymakers insist that the adoption of controversial initiatives - deficit reduction through higher taxes and budget cuts, passage of NAFTA and health-care reform - is essential for the nation's economic recovery.

But convincing the American public "that ultimately there's a real payoff" in taking such steps is a "tough battle," White House budget director Leon Panetta conceded at a Monitor breakfast last week. (Doubts about NAFTA, Page 6.)

The key reason why it's so tough is that, so far, the economy hasn't been producing many new jobs. The Labor Department announced Friday that unemployment edged up to 6.8 percent from 6.7 in September.

"We have not had enough {gross domestic product} growth and that's why we've had a relatively jobless recovery," says Robert Rubin, chairman of President Clinton's National Economic Council. Still, he says, "The pieces are falling into place for a vibrant economy." What's needed now, he says with the resolve of a campaigner, is public support.

Administration officials say that if the public buys into a positive view of the economy, they can win the NAFTA battle. Vice President Al Gore Jr. will be delivering a rosy message tomorrow when he debates Ross Perot on the merits of the trade agreement. In the days leading up to the showdown, White House officials have intensified their economic pitch.

"The administration has set a very important direction" for fiscal discipline, control of health-care costs, and a broad-based trade accord with Mexico, Mr. Panetta argues. If US policy continues down this path, he says, "We're going to see steady, solid growth in the economy."

Critics, however, see a darker side to the administration's economic nostrums. "If we follow all of the administration's leads, we'll hit a dead end," says William Dunkelberg, chief economist for the 600,000-member National Federation of Independent Business (NFIB).

The NFIB, which represents small firms, fought the higher taxes that accompanied the deficit-reduction plan. Now it is strongly opposed to a health-care plan that would impose heavy financial burdens on its members. Such measures depress, not stimulate, economic growth, Mr. Dunkelberg says.

Most economist agree that the nation's economic gains since President Clinton was elected have been modest. The most significant development, they say, is Wall Street's acknowledgment of Washington's commitment to fiscal restraint. The result is the lowest interest rates in two decades - a favorite Clinton administration example of how difficult decisions bring great benefits.

"The reality is that low interest rates are having a dramatic impact on the economy," says Panetta, who projects the nation's gross domestic product, up 2. …

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