Economy needs push, experts say
Tax cut is rejected, help for states urged

Tuesday March 31, 1992

Mercury News Wire Services
	WASHINGTON - A group of about 100 prominent economists, whose ranks include six who have won the Nobel Prize, called on President Bush and Congress on Monday to stimulate the sluggish U.S. economy by increasing federal aid to hard-pressed state and local governments by $60 billion and giving businesses a tax credit if they increase spending on equipment.
	The experts also urged immediate cuts in interest rates in an open letter to Bush, members of Congress and Federal Reserve Board Chairman Alan Greenspan.
	They flatly rejected any effort to help the economy by cutting income taxes for the middle class - an approach favored by Bush, Congress and Bill Clinton, the frontrunner for the Democratic presidential nomination.
	Declaring that the economy faces profound problems this year and in the long-term - despite budding signs of mild recovery - the economists urged Washington to act "to help get the economy moving this year."
	But, they warned that "it is of overriding importance (to) do it in a way that will not worsen our longrun problem. We believe that cutting income taxes is exactly the wrong approach. It would promote consumption, not investment."
	The economists - led by Nobel Prize winners James Tobin of Yale University and Robert Solow of the Massachusetts Institute of Technology - threw the weight of their professional eminence behind a simple threepoint program:
	The Federal Reserve should cut short-term interest rates.
	Bush and Congress should enact tax credits for business investment in plant and equipment this year.
	Most important, the economists said, Washington should give hard-pressed state and 1ocal governments $60 billion more, immediately and annually, for investment in public education and infrastructure.
`Net stimulus' sought
	"What's needed is net stimulus," Tobin said. "We'd like the immediate net stimulus to take the form of investment."
	The second and third points of their program would add to the federal deficit, which already is projected to hit a whopping $400 billion record this year. But the economists said their plan would spur investment and growth enough to make up for a short-term increase in federal debt.
	"Once  the economy has substantially recovered," their letter said, government should shift from financing their proposals with debt to "a combination of future cuts in defense spending and higher taxes. This program should not be allowed to interfere with continued reduction of the federal budget deficit."
`Very hard to answer'
	But if Congress refuses to shift to tax hikes later, it would "be very hard to answer" whether their program's thenpermanent increase in deficit spending would have left the economy better off, Solow conceded, saying: "If you ask me, `If Congress and the president are determined to screw up the economy, can we stop them?' the answer is no."
	Signatories included Nobelists Lawrence Klein of the University of Pennsylvania, Franco Modigliani of MIT, and Kenneth Arrow and William Sharpe of Stanford University. Many others are prominent in academia, unions and on Wall Street, such as Lester Thurow of MIT, Jay Woodworth of Bankers Trust Co. in New York, Rudolph Oswald of the AFL-CIO and Allen Sinai of Boston Co. Economic Advisers Inc.

The Washington Post and Robert A. Rankin of the Mercury News Washington Bureau contributed to this report