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NEWS ANALYSIS : Settling for Slow Growth Is Seen Selling Economy Short


Growth might prove particularly helpful for unemployed or underemployed workers who have yet to enjoy the benefits of the current economic expansion. And if bosses viewed each employee as a scarce and valuable commodity, that might add a modicum of job security to the increasingly insecure workplace.

At a fund-raiser in New York on Thursday, Clinton suggested that it is time for the Fed to reconsider all these matters. The president was particularly disturbed that Republicans in Congress refused to consider Felix G. Rohatyn, a pro-growth investment banker from New York, for a seat on the influential board.

"One clear area where we ought to debate is whether the conventional wisdom of about how fast this economy can grow is right," Clinton said.

Placing Rohatyn on the Fed would have encouraged fresh thinking about growth, he said, "But the politics of Washington said: 'No, we insist on the conventional wisdom, we insist on holding people down, we don't even think it's worth debating. Over and out.' "

If the Federal Reserve gets much of the heat, experts generally agree that the true path to higher living standards is through greater productivity: more goods and services generated by each worker.

Unfortunately, nobody knows exactly how to get there, and Fed interest-rate policies affect only the short term. Better-educated workers would help, it is agreed. Also, more national savings and investment could pay for a lot of new technology and training in how to use it.

No one, however, can say precisely how it all adds up. "Our ignorance is higher than a lot of people are willing to admit," said Paul M. Romer, an influential thinker on growth at UC Berkeley.

He labels three factors that seem to drive growth over the long haul:

* "Software": ideas that can be used over and over, such as the principles of mass production.

* "Hardware": machines and facilities.

* "Wetware": the people who use them.

Breakthroughs and insights that no one has even dreamed of ultimately may remake the entire picture. In the past, for instance, the establishment of a patent system and the opening of private research universities led to greater affluence. Sometimes government policy actually played a vital role, as with the creation of agricultural research stations.

"What was essential was a whole collection of discoveries about ways to organize the world and take advantage of the world," Romer said.

Said Gavin Wright, an economic historian at Stanford University who recently co-edited a book on growth: "There's a growing body of thought that you really can influence the growth rate." But the gains are not likely to be staggering, he added. "We're talking about changes in tenths of a percentage point."

The Clinton administration has endorsed what it calls "a constellation of policies" to foster growth over the long haul. These include balancing the budget, supporting efforts at training and education, sponsoring research and encouraging exports.

The administration's newest forecast is for growth of 2.2% to 2.3% for the next few years. The full payoff for today's growth policies is not expected for years, and officials do not pretend to be able to measure it.

"I wish I could pull a number out of the hat and say we're going to double the growth rate," said Joseph E. Stiglitz, chairman of the White House Council of Economic Advisors. "The fact is that trying to make inferences [about growth trends] is very difficult."

MIT's Solow complained that politicians on the stump often talk about growth in a "phony" way, as if government had some direct control of it. Instead, he said, leaders must tackle such difficult questions as how to create effective tax incentives for business investment without saddling average Americans with the cost.

Yet if there is an element of opportunism in some of today's political rhetoric, Solow agreed that growth is on people's minds for legitimate reasons.

"People feel insecure about the future. Who knows if jobs will last? Who knows if wages will rise? Those are real reasons to talk about the issues of growth."

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