FULL TEXT: DARMAN-BOSKIN WHITE HOUSE PRESS BRIEFING ON BUDGET.

The Briefing Room

MR. FITZWATER: We have here at the front of the Briefing Room copies of the Midsession Review Of The President's Budget And Economic Growth Agenda. And the briefing today will be on that report. Chairman Boskin will lead off.

The briefing is by Dr. Michael Boskin, Chairman of the President's Council of Economic Advisers; and Richard Darman, the Director of the Office of Management and Budget. And both will have brief opening statements. And we'd like to hold your questions until they both have completed those, and then you can question either or both of them.

DR. BOSKIN: I think all of you have the midsession review or copies of it in front of you. Director Darman will go into more detail on the budget issues involved. I'm going to spend a few moments talking about the administration's economic outlook and assumptions that underlie the budget projections.

The midsession review economic projections show an expected increase in economic growth in the second half of this year with unemployment declining slowly. The projections are very similar to the budget projections presented in January. The major difference worth highlighting is that real growth in 1992 is expected to be a little bit higher than we had expected back when the budget was released in January.

Inflation and short-term interest rates are expected to remain low. And long-term interest rates are expected to decline slowly but steadily. When compared to what private forecasters and so on have to say, I would just indicate that they're quite similar to the blue- chip consensus, that's the average of the 52 blue-chip private forecasters, a recent Wall Street Journal survey, and close to the consensus estimate and central tendency forecast of the Federal Reserve. I have not seen the CBO's most recent forecast. think they are about to make it.

The forecast is for real growth in 1992; is 2.7 percent on a fourth quarter over fourth quarter basis; 2 percent on a calendar year basis. It's a slight upward revision from January, reflecting the fact that the first half of the year appears to be a little bit stronger than originally had been forecast. Although we do expect growth from the second quarter, while showing continued growth in GDP for the economy is probably somewhat below the growth rate in the first quarter. This real GDP growth is slightly below the blue-chip consensus for July -- about a tenth of a percent below.

For 1993, the administration and the blue-chip consensus forecast, real GDP growth at 3 percent. Federal Reserve Central Tendency is 2.75 to 3 percent.

The unemployment rate in the midsession review for civilian unemployment for 1992 is identical to the blue-chip forecast of 7.3 percent. It's an upward revision from the budget forecast of 7 percent.

For the fourth quarter of this year, when this was done, which was before the recent rise in the unemployment rate, we had 6.9 percent. By the end of the year, were this to be redone, we would reconsider that slightly, there might be a slight upward revision. The private forecasters that have taken account of that generally are at 7.1 or so.

For 1993 we expect the continued growth from the economy and eventual leveling-off to more average levels of the rate of growth of the labor force to be consistent with declining unemployment down to the 6.6 percent range. Inflation is expected to remain at relatively low levels, around 3 percent, essentially unchanged from the January budget forecast.

The projected interest rate on three-month Treasury bills for `92 and `93 has been lowered slightly in the midsession review from the budget in January. Again, they were prepared before the Fed's most recent interest rate cuts, and we probably would revise them down a few tenths of a percent at this stage.

I will just make one other statement which is it has been obvious for some time that the economy needed some monetary stimulus, some fiscal reform and some regulatory relief. The Federal Reserve has recently taken some actions on the monetary policy front to lower interest rates. The President's doing all he can unilaterally within the framework of statute to reduce unnecessary regulatory burdens, and it would be very good for the economy if the Congress would now enact the President's economic growth initiatives.

Let me turn it over to Director Darman.

DIRECTOR DARMAN: Thank you very much. If you all would indulge me, I have about a five-minute statement, I believe you have copies. I would happy [sic] to take questions for whatever length of time in trade for your allowing me this statement. Let me start with its conclusion, if I might.

The polite conclusion is that the good news is the deficit is down because Congress has failed to act. The bad news is the economy is not as far up and the deficit is not as far down as they both should be because Congress has failed to act. Now let me elaborate.

The near-term budget deficit has been revised downward very substantially. This year's deficit is now estimated to be $66 billion lower than the January estimate. The estimate has been reduced from $399 billion to $333 billion. The estimate for next year has also been reduced but by a lesser amount, $9 billion. Federal borrowing from the public will be reduced correspondingly. The revision means that the deficit, as a percent of Gross Domestic Product, will peak at about 5.7 percent. This is substantially lower than the high that was reached following the previous recession.

The principal reason for the decline in the current deficit estimate involves an irony. The reason is the same as the reason that the deficit is so high to begin with: Congress has failed to act in a timely and responsible manner. In this particular case the congressional failure involves the funding of legislation to cover losses associated with S&L case resolution. Almost the entire change in the near-term deficit estimates is accounted for by a change in deposit insurance estimates. And the largest portion of this change is really just a delay of outlays due to congressional inaction on RTC funding, although there is some improvement in the underlying condition of the banks and S&Ls.

Although congressional inaction in this case has had a beneficial effect on the near-term deficit outlook, the general pattern of inaction has had the reverse effect. Overall congressional inaction has made the deficit very much worse than it would have been had the President's program been enacted. In a single sentence, the Congress has failed to deliver. There is much posturing about interests in economic growth, investment in the future, crime reduction, health reform and deficit control, but when it comes to constructive congressional action, on a scale of zero to 10, the total is closer to zero.

Let me be less rhetorical and more factual with respect to selected presidential initiatives in the five areas I've mentioned.

First, economic growth. In January the President proposed a widely popular and potentially very effective short-term stimulus measure, the $5,000 tax credit for first-time homebuyers. After months and months of lamentation about sluggish growth the Congress has still failed to advance this initiative.

In April, 1991, the President advanced America 2000, a bold program of education reform to help America's work force compete. The Congress has failed to pass the central elements of that reform.

The President advanced Job Training 2000 in January of this year. The Congress has failed to pass it. The President first proposed to make the research and development tax credit permanent in February of 1989. Almost four years later the Congress has still failed to do so and has indeed allowed the R&D credit temporarily to lapse.

In February, 1989, the President first proposed to increase job- creating investment by strengthening the incentive for capital gains and creating strong incentives for investment in enterprise zones. Almost four years later, the Congress has still failed to strengthen the capital gains incentive and has advanced only modest tax increases -- excuse me -- tax incentives for enterprise zones. And they have not yet become law.

As additional elements of a long-term growth strategy, the President advanced a national energy strategy in February 1991; financial services modernization in March 1991; product liability reform in October 1991; civil justice reform in October 1991; and a youth apprenticeship act in May of 1992. None -- none -- of the associated legislation has yet been passed by the Congress.

Let me turn to the second heading: investment in the future. The concept of "investment in the future" has recently become fashionable in some quarters. It so happens that the President first emphasized this almost four years ago in his February 1989 budget presentation. He has emphasized this theme in every subsequent budget. As a result there has been some modest progress in shifting discretionary spending more toward investment.

But the Congress has consistently been unwilling to address the more basic problem, to shift the balance of overall domestic spending away from short-term consumption. And even with the discretionary program areas in which there has been some improvement, there are curious anomalies in light of some people's recent rhetoric.

For example, the President proposed America The Beautiful to increase investment in parks, wildlife refuges and so on. Yet the most recent appropriations committee action has reduced the President's proposed initiative by $262 million. The President's proposals for infrastructure investment in airports and modernization of the air traffic control system have been cut almost $300 million. The President's request for investment in immunization, Healthy Start, infant mortality reduction and Head Start have all been cut. The President's request for HOPE grants to increase homeownership for low income people has been cut from $1 billion down to $361 million.

The House has voted to cut each of the President's 10 highlighted applied research initiatives by a total of over a half a billion dollars. The congressional cuts include such areas of recent attention as high performance computing and transportation R&D.

It's understandable that there are differences in priorities between the Congress and the Executive, but differences such as the foregoing are particularly curious in view of the recent rhetoric.

Third category: crime reduction, which is important in its own right and is also related to economic growth. The President proposed a comprehensive crime bill on March 11, 1991. It's now more than 500 days since that proposal was advanced. Still no serious crime control bill has been presented to the President.

Fourth category: health reform. The President advanced his comprehensive health reform program on February 6, 1992. He followed this with specific legislation on health insurance market reform, medical and health insurance information and malpractice reform. The Congress has failed to act on any comprehensive health reform plan.

Finally, fifth: deficit control. By failing to act on the President's economic growth agenda or any effective growth agenda, the Congress has allowed the deficit to become many tens of billions higher than it would otherwise have been. The President has proposed the elimination of 246 unnecessary or inefficient domestic programs, costing the taxpayers unnecessarily $5 billion per year. To date, the Congress has terminated none of these.

This year the President proposed to rescind $738 million in spending on unnecessary, unjustified, or uneconomic projects and programs. Of this, the Congress approved only $10 million.

In the area of mandatory spending, almost two-thirds of the budget, the Congress has shown a consistent lack of interest in controlling the growth of spending. In his first budget the President proposed $120 billion in specific mandatory savings. Congress enacted slightly over $1 billion, roughly one percent. In the 1992 budget, the most recent one -- prior to the one we're dealing with for the future -- the President proposed cuts of $47 billion. The Congress actually increased mandatory spending growth by over $4 billion.

In this year's budget the President proposed specific mandatory savings of $68.4 billion. To date, these proposals have been ignored.

In view of this unfortunate congressional record, the President also proposed a new law to place an enforceable cap on the growth of mandatory spending. As the midsession review makes clear, this is necessary to balance the budget within the five-year budget period. To date, the Congress has not passed the recommended and necessary cap.

Finally, in February -- February 1989 -- the President first proposed line-item veto, enhanced rescission and a balanced budget constitutional amendment. All, obviously, necessary for any fiscal discipline. The Congress has passed none, not one of these.

So let me repeat the conclusion which I refer to as polite. The good news is the deficit is down because Congress has failed to act. The bad news is the economy is not as far as up and the deficit is not as far down as they should be because Congress has failed to act.

That said, we will both be happy to respond to your questions. Thank you for your indulgence.

Q Mr. Boskin, you project unemployment by the end of this year at around 6.9 percent and you said even that may be a shade optimistic. Is that the kind of economy that can get an incumbent President reelected?

DR. BOSKIN: Well, I think the President is going to be reelected because he's done a good job; he's the best person for the job. He's done a good job managing the economy in my opinion. There are many reasons why the economy has not been as robust as it could and should have been. Dick Darman just did a very good job of giving in summary form a long list of problems that would have been much further along on their way to solution had Congress enacted the President's initiatives. Our own estimates are that if they had passed the President's short-term economic stimulus program we'd be on our way to creating a half-million more jobs this year alone, and, cumulatively, substantially higher GDP and lower deficits and more investment in the out years. So I think that's one reason.

Secondly, we've seen a substantial slowdown abroad. We're obviously very concerned about the unemployment in the United States, but if you were in Europe you would see unemployment rates of 10 percent that were common. We have had major improvements in our trade position, but the slowdown abroad has begun to slow our exports some. And obviously, very slow growth of the money supply and credit conditions have acted as drags.

And then, if I could just make a couple of other points -- when you have a shift from a defense build-up contributing to growth as it did through the mid-to-late `80s, then a flattening out and now the prospect of a substantial downsizing of defense, that would be -- that's going to temporarily contribute to a slowdown in the economy. But the proclivity of Congress to try to micromanage the defense build-down creates so much uncertainty about where the downsizing will occur that you have a very large fraction of people in defense and defense-related industries concerned about their future job security; a much larger fraction than ultimately will be moving from defense-related work to civilian work because there's no clear plan. Congress keeps trying to micromanage this.

There are other factors as well. But the single most important point I would point out is if the President had not taken the leadership role that he did in the Gulf crisis and the Gulf War, there is no doubt whatsoever that our economy and virtually every industrialized economy would be in far worse shape because Saddam Hussein would have been poised to take over Saudi Arabia and could be controlling two-thirds of the world's proven reserves of oil. That would have been a horribly difficult situation for all of the world's industrialized economies including our own.

So I think the President will be reelected. He deserves to be not only on his record but he has the right programs for the future that will generate growth, growth in the economy, private sector jobs, not growth in government. He has the right program, in my opinion, to reform some of the institutions and sectors that badly need reform. Director Darman pointed out to the innovative reforms in education and health care, among others.

I would add one other thing that we think is especially important. The cumulative effect of those kind of twin hidden taxes of over and unnecessary regulation on litigation the President has been trying to reign in and I think has done an effective job within the limits available, given the statutes -- is something that we think is very important. Cumulatively, they're operating as a large drag on the economy and they are certainly something that needs to be addressed.

Q One follow up. Do you think, given your forecast for an improving economy, do you think, with the discount rate cut earlier this month, that there's sufficient monetary stimulus to fuel the recovery?

DR. BOSKIN: Well, we'll have to see. I think the Fed's going to have to stand poised to take whatever action is necessary. They have been more aggressive late last year and more recently. There has been an increase in reserves. But a combination of factors, including monetary policy but also the link between monetary policy and the actual lending by banks relating to the borrowers and the lenders and their behavior also is involved in the sluggish expansion of credit. So the Fed's going to have to be on guard and ready.

I think it's clear that the risks are more to sluggish growth than to a resurgence of inflation. And that's been pretty clear, I think, to most people for some time. We always want to make sure we keep inflation low and steady. But I think the balance of risks has been on the sluggish growth side rather than on the rekindling inflation side.

Q Dr. Boskin, do you think that the discount rate cut that they made recently, though, is enough to allay some of your concerns about the sluggishness and monetary aggregate? Because the Fed just recently said that they were thinking about reducing their -- growth for the future.

DR. BOSKIN: Their preliminary targets for the future for next year were at 2.5 to 6.5 percent -- are the same as they were for last year. But these are only their preliminary targets. And Chairman Greenspan did say they were contemplating whether to reduce them further. Let me just put it this way: I think it's important not only for the economy but for the Fed's credibility that the money supply growth get into their target range. And I think it's been unfortunate that's it's lagged behind, although I would say there are several reasons that money growth has lagged behind.

Q The point was can they reduce those targets and still meet the objectives that the administration would have?

DR. BOSKIN: It is my own opinion that we need to see money growth get up. If they reduce the target slightly and got into the middle or upper end of the range, that would be better than if they kept them the same and the money growth stayed below the bottom of the range.

Q Dr. Boskin, are you and Mr. Darman telling us that after four years -- nearly four years of this administration and eight years of the related economic policies of the previous administration, that this administration bears no responsibility for what the President just the other day called this anemic economy? Is it just Congress's fault -- merely Congress's fault?

DR. BOSKIN: No, I'm not here just to blame Congress, nor is Director Darman. I think he has very clearly laid out the facts. (Laughter.)

Q Who else did he blame? (Laughter.)

DR. BOSKIN: He was laying out the facts. And with respect to the budget, the Federal Reserve doesn't directly have much to do with the budget. Events abroad don't have very much to do with the budget. He laid out the facts of the budget, which naturally focuses on the people who have responsibility -- Congress. I think that's number one.

Let me just say that when there is credit and blame for the economy, some of that is events that are going to occur independent of economic policy. There are central banks, there are events abroad. There are Presidents and Congress. And undoubtedly there are many things to credit and blame over the years. But I think the President's done a good job in a very, very difficult economic environment. And I think that we're poised over the next few years to see as we work through these excess household and corporate debt burdens, if we can get some better control on the growth of spending, if we can get the tax incentives to stimulate investment and create jobs and so on, I think the economy is poised for a better performance.

Q Could Mr. Darman please respond since he gave us the talk on Congress?

DIRECTOR DARMAN: Well, I think I agree with Dr. Boskin's view that what I did was just lay out the facts.

Q So you don't think the administration or the previous administration bears any responsibility for the state of the economy?

DIRECTOR DARMAN: It's very difficult to fairly apportion credit or blame when you're a part of these things. I think that the congressional failure must account for, by far, the largest portion of any fairly distributed blame. If I were to focus on one thing that troubles me about what we ourselves might have done less well than we should of, it is this: I've had the privilege of serving in all of the Republican administrations since President Nixon's. It's my personal view that this administration genuinely has more interesting, creative, substantive, serious policy under more headings than any of these administrations, and, as it happens, in the Carter administration.

And yet, we have obviously failed to persuade a good deal of the public of that. And we have failed to persuade the Congress that it should enact this bold agenda. And so we must assume some degree of responsibility for that. But I think, and I'm not the right person to judge, I think a fair distribution of the responsibility would have to put the very, very largest portion on the Congress. And I really do think a large number of fair-minded people reading the 421 page document you have would say that the overwhelming majority of the policies recommended in their would be helpful.

DR. BOSKIN: Let me just say that -- associate myself with and take -- double my pro rata share of the blame for not doing a better job of communicating this to the American people.

Q Speaking of policies, you're reported -- the administration's reported to be ready to attach the seven-point plan, economic growth plan, or maybe only six of the seven points to an upcoming tax bill next week; and prepared to say to Congress, if you don't give the President a line-item veto, we're going to start a vetoing appropriations bill. Is the administration considering either or both of those actions? And if it is, doesn't that simply renew the kind of fight that's been going on in Washington that the polls suggest is very unpopular with the voters?

DIRECTOR DARMAN: It's an awkward situation because I do think your last comment is correct, that the voters would prefer to see Washington work. We would, too. Probably you would. And the spectacle has been extremely unattractive and, I'd say, irresponsible. By the same token, we believe that these policies are in the best interest of the country and the health of the economy. So we've got a responsibility to try to advance them. I think you would all agree the economy is growing at too slow a pace. We've got to do more to get it growing more strongly. That is a given.

So in what may be the last tax bill moving before the Congress this year -- that is apparently what I believe Chairman Rostenkowski would wish -- that may well be the last opportunity this year to get a serious growth agenda moving forward. It may be on the Senate side it would come in connection with the extenders legislation. It may be it would come in connection with the enterprise legislation, which has to be marked up next week. It may be that it would come in some other way. We're exploring that with members of the Senate. There is not unanimity as to what is the best set of growth initiatives. We're going to fight hard to get all of the President's, and if there are others that we can advance that would help the economy, we will support those as well.

Q -- capital gains to get a package?

DIRECTOR DARMAN: No, we're going to continue to pursue the President's long-standing commitment, as my own introductory comments noted, since 1989 formally as President, to job-creating investments through capital gains and all the other measures on the list. I don't know what is going to turn out to be possible or negotiable, but we're not at that point. It's just starting.

Q You recommend extending the Budget Enforcement Act provisions until the budget is balanced. Can you just elaborate a little bit more, is that going to be also in the context of pushing it again for an economic package?

DIRECTOR DARMAN: We advocate a whole host of things there and the most important one is the cap on the growth of mandatory spending. And the most important one in terms of forcing attention to the big portion of the budget which is causing the excessive deficits. I'm not sure what the relevance of your question is -- are you concerned about the timing? If you would prefer that we say extend them permanently then we -- that's fine. But what we need to do at a minimum is extend the discipline when it expires in `95.

Q Exports have been slipping in five of the last six months. The housing, consumption, you name it, is flat on it's back. Private analysts are expecting something like 1.5, 1.7 percent growth in the first quarter and the second quarter. What's going to be driving the economy toward a 2.7 percent growth rate out the rest of the year?

DR. BOSKIN: Well, don't forget, this is a little bit technical when there's first a swing in the trade balance or there's first a change. It's the change in the level of these things. That's not an unreasonable estimate of second quarter growth. We'll have to see what it comes in; it could be a little higher than that, it might be around there. And there are dozens of assumptions that the statisticians make that no one's privy to that will determine that.

But if you look at the data, unless net exports deteriorate a like amount in the third or fourth quarters as they have, even if they just flatten out they will stop subtracting from growth and just be neutral, let alone they may improve. So that's an example. We've seen an increase in investment; that's good for the economy in a variety of ways. But you are correct there are some sectors that clearly grew more slowly in the second quarter than in the first, although they, in general, continue to expand.

Q So what are the agents that are going to lead to 2.7 percent?

DR. BOSKIN: Well, I think we are likely to see some increases in consumer spending, some continued increases in investment, flattening out in exports, things of that sort could lead to a sizable swing.

But something I usually say and I did not for the sake of brevity at the start of this when I gave my remarks, I should emphasize and I say it every time and I guess people are bored by it, while I think we do -- the economics profession in its forecasting does at least as well as exit pollsters and as weather people, the fact is economic forecasting's a very imprecise science. You're trying to predict -- not only guess at events that you probably are going to be unable to guess, like an Iraqi invasion of Kuwait or something of that sort, but you're trying to guess at how human behavior is going to be when interest rates or oil prices or those things change. And the average behavior in the past is not always a good guide for the present.

There is ample opportunity for the economy to do better than this and there's also a risk that it could not perform as well. And I think we've identified some of the areas. If the slow growth abroad worsens and exports are more sluggish, if consumer and business confidence erodes for whatever reason, including as Director Darman said, some of the things that go on in Washington; if those are not handled in a way that will generate some confidence and optimism that we're heading toward better growth; if money supply growth falters again, those kinds of things all could lead to slower growth.

On the other hand, doing better in any of those and a variety of other arenas, for example, passing the President's growth proposals and the confidence that will certainly engender, may lead to an even larger impact and quite well could lead to an even larger impact than the modest amounts assumed in our basic outlook.

Q Mr. Darman, you have said that you hope to attach the President's growth agenda next week perhaps. Senator Domenici has said that he's been talking to the White House for the past 10 days urging you to drop capital gains in order to get that agenda through. Yesterday, Senate Finance Committee Chairman, Mr. Bentsen, said that he wants to know how you're going to pay for them; that he's already passed six of these seven and watched them get vetoed because he had a tax on the rich. How do you expect to get this through Congress?

DIRECTOR DARMAN: That's all going to have to be worked out in the course of the deliberations not only with the Senate Finance Committee but on the Senate floor, and then ultimately in the conference. So it's really not possible to give you a very good feel at the moment.

Q Bentsen said that they're talking again about a surtax on millionaires to help pay for that. Now, the President vetoed a bill before which included more than just a surtax on millionaires. If it were just that, would you still justify vetoing such a bill, even if it included six of the seven or seven of the seven --

DIRECTOR DARMAN: The President is against any tax increase. And as I have said many times, there is no such thing as a tax increase only on millionaires. We've yet to see one, and even if there were one, it would last for what they tend to last for, about a nanosecond, before they decide that to go to revenue they're going to move the higher rate down.

All a surtax does at the high end is legitimize a high rate, which, when they then decide they need revenue, immediately comes down the income scale. It's a bit of a fraud.

But why don't we wait and see. There's a long way between here and there in the next few weeks and there are going to be a lot of options. And we can't sort them all out here.

Q What incentive is there at this point for Congress to enter into serious negotiations when you've decided to make this review such a political event? Even as we speak, the Democrats are on the Hill doing the same thing. Why aggravate the situation at this point if you're serious?

DIRECTOR DARMAN: I don't believe this aggravates the situation. I am obliged to testify before both the House and the Senate, and you have the good fortune not to have to cover that. But if you were to see how we're received each year, we're treated to extraordinarily partisan attacks, systematically organized, and then polite protestations on other contexts to the need to get serious and to really negotiate in good faith. But for the TV cameras in the evening, it's demagogic blasting of the administration.

Q Is that what this is? (Laughter.)

DIRECTOR DARMAN: No, this is factual. This is absolutely factual. I can promise you -- and those who know me would feel sure that I'm speaking truthfully -- that had I wished to be considerably more demagogic, I might have been. This is nothing but factual. This is pure, unattractive fact.

DR. BOSKIN: Let me just make one comment here, which is I think, whatever context you are looking at it in this stage, I think it's a very useful thing to point out in a midsession review of the budget what has and has not happened legislatively in the period between January and July. I think it will help elaborate, help clarify. Both Director Darman and I said that we think it's important to try to do a better job and we both took some blame for the administration not doing a better job in explaining to the American people what the President's proposals are, the case for them and so on, and persuading Congress.

The fact of the matter is this sort of a thing, in terms of laying this out in addition to the usual stuff in the midsession review, I think will become a useful thing for people to look at when they try to see what has been accomplished legislatively between January and July.

DIRECTOR DARMAN: If I might, let me just add something important here. I think that what we've done in recasting the midsession review is something that should be done every year: to include an update of relevant legislative action and to organize it in a way that helps people understand where the policy differences are and what should be focused on to try to resolve them.

Further, what we've tended to do in the past with the midsession review is to focus on so-called technical changes in estimates which all move around little bits and pieces here -- you fill a document up with something nobody reads and which all added up, as in this case, don't add up to more than $1 billion, $2 billion worth of change, when we're faced with multihundred-billion-dollar problems.

Now, the one significant element in here in terms of change in the deficit estimate is the result of a congressional failure to act -- it's RTC funding. That had to be exposed anyhow. But I think it's a good opportunity to focus on something that is highly relevant. In addition to changes in the economy and changes in technical estimates, it is extremely relevant what is going on between the presentation of the budget and, the middle of the year when it starts to get real, what is going on in terms of the resolution of these important policy disputes which ultimately affect the economy very, very fundamentally. These are clearly laid out.

Q What are you claiming the deficit would be if Congress had done what you asked them to do and what would the growth rate be? You must have gone through line by line and figured out what your estimates are.

DIRECTOR DARMAN: Meaning no great disrespect to the economics profession, this can't be done exactly. It depends when you assume what. My personal opinion is if the President's full program had been adopted in 1989, we wouldn't have had the recession. So it depends when you want to make assumptions about what at each stage. We would unquestionably have been the better for congressional action on the President's agenda.

Q Is a debt limit increase going to be necessary this year?

DIRECTOR DARMAN: A debt limit increase -- I can't give you the latest Treasury estimate but it is my -- I would defer to Treasury, but it is my belief that it would be prudent to seek a debt limit increase -- prudent before the Congress leaves. But our own internal estimates suggest that you could cut it closely and probably make it and wait until they get back.

It depends a little bit on when they act on the RTC funding and it obviously depends on other things that you can't control. So the prudent thing to do would be to get it done before they leave. But it is probably the case that you could make it until February or March of next year.

Q A significant difference between today's document and the January budget is that now you're raising the possibility of balancing the budget in five years. Can you explain a little more on how you might go from a $399 billion, $330 billion deficit to zero in 1998.

DIRECTOR DARMAN: Actually, I'd like to take this opportunity to clarify something that's been misreported in some quarters. I've seen it said sometimes that the President has, quote, "not proposed to balance the budget in his presidency." As you are probably aware, Chairman Panetta is today, I think -- I think he's already had his press conference and having another one later this afternoon -- in which his definition of balancing the budget is that -- and this is what he prescribes by his intended law -- the President must submit a budget that would within five years balance. Not in the first year. I know no responsible analyst who believes it should be done in the first year, or could be done in the first year given how wide the gap has now become.

So the question is, have you proposed budgets that balance over the five-year period. The President's first budget did. The President's second budget did. The President's third budget did. Our January version, as I presented it, did not. And I highlighted that fact. And I did so since I felt that the previous way was, to some degree, misleading people. And others understood that; that since the President's proposals weren't be enacted, we weren't making progress. And I thought it better to highlight what happens if you just kind of do the modest things and you don't make a fundamental change in the way we treat mandatory programs.

We then, subsequently, in my testimony many times for many, many hours, proposed the mandatory cap in detail and the associated options for how to implement the mandatory cap. When I testified on that, we suggested that with the mandatory cap and a modestly stronger growth recovery, the budget would balance in `97.

When the balance budget debate took place -- and it's obvious were not doing a great deal this year beyond what I've already mentioned -- it became clear that the Congress was going to have the effective date be `98. That's also what's in the Panetta proposal as a practical matter for significant change now looking to `94, `95, `96, `97, `98. And so this is structured to balance in `98. But that isn't new. For every single budget we have proposed to balance it within the five-year budget period.

Q Could you, Dr. Boskin, talk a little bit about what you think the economy is going to look like on Election Day?

DR. BOSKIN: I said economic forecasting is difficult when you look out over a year. Although our -- we would have preferred a stronger economy, our forecast record has actually been the best of any administration since the mid-1970s when we first started keeping track and has been more accurate the private forecasters. We'd prefer a stronger economy.

That said, all that indecision, to predict where the economy would be on a specific day is a very difficult thing to do. We do expect growth to continue. The most likely thing, as we've said, is that growth is going to accelerate some and unemployment will start down. Will the economy be enormously better by then? Obviously, there's only a short period. We believe growth will continue. We're now at a level of GDP that's probably -- we don't have the second quarter number yet, but unless it's an enormous surprise, we'll be above where we were before the recession started.

We've been in a slow recovery for some time. We do expect that to pick up some. And the probability that it will pick up some and the pace that will pick up some would be enhanced substantially by passage of the President's short-term stimulus program.

Now given that it was not passed on March 20th, some of that will obviously -- the benefits of that would occur in early 1993, not just by the end of 1992 or by Election Day. But it's in the country's interest and ought to be done.

MR. FITZWATER: Final question, please.

Q Since you have a set of budget deficit projections, assuming the enactment of the President's mandatory cap and further assuming in another category the stronger recovery, I assume that stronger recovery relates in some way to the President's growth initiative, would that be correct?

DIRECTOR DARMAN: That's right.

Q All right. Now, if that's true, you must then, in order to compute that, have had a economic number for each of the out years involved in your projection. I'm wondering if you could disclose those numbers to us?

DIRECTOR DARMAN: Yes. Those are actually listed.

Q Oh, I'm sorry.

DIRECTOR DARMAN: The growth numbers for both what we are assuming under a more modest projection and then another one under somewhat stronger -- although, as you'll note if you look at it, this is the -- if I may say, the famous -- I think it's famous with this group -- 4,2,4,2,3,3,3.

Q Dr. Boskin, with your aim to conclude NAFTA next month, what would that do to those -- is that this year or next year?

DR. BOSKIN: NAFTA will be good for the American economy as well as for the Mexican and Canadian economies. It will create jobs and increase the pace of economic in all three countries. It would not have an immediate large impact in the U.S. economy. It would probably give some stimulus in Mexico with some confidence. But it's going to be phased in over a decade. So I think you shouldn't expect that this is of the same order of magnitude in dealing with the economy as monetary or fiscal policy.

Q Mr. Darman, is the President prepared to say that he'll veto appropriations bills if he doesn't get a line-item veto?

DIRECTOR DARMAN: The President will certainly veto any appropriations bills which he judges to be irresponsible in terms of budgetary policy or other elements of policy. I would expect there will be several appropriations vetoes regardless of the answer to that question.

As to whether he should tie it specifically to the line-item veto or not, that matter is still under review internally.

Q Are you staying?

Q On the RTC outlays --

DIRECTOR DARMAN: You mean staying here this afternoon?

Q Staying in your job. There's been a lot of speculation that either you may be getting ready to leave voluntarily or involuntarily.

DIRECTOR DARMAN: Let me tell you -- could I say one word about that, Marlin, because it would be awkward to duck out on that question. (Laughter.)

Two things about this. First of all, there's been a rumor running around for several days that I would be going to Shearson Lehman. Let me just tell you about these things work. The Chairman of Shearson Lehman called me -- who I know well, obviously having been there before -- and he said we have a set of inquiries in our press office that say that you're coming back to Shearson. He said, I'm in an awkward position. We'd love that, but I don't know anything about it. Do you? And I said, I know absolutely nothing about it, this is the first I've heard of it. But we're both in an awkward position. We cannot even talk about this. If we even talk about it, it is a conflict of interest. I will not talk with anyone about any job while I am still in my job. That's a standard I apply. If I'm going to leave on any given day of the week, voluntarily or involuntarily, my conversations with people on the outside will start when I have left government. That is a matter of personal ethics. It goes a little bit beyond the required standard.

So I have had no conversation with Shearson or anybody else, and yet this rumor persists. We have every single day had to deny it about 45 times. And no one will accept the denial. It is bizarre. (Laughter.)

Now, the other half I can understand. The other half of the problem I can well understand persisting because I don't have any ability to deny what the President might do or might not do on this subject. For my part, I am now celebrating here with you all the 20th anniversary of the first request for my resignation, and I look forward to celebrating many more such occasions with you.

Thank you.

THE PRESS: Thank you.