IBM cuts cast shadow on Clinton

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WASHINGTON - The trickiest economic decision facing the president-elect, Bill Clinton, moved centre stage yesterday, as a batch of leading economists urged him to his face to cut taxes and bolster incentives in order to strengthen the current fragile recovery - even at the cost of a further short- term increase in the federal budget deficit, writes Rupert Cornwell.

The calls came as IBM, embodiment of the hi-tech future to which Mr Clinton hopes to lead America, announced sweeping job losses and investment cutbacks. 'This is the exact thing we don't want,' he told his special economic conference in Little Rock, Arkansas, as the computer giant said it would cut its payroll by 25,000 and reduce research and development spending by dollars 1bn ( pounds 640m) next year.

The news cast into even sharper relief the central debate at yesterday's closing session: whether added stimulus is needed for the country to put the current slowdown behind it, or whether the priority from the outset should be to bring down the deficit, running at more than dollars 300bn annually.

The most ambitious proposal came from a Nobel Prize winner, James Tobin, who called for a dollars 60bn package in 1993, far above Mr Clinton's promise of dollars 20bn.

Other academics stopped short of that figure. Robert Rubin, the investment banker who will head Mr Clinton's National Economic Council, worried that an overlarge dose of reflation would upset Wall Street and force long-term interest rates higher. Robert Reich, Labour Secretary in the new administration, seemed more receptive - and so did the bulk of economists who spoke.

Arguing that recovery would at best be weak, Jeff Faux, president of the Economic Policy Institute, said that without added stimulus, millions of people 'would lose the opportunity to work'.