283. "Two Cities, One Deficit," New York Times, (July 7, 1996), p. 10F.

I UNDERSTAND that Lehman Brothers has an analyst who specializes in the Government's effects on business. From where I sit, this is a smart move.

I lived in New York City for 20 years and am completing my 15th year in Washington. I continue to be amazed by how different the world looks from these two vantage points. A telling example is the different way many people in each city view the recent increases in long-term interest rates -- a divergence that has great significance not only for the financial markets but also for the future economic growth rate and the outcome of the Presidential election.

Most New York-based analysis (reflected in newspapers' financial pages, television commentaries and brokerage house reports) focuses on economic factors. By far the most common reasons given for the trend toward higher rates are the strengthening economy, the increase in commodity prices and the reawakening of some labor unions -- in short, a fear of rekindling inflation. As close as this analysis gets to "Washington" factors is to note that, as a result of these economic developments, there is less chance that the Fed will cut interest rates; indeed, it may even move to increase them.

As seen from Washington, a main reason that rates have risen, and may well keep climbing, is a loss of momentum to balance the budget, and, as a result, an expected increase in Government demand for capital. This will cause interest rates to swell.

When I mention this to colleagues in New York, they are skeptical. They seem reassured that Washington is concerned about spending, noting that both President Clinton and Bob Dole have reiterated their commitment to balancing the budget in seven years.

But Washington's commitment to fighting red ink has always been somewhat less than it has seemed. The painful decisions about cutting expenditures are supposed to occur in the last two years of the seven-year plan, after Mr. Clinton or Mr. Dole will likely be retired. And while the deficit has been declining, the Congressional Budget Office expects it to balloon again in a few years, as soon as 1997 by some accounts.

What is new is the subtle shift in the political winds, the new signs that people are less concerned about a balanced budget (the issue Ross Perot championed in 1992) and more concerned about downsizing, job security and threats to benefits (the nerves that Pat Buchanan touched this year).

While no one should make too much of polls, they do influence Washington's agenda. In January, a CBS News poll showed that the deficit was the top concern of Americans, with 20 percent seeing it as the most important problem. But by March, that figure was down to 11 percent, the same as for unemployment and the overall economy. (Crime was No. 1, at 12 percent.)

It wasn't surprising, then, to see so little furor this year when the tax on airline tickets was allowed to lapse, thus adding to the red ink. This emboldened the politicians, who then called for the repeal of a gasoline tax that had been introduced in 1993 explicitly to cut the deficit. And both parties keep talking about other tax cuts, but with precious little indication of how to pay for them.

While most of Wall Street is believed to favor the Republicans, the majority of New York City voters typically support Democrats. But from where I sit, neither party appears to have the stomach to continue the struggle to roll back the tide of federally produced red ink. Only if we hear much more vehement voices, from New York and elsewhere, will the challenging project to dam the deficit have a prayer.

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