>>The Dems have been desparately seeking to find an issue.....
Heh heh heh. Time is on our side. Shrub's on the daddy track.....Bush II, the sequel.
The Bear's Lair: It's Dubya's downturn now
By Martin Hutchinson
UPI Business and Economics Editor
From the Business & Economics Desk
Published 5/20/2002 5:52 PM
WASHINGTON, May 20 (UPI) -- The spate of anti-free market activity by the Bush administration since the beginning of March may
have had limited immediate economic effect, but it will have a huge effect on Bush's historical reputation. If there's a deep recession
going forward, it's now clearly on his watch.
There are plenty of other people to blame for it, of course. As regular readers will know, my own favorite is Federal Reserve
Chairman Alan Greenspan, who noticed "irrational exuberance" in the stock market in December 1996 and then did nothing
whatever about it, thus leading to four more years of ever-inflating bubble stock prices that have proved and will continue to prove
very expensive to deflate.
One could also blame Bill Clinton, not for his economic policies, which were on the whole sensible, but for his fostering of an attitude
of deceit and sleaze, that produced excessive stock options, phony accounting, worthless initial public offerings, and Enron.
One can of course blame Wall Street, always a popular victim, and one seized on a week ago by my colleague Arnaud de
Borchgrave. One can blame terrorists, and certainly if a deep recession is accompanied by an ongoing series of terrorist attacks, as
Vice President Cheney suggested might be the case, the confidence draining effect of those attacks -- as well as any direct
economic damage they produce -- will indeed be one of the causes of the economic struggle. Deep recessions, or, to stop being
mealy-mouthed for a moment, slumps, have many causes.
Nevertheless, in the cold light of history, one president, or one set of policies tends to get the blame. To take the famous example, in
the early years after 1929, and even through Professor J.K. Galbraith's 1955 book "The Great Crash," Wall Street got much of the
blame for the 1929-32 slump, for its unsound speculative practices and the spectacular ending of its bubble in October of that year --
a number of major Wall Street figures served jail sentences as a result. Only after Milton Friedman's groundbreaking work in 1960
did commentators come to focus on the role of excessively tight monetary policy in precipitating decline, and only after the death of
President Herbert Hoover in 1964 did analysts, other than partisan Democrats, come to realize that in two areas, the Smoot-Hawley
tariff and the rise in public spending and regulation, Hoover was himself partly responsible for the disaster. However, politically
Hoover and the Republicans were toast for 20 years after 1932.
As an interesting thought experiment, imagine that the electoral cycle had been delayed by a year, perhaps by a delay in New York
ratifying the Constitution in 1788. Imagine that Hoover had been elected, possibly by only a modest margin, in November 1929
instead of 1928, and had taken office in March 1930. In that case, the initial reaction to blame Wall Street for the problem would have
been intensified, with the Coolidge administration, still in power at the time of the Crash, also getting much of the obloquy. Hoover,
instead of being compelled to pretend to follow Coolidge's policies, would have been able to proclaim a "New Republicanism" and
remain far more popular in the country as a whole.
Doubtless he would have followed most of the policies he actually did follow, with more or less the same economic results and timing
-- but probably without the March 1933 banking crisis, which was exacerbated by the huge uncertainties in the Hoover/Roosevelt
presidential transition. However, this would have resulted in him running for re-election in the autumn of 1933, well after the economy,
which is now known to have bottomed in June 1932, had begun to improve. He would still probably have lost, but would not have
been remembered as the author of recession. Roosevelt, conversely, would not have been able to tear up conventional economic
wisdom on achieving office, but would have been forced to employ the conventional balanced-budget economic policies on the
basis of which he ran for election. In summary, if Hoover's election had been delayed a year, while the immediate economic path
might have been little changed -- and an explosion of government was inevitable anyway in World War II a decade later -- the political
legacy would have been very different, and more favorable to Hoover.
If the next few years are to see a reprise of the Great Depression, then it's very clear that George W. Bush was elected in the analog
of November 1929, after the boom had peaked, and not in 1928. Had Al Gore been elected in 2000, he would have had every
opportunity to pursue the path of the "alternate universe" Hoover and therefore, if running for re-election in a 2004 in which the
economy was clearly off the bottom, however deep that bottom had been, would have been able to evade much of the responsibility
for the disaster, just as the "alternate universe" Hoover would have been able to blame his predecessor.
Indeed, in principle, if George W. Bush had pursued moderately pro-growth economic policies, like his 2001 tax cut, and avoided
mistakes, he might have been able to avoid blame for the recession at all, since Greenspan and Clinton were readily available as
alternate scapegoats. Thus my prognostication on Election Day 2000, that whoever won the election was fated for electoral disaster
at the bottom of a depression in 2004 might have been wrong politically, even if correct economically.
However, while Bush can claim that the economy was booby-trapped when he took office, he stepped right into it. He encouraged
Greenspan to indulge in an orgy of money creation and interest rate cuts in 2001, which caused the economy to turn from its decline
and produce a housing bubble and a short-term rebound, the latter stages of which we are now witnessing. This essentially delayed
the whole scenario by a year; it is likely to have converted Bush from the analog of the relatively happy "alternate-universe" Hoover
into that of the utterly miserable real-world Hoover, seeking re-election almost exactly at the bottom of the worst slump in living
memory. Like Hoover in 1930, who against expectations barely lost a large Republican Congressional and Senate majority, Bush in
November 2002 -- if the economy has indeed entered the second dip by then -- is likely to under-perform Republican hopes, and be
faced with modest but solid Democrat majorities in both House and Senate. Then in 2004, if the recession from here on out runs on
a pattern close to that of 1929-32, he is likely to be overwhelmed politically by whatever the Democrats put up against him --
provided that, like his father, he manages to survive the Republican nomination process.
Not only will Bush suffer politically if there is a major recession from here on out, he will deserve to do so. The huge public spending
increases of 2001-02, whereby Federal spending in the year to September 2002 is likely to be more than $100 billion above the
level projected in the original budget a year ago, are analogous to Hoover's futile attempts to spend his way out of trouble in
1930-32. The tariffs on steel, lumber and probably textiles, while each of them small-scale in comparison with infamous
Smoot-Hawley tariff of 1930, are significant steps in the same disastrous direction, that may have been encouraged by a
protectionist Congress, but were in the final analysis enacted by a politics-minded president. It now appears that "fast-track," the
much-ballyhooed mechanism whereby Bush could enter into a good faith trade negotiations, may have been derailed by the Senate
in spite of the sops given to protectionist interests -- in that case, the specter of Smoot-Hawley, and the collapse in world trade that
followed, moves ever closer. Agriculture subsidies also were forced on Hoover in 1931 by a Democrat Congress; in this case Bush
has run ahead of his exemplar and is outwardly supporting this economically retrograde and regressive measure. In short, like
Hoover in 1929-32, Bush will not have caused the Great Downturn, if there is one, but he will have taken substantial steps to
exacerbate it. The chance of a reprise of the 1930's U.S. is still small, but it is no longer negligible, and a repeat of the Japanese
1990s now seems a relatively optimistic outcome from the current situation.
There is a political cycle here too that is of interest. According to much historical work carried out by Arthur Schlesinger and others,
there is a cycle in U.S. history that produces a wrenching political "realignment" every 36 years, so far in 1824, 1860, 1896, 1932
and 1968, after which the political pattern is quite different from what went before. Thus democracy in 1824, Republicanism after
1860, Republican dominance after 1896, New Deal liberalism after 1932 and "silent majority" reaction after 1968 all appeared from
the turmoil of realignment years.
Arithmetically, the next such realignment is due in 2004, 36 years after 1968. The years leading up to realignment have historically
been ones of turmoil, unrest and anomie, with existing political structures weakening and a high level of street violence outside the
political system showing the unhappiness of large, previously marginalized, electoral groups. If indeed 2004 is to be the next year of
such realignment, then 2003-2004 can be expected to be unhappy, disturbed years, with political and economic life traumatized. A
substantial further economic downturn, with the folly of late 1990's stock market valuations and 2001-2 bicoastal housing values
causing a wrenching negative wealth effect, could well form part of this pattern.
What is not entirely clear is which way the system will realign. In 1968, for example, pundits commonly highlighted the activities of the
student left, and forecast a leftwards realignment towards a U.S. socialism. In fact, as only became apparent several years later, in
the 1972 election, the realignment was rightwards, away from the postwar liberal consensus.
This time, the obvious possible realignment is again leftwards, with a Democrat, probably a liberal one energized by economic hard
times, trouncing George W. Bush in the 2004 Presidential election, leading thereafter to 36 years of further progress towards
socialism and government control.
However, it is also possible for Bush to be beaten for the Republican nomination or, as in 1968, for a third party candidate to
emerge. Such a candidate might follow what appears to be a current trend in Europe, being nativist, isolationist, and opposed to the
globalization of the 1990s, a combination perhaps of Pat Buchanan and Ross Perot. Of course, while in the short term this
realignment, if it gained the White House, would be economically more attractive than the other for relatively well-paid Americans
such as myself, it would be very dangerous for the world as a whole, condemning humanity to decades of slow growth and probably
mass conflict.
Either way, the prospect looks pretty unattractive. I think I'd rather be frozen, and reawakened in 2040, for the next U.S. political
realignment, which may be in a pleasanter direction.
(The Bear's Lair is a weekly column which is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale
is that, in the past 10 years, the proportion of "sell" recommendations put out by Wall Street houses has declined from 9 percent of
all research reports to 1 percent. Accordingly, investors have an excess of positive information and very little negative information.
The column thus takes the ursine view of life and the market, in the hope that it may beusefully different from what investors see
elsewhere.) |
