Economy could bite president in his '04 run for re-election
By WILLIAM NEIKIRK
Chicago Tribune
WASHINGTON - Hammered anew by plunging stock prices, corporate scandals and a widening federal deficit, the struggling U.S. economy is posing an increasing threat to President Bush's hopes for re-election, many political and economic analysts believe.
Though the election is more than two years away, some economists said there is as much as a 50-50 chance that the recovery could be so tepid in 2004 that it would put Bush's presidency at risk. Some forecasters even fear a second, or double-dip, recession between now and then.
Other economists are sticking to their general forecast that the economy will recover slowly but steadily from the 2001 downturn, leading to solid economic growth of as much as 4 percent in 2004. Treasury Secretary Paul O'Neill said he is optimistic about the economy's direction over the next two years.
But the potential for a much weaker outcome should not be minimized, said Fred Breimyer, chief economist at State Street Bank in Boston. In his view, it will take several agonizing years to correct for the excesses of the 1990s boom, including overvalued companies and too much investment in technology.
"Are there risks to this administration?" Breimyer asked. "I'd say they are palpable."
The past week's developments - blossoming corporate scandals, questions about Bush's own business practices, a fading stock market, an announcement that the 2002 federal deficit will be larger than expected - illustrate the dangers for the president.
"If this is continuing in two years, it could really create a peril for Bush," said Democratic consultant Gary Nordlinger. "Bush and the congressional Republicans could be tarred with having more responsiveness to corporations than to human beings."
"If the economy stays poor, the Democrats have a chance," said Democratic consultant Victor Fingerhut. "If the economy does well, the Democrats can pack it in and go home. Bush is still the favorite, but if the economy stays bad, it could be like what happened to his old man."
Even when undeserved, presidents get blamed for the economic troubles that erupt on their watch. That happened to Bush's father in 1992, even though the economy had begun to rebound by the election. Many voters developed the impression that the elder Bush was not sympathetic to their plight, and the current president runs the same risk.
Other observers, including Democratic consultant Jim Duffy and Republican pollster Whit Ayres, cautioned that it is too early to pronounce the economy a major political issue because events can shift so quickly.
Ayres acknowledged that the economy "is a big deal" when it comes to electoral politics. But he added, "History suggests that you'd better not bet against the economic recovery."
Still, if the stock market has not staged a sufficient comeback by 2004, millions of Americans could still be staring at significant losses, at least on paper. People already are deferring their retirements, and employees at several major companies have been laid off. All that can translate into an angry electorate.
A recent CNN/USA Today poll showed that 58 percent of the public approves of Bush's handling of the economy, but that was down from 72 percent in October. Another survey, by the Pew Research Center for People and the Press, found that 62 percent believe Bush could do more on the economy, while just 33 percent said he has done as much as possible.
Because Bush had a front-row view of his father's defeat, he is hardly complacent about the economy's sway on voters, but there may be little more he can do about it.
Interest rates are lower than they have been in a generation, and Bush already has slashed taxes dramatically.
In most recessions of modern times, such stimulative measures have pulled the economy out of a hole and caused a sharp rebound, but not this time. To many analysts, this recession is more like a 19th century boom-and-bust downturn.
Carl Tannenbaum, chief economist at LaSalle Bank in Chicago, said companies have "gone through some pretty extensive restructuring to become lean and mean and relevant" and have sharply cut their inventories, setting the stage for a solid recovery.
But he said uncertainty remains about whether the recovery will live up to expectations. "There is just enough of a sniff that the prosperity of the `90s may have been a little bit of an illusion," he said.
The stock market's stumble has slashed the retirement savings of Americans, delivering a blow to their confidence and raising the possibility that they will rein in their spending. Since 2000, about $6 trillion in stock valuation has been wiped out on Wall Street.
Perhaps even more important, businesses remain skittish about spending on new plants and equipment, the key to job creation. Companies have held off because they believe they overdid it during the 1990s boom. And in many cases, firms are using more-productive facilities to keep their workforce smaller.
Joel Goldberg, vice president for operations at Atlas Material Testing Technology LLC, a Chicago-based company, said his firm does not plan to hire workers for the foreseeable future, largely because of new technology the company introduced in recent years.
"The reality is, as we implement this new technology, we need fewer and fewer jobs," said Goldberg, whose company tests the durability of products manufactured by other firms.
Job growth must come from sectors other than manufacturing, he said, as it has for decades. But analysts said there is no particular economic sector in sight that could become a major economic engine and job creator, a role filled by high technology during the boom.
So far, consumers' willingness to keep spending despite often-gloomy economic news has been the key driver of the recovery. But with stock prices plunging and businesses not hiring, analysts are beginning to wonder just how much longer that consumption can hold up.
"I think we are going to have a double-dip recession," said Gary Shilling, who heads an economic consulting firm in Springfield, N.J. "I think it will happen because consumers will finally throw in the towel. Add that to the fact the excess capacity is just so superabundant that there is no need to build anything for years, and this could be very difficult for the president in 2004.
"Are there risks to this administration? I'd say they are palpable." |
