THINKING THINGS OVER
Bush Wins a Sputtering Economy
If there's a recession in 2004, it won't be Bill Clinton's fault.
BY ROBERT L. BARTLEY
URL:http://www.opinionjournal.com/columnists/rbartley/?id=110002605
Monday, November 11, 2002 12:01 a.m. EST
The GOP surge in the midterm elections did great things for President Bush, erasing the stain of the 2000 photo finish, breaching the Democratic blockade in the Senate and enhancing his personal stature and leadership heft. But with power comes responsibility, and he now owns an uncertain economy.
A big reason that the Democrats never developed any traction on either the stumbling economy or corporate scandals was that the voters, no fools they, understood that it had all happened on Bill Clinton's watch. Nasdaq broke back in March 2000, and the business misdeeds took place back when President Clinton was beating a perjury rap.
Yet it is also true that team Bush has scarcely had a steady hand on the economic tiller. The Bush administration did pass a tax cut, but one originally designed at the height of the boom, not attuned to the recession that had dawned when legislation was officially proposed. It did win trade promotion authority, but at the expense of steel quotas broadcasting a protectionist message. It refused to go to the mat with the Democrats on issues such as farm spending, the death tax or tort reform.
As Republicans take full control in Washington, the economy is sputtering, currently slowing from encouraging growth in the third quarter. The Federal Reserve called it a "soft spot" in explaining another piece of big news, its large easing of interest-rate targets.
The half-point reduction in the federal-funds rate certainly vindicates the September dissents by Governor Edward Gramlich and Dallas Fed President Robert McTeer Jr. (Given what happened in 2000, Mr. McTeer's two 1999 dissents against tightening also look pretty good.) Inflation is after all pretty well controlled; indeed some sages worry about deflation with declines in certain narrow price indexes. So the Fed can risk supplying more money as insurance against weakness in the real sector.
Lower short-term interest rates and presumably faster money growth, though, don't correct the real problems. Potential war with Iraq is an unsettling factor, cited in each of the Fed's last two monetary-policy statements. The risk appetite of corporate CEOs is also inhibited by the accounting and corporate governance turmoil that led to Harvey Pitt's resignation from the Securities and Exchange Commission.
Perhaps these temporary factors will be resolved by early next year, and the economy will reassert its natural tendency to grow. The recent stock market recovery and surging productivity measures suggest an optimistic scenario. But housing refinance fuels much of the recent strength in consumer spending, and this cannot go on forever. With business investment still in the doldrums, it's hard to believe the economy is performing close to an optimum.
We've somehow given Alan Greenspan assignments to fight the business cycle, cure inflation, and also solve financial crises in Mexico, Asia, Russia and Long-Term Capital Management. This leaves Mr. Greenspan running around like a one-armed paper hanger.
You can make a list of policies that would give him some help: tax cuts aimed at incentives, a curb on regulatory roadblocks to advances such as broadband communications, an end to antitrust harassment, a more sensible approach to international crises at the International Monetary Fund. But these steps need to be tied together; what economic policy most needs at the moment is intellectual leadership.
On economic policy the bully pulpit belongs to the secretary of the Treasury. While Paul O'Neill is often an astute social critic, he's not been able to articulate a consistent vision of what the administration wants to do. Partly for this reason, he's also failed to command the bureaucratic battlefield; it's hard to imagine Bill Simon's Treasury getting beat on steel quotas.
Both Secretary O'Neill and White House adviser Larry Lindsey, too, are much too reverential toward Mr. Greenspan. Central bankers, viewing everything through the credit markets, always put deficits at the center of fiscal policy. Finance ministries need to offset this by focusing on the real economy, where the central issue is growth.
President Bush already has an opening at the SEC. Mr. Greenspan is 76, and his term runs to June 2004; Fed insiders speculate he may retire ahead of the election-campaign frenzy. Perhaps new aides could instill vigor at Treasury, but Secretary O'Neill didn't thirst for the job and could decide to leave.
Building a team is complicated by the stock market collapse and accounting problems, which tarnish logical candidates such as William Webster. Paul Volcker's sterling reputation is intact, and President Bush ought to seek his wisdom. Some of the original Reaganite supply-side economists, in Washington and out, are worth talking to in search of an intellectual spark plug.
In the end, too, the president may have to spend some of his political capital on behalf of good candidates with tangential problems. Retiring Sen. Phil Gramm would be a great Treasury secretary, for example, despite inevitable criticism of his wife's lapses as an Enron board member. Even Mr. McTeer, a career Fed official, has suffered a political-correctness hazing over a speech at the Dallas Fed by iconoclastic author Harry Stein (see Mr. Stein's "How I Was Smeared" in the Manhattan Institute magazine City Journal).
On foreign and defense policy President Bush has fielded a splendid team and led it to repeated political and policy successes. His electoral success last week gave him the deed to new property that needs attention, so he now needs to tackle economic policy with the same alacrity.
Mr. Bartley is editor of The Wall Street Journal. His column appears Mondays in the Journal and on OpinionJournal.com. |
