Hi LL,
Yes I've remembered where my copy is.. collecting dust in my parents house. It has been recalled.
What do you think of this criticism of George Bush?
[I know when faced with difficult and potentially dangerous situations, the best thing is sometimes do nothing. Until a real idea for a solution presents itself]
/edit. ps.. Best of luck with the campaign. I'm pleased to meet the next guvnor of CA.
news.ft.com
A president happy to watch the economic cycle go by
By Brad Delong
Published: July 30 2003 5:00
I want you, every morning, to wake up, look in the mirror and ask yourself: 'What can I do today to increase the money supply?'"
Thus did John Ehrlichman, Richard Nixon's chief domestic policy adviser, apocryphally speak to Charles Pardee, Federal Reserve governor, at the start of the 1970s. Thus do White House officials perennially regard the levers of economic policy.
They know full well that a healthy economy - low unemployment, rapid output and productivity growth, low inflation - may not guarantee the re-election of their presidential principal but that an economy perceived to be unhealthy is a prime trigger of electoral defeat, which will give them all the opportunity to spend more time with their families.
However, the Bush administration has been different. Since George W. Bush's inauguration, pressure on the Fed to cut interest rates faster than, or below, the levels with which the central bank would have been comfortable has been very light. Spending policy has virtually been on autopilot - with the exception of the limited post-September 11 2001 military build-up. And tax policy has been focused on cutting the taxes that the relatively well-off will pay late in this decade and into following decades, not on rapidly getting money into the hands of those who will quickly spend it and so boost demand and employment.
If there is a single phrase that comes to mind when looking at the Bush administration's pattern of business cycle management, it is "blithe un-concern".
Of course, press secretaries - even, in occasional speeches, the president - will say different. They will talk about how all administration economic policy is aimed at providing more jobs for Americans. They will talk about the president's jobs-and-growth strategy. But the disconnection between the kinds of tax and spending policies that would boost growth and employment in the short run (say, before the president runs for re-election in November 2004) and the policies pursued by the administration yawns much wider than is typically the case, even in Washington.
This is one of the great mysteries of the Bush administration. In any other administration, the assistant to the president for economic policy and the assistant to the president for political affairs would have been in the Oval Office a week or so after September 11 2001. They would have pointed out that the terrorist attack on the World Trade Center and the callous murder of 3,000 people would have effects on the economy that were much less important than the national security implications but that were still worth a little attention.
They would have laid out three scenarios for future developments: a rapid bounce-back of private investment, as businesses shook off fear and uncertainty; a prolonged pause in investment that could be remedied by Fed interest rate cuts to make borrowing cheaper and building new factories and installing new machines more attractive; and a long-lasting wave of uncertainty that would lead businesses to reduce investment for years, even if the Fed pushed interest rates as far down as it could.
In the first and second scenarios, they would have said, large budget deficits in 2002, 2003 and 2004 would not be necessary to keep the economy near full employment. But in the third scenario, only large budget deficits and lots of fiscal stimulus could keep the economy near full employment. Since we do not know which scenario will come to pass, they would have said, we should at least be prepared to propose substantial increases in public investment and cuts in taxes on those with high propensities to spend; it would be a way of taking out insurance against the possibility that this third, un-favourable economic scenario might come to pass.
However, it appears that this conversation never took place. And so the fiscal insurance policy against the situation in which the US economy now finds itself - an extremely slow recovery accompanied by rising unemployment and sluggish investment, coupled with a Federal Reserve that has little power to provide additional boosts to aggregate demand - was never issued.
Opportunities to reassure investors by moving aggressively to deal with the corporate accounting scandals that Alan Greenspan, Fed chairman, (and others) think have discouraged investment have been fumbled. Rather than advancing the ball on free trade, the administration has shown itself eager to violate its World Trade Organisation obligations by slapping on tariffs that it thinks are politically advantageous. The tax cuts pushed by the administration are not tax cuts designed to boost demand in the short term of a year or two as much as tax cuts designed to reduce the share of the tax burden paid by the relatively wealthy over a decade or more.
Wherever the administration has had a chance to take steps to improve the short-term business cycle outlook, it has seemed eager to do something else. Among many in Washington today it is conventional to deride the Bush administration as one in which cynical, short-term political calculation is all. Policies are supposedly made by political tacticians, not by cabinet secretaries. But that does not explain what is going on. The most short-term and cynical of political operatives is at least as depressed as any economist at the thought of starting a presidential re-election year with US employment 2m workers below its previous peak.
Instead, the strange inaction of the Bush administration seems to be driven by something else. To this outsider, at least, it looks as though those working in the White House share a common background assumption: they fear the domestic side of the government and desperately wish for the domestic side of the government to do as little as possible. Tax cuts, yes (especially because they believe tax cuts will ultimately cause the shrinkage of the government). Tactical moves for political advantage, yes. But the idea that the domestic-side government can be a force for human betterment - by boosting aggregate demand in recession, opening up markets through free trade agreements, or whatever - appears to be a strange and unfamiliar one and thus suggestions that the domestic government do something, anything, face a hard uphill climb.
The writer is professor of economics at the University of California at Berkeley |
