Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (24648)	8/8/2003 11:10:23 AM
From: Karen Lawrence	Read Replies (1) \| Respond to of 89467

'Blithe Unconcern': Bush's Approach to Short-Term Growth "...tax policy has been focused on cutting the taxes that the relatively well-off would pay late in this decade and into following decades, not on rapidly getting money into the hands of those who would quickly spend it and so boost demand and employment." By Brad DeLong, BERKELEY — "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?' " This is what John Ehrlichman, Richard Nixon's chief domestic policy advisor, apocryphally said to a top Federal Reserve official at the start of the 1970s, and it gives some insight into how White House officials have tended to regard the levers of economic policy. They know full well that a healthy economy — low unemployment, rapid output and productivity growth, low inflation — might not guarantee a president's reelection. But they also know that an economy perceived to be unhealthy is a prime trigger of electoral defeat. That's been the established wisdom until now. The Bush administration has approached things differently. Since the inauguration, pressure on the Fed to cut interest rates has been very light. Spending policy has virtually been on autopilot — with the exception of military spending since Sept. 11, 2001. And tax policy has been focused on cutting the taxes that the relatively well-off would pay late in this decade and into following decades, not on rapidly getting money into the hands of those who would 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 unconcern." Of course, press secretaries — and even, in occasional speeches, the president — will say something different. They will talk about how the administration's economic policy is aimed at providing more jobs for Americans. They will talk about the president's jobs-and-growth strategy. But the gap between the kinds of tax and spending policies that would boost growth and employment in the short run (say, before the president stands for reelection in November 2004) and the policies pursued by the administration yawns wide. This is one of the great mysteries of the Bush presidency. 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 Sept. 11. They would have pointed out that the terrorist attacks on the World Trade Center and Pentagon — and the callous murder of 3,000 people — would have effects on the economy that, although much less important than the national security implications, were still worth a little attention. They would then 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 they couldn't know which scenario would occur, they would have advised that 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, unfavorable economic scenario might come to pass. It would appear that this conversation never took place. And so the fiscal insurance policy was never issued against the situation in which the U.S. economy now finds itself: an extremely slow recovery accompanied by rising unemployment and sluggish investment, coupled with a Federal Reserve that can't help the economy by lowering interest rates much further. Washington has failed to move aggressively in dealing with the corporate accounting scandals that Federal Reserve Chairman Alan Greenspan and others think have discouraged people from investing. Rather than advancing the ball on free trade, the administration has shown itself eager to violate its World Trade Organization obligations by slapping on tariffs it thinks are politically advantageous. The tax cuts pushed by the administration are not designed to boost demand in the short term of a year or two as much as they are 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 cynical of political operatives would be appalled at the thought of starting a presidential reelection year with U.S. unemployment up by 2 million workers from the last business cycle peak in March 2001. 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 that side 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. latimes.com