There Must Be Some Way Out Of Here

THE ECONOMIST
July 18th 2002 | WASHINGTON, DC From The Economist print edition

Americans are losing confidence in the economy. Can George Bush stem the slide?

THESE are not happy times for the White House. Share prices are tumbling, consumer confidence has fallen sharply and George Bush's own approval ratings seem to be heading down. For an administration haunted by the ghost of George Bush senior, whose defeat in 1992 was blamed on a sluggish economy, the parallels are becoming painful, not least because the current president's efforts to reassure Americans are also falling flat.

Mr Bush's trip to Wall Street to preach about corporate ethics was widely derided as too little, too late. This week's follow-up, a hastily-arranged pep talk on the economy in Alabama, proved another embarrassment. “This economy is coming back,” boomed Mr Bush. “That's the fact.” Meanwhile, in one of Wall Street's more dramatic days, stockmarkets slumped (though they recovered somewhat after he finished). It was all too close to Herbert Hoover, who famously proclaimed America's economy to be on a “sound and prosperous basis” in October 1929.

Judging Mr Bush's words by short-term movements in share prices is, of course, neither fair nor useful. The real questions are whether the White House has correctly diagnosed what ails the American economy, and whether its policies are right.

Mr Bush's basic contention is that the fundamentals of the American economy are in good shape. This was also the message of Alan Greenspan, chairman of the Federal Reserve, in congressional testimony the following day. At first blush, they have a point. Inflation is low and productivity growth remains surprisingly robust. Much of the excess investment that firms had built up during the boom has been worked off. Consumer spending remains surprisingly solid. Retail sales, for instance, rose 1.1% in June, far faster than analysts were expecting. The Fed has raised its forecast for economic growth in 2002 to 3.5-3.75%.

Yet despite these apparently good fundamentals, consumers are worried. The University of Michigan's consumer-confidence index fell sharply in July, to levels last seen in November. The main reason, of course, is the stockmarket slide (see article). Over the past two weeks alone the Dow Jones Industrial Average has fallen by 6%. The S&P 500 has dropped to levels not seen since October 1997. The technology-laden Nasdaq index is 72% below its peak in March 2000.

In large measure, this slide is the deflation of the 1990s bubble, a point Mr Bush himself hinted at: “America must get rid of the hangover that we now have as a result of the binge...we just went through,” he said in Alabama. But it has clearly been aggravated by the slew of corporate scandals and the loss of investor confidence.

Sliding equity prices could begin to hurt those fundamentals, promoted so assiduously by Messrs Bush and Greenspan. Household saving, in particular, may be found wanting as Americans re-evaluate what they can expect from their retirement portfolios. That suggests a protracted spell of sluggish, rather than buoyant, consumer spending. Capital investment could also suffer, if firms become more cautious about borrowing.

Unfortunately, there are scant signs that the administration will help counter this. In his Alabama speech, Mr Bush promised an “agenda for long-term growth”. This encompassed: fiscal policy (he wants to make his tax cut permanent, whilst forcing Congress to hold the line on spending); trade policy (he urged Congress to grant him “fast-track” authority to negotiate trade agreements); corporate reform (he touted his new Corporate Fraud Task Force, promised more money for the Securities and Exchange Commission, and urged Congress to send him an accounting-reform bill before August); boosting accountability in schools; and terrorism-risk insurance.

This grab-bag of assorted policies hardly constitutes a post-bubble economic agenda. Even if you thought it did, once you start going through the individual bits, the progress is patchy. For instance, the Senate certainly passed a tough corporate-reform bill on July 15th, and Mr Bush welcomed it. The next day Republicans in the House of Representatives promised to dilute many of the measures in the Senate bill (though they did agree to stiffer sentences for corporate criminals).

Nor do the prospects for trade policy look good. The Bush team has been pushing Congress for fast-track authority for 18 months. Legislation squeaked past the House of Representatives last December and the Senate in May. But reconciling the two bills has been difficult. If Congress does not get round to voting on fast-track by the August recess, the proximity of the mid-term elections in November suggests that the politically sensitive trade bill has little hope.

The biggest and most intractable problems, however, concern fiscal policy. Nobody seems to have absorbed how a post-bubble environment might influence the budget. On July 12th, the Bush administration announced that the federal government would run a deficit of $165 billion this year, compared with an earlier forecast of $106 billion made in February 2002. Although the economy has grown faster than expected since February, tax revenues have plummeted. Much of this revenue drop is due to the stockmarket, as individuals' capital gains have turned into losses. If the bear market lasts, so too will those revenue shortfalls.

In these conditions, Mr Bush's main fiscal policy—that his 2001 tax cuts, ostensibly to be reversed in 2010, should be made permanent—is hard to justify. If demand weakens substantially, there may be a case for more tax cuts (or spending) today. But it is hard to see the fiscal wisdom in making future tax cuts permanent at a time when revenues are so uncertain.

On spending, blame needs to be divided between the White House and Congress. Mr Bush talks tough on spending. He has threatened to veto a $27 billion supplemental budget bill that Congress has larded up to $31 billion. However, by agreeing to far larger, and permanent, expenditures (such as the massive farm bill) Mr Bush has lost the moral high ground. Congress, in turn, is closely divided, and short on any procedural systems for fiscal discipline. Finger-pointing and partisan bickering are far more likely in Washington than the confidence-inspiring policies that America's economy needs.

Repeal the 16th amendment and abolish the income tax. Abolish the IRS and take away the citizenship of senior IRS officials and send them to Russia where they'll feel at home. Obliterate federal spending, and start to pay off the national debt in large chunks. Abolish "static scoring" with regards to taxation of any kind. Reinstate and restore the Constitution and Bill of Rights and abolish all laws, treaties, emergency orders and executive orders that have rendered it useless and return to the Constitutional boundaries of our constitutional Republic our founding fathers gave us. Importantly, repeal the Emergency and War Powers Acts. Repeal all laws created by unconstitutional and extraconstitutional devices, such as Executive Order or Presidential Directive. Repeal and abolish all unconstitutional federal involvement in states issues such as: crime, health, education, welfare and the environment, and only God knows how many other intrusions. Social programs such as Social Security, welfare and Medicare must be repealed. So too, do most federal subsidies. Rescind all treaties and International Agreements which are not in perfect agreement with the Constitution. Tell the United Nations to stuff it! The U.S. should disassociate itself from the U.N. and the U.N. should be forced to leave the United States. Destroy all documentation that links the U.S. with the U.N. See Arthur Andersen for details. Alger Hiss, screw you. Furthermore, demand that the federal government refrain from meddling in the business and squabbles of foreign nations, unless there is an imminent threat to the people of the United States. PROTECT OUR BORDERS!! Elect a real small government candidate for President, and the same for Congress. Take memory loss drug to try to forget that most Americans love socialism in about every way and that politicans are simply a reflection of themselves, and, none of the above is going to happen. Now, returning back to reality. Terrorism, shadow government, Stock market crash, federal government crash, Police State, Martial Law, gun-confiscation, FEMA, FBI, CIA, Dictatorship, T.I.P.S., Carnivore, Operation Magic Lantern, Echelon, The Patriot Act, Executive orders too numerous to count, slavery, death, One World Government. It could never happen here. For those of you not just interested in Medicare Part B.

Interesting Article from The Washington Times. I may not agree with all of this authors "predictions".. but he may not be too far off on some of them. Noteworthy to you, would be remarks regarding the economy. (Sigh.. why do I bother!!!) </sarcasm :o)

January 2, 2003

2003 Predictions

Tony Blankley

First , the good news: A year from now civilization will still be intact and most Americans correctly will be looking forward to a very good 2004, in which the economy will be growing, President Bush will be admired through much of the world and his re-election will be almost certain. But, before the cheering must come the struggle. So follows the not completely cheerful predictions for 2003.
• Washington politics will start out pitting the White House against congressional Republicans in a sometimes vituperative fight over federal spending. This will actually be a three-sided fight between the White House and conservative back-bench deficit-hawk Republicans , the appropriators and the Republican congressional leadership. The White House/conservative team will demand spending limits that can't pass either the House or the Senate. The appropriators will be called rude names by conservatives. The leadership will try to take over from the appropriators, but will fail to get the low White House spending numbers passed. The Democrats will sit on the side lines and giggle. Ultimately, events will force spending far in excess of the early White House demands.
• Deficit spending in fiscal year 2003-04 will top $300 billion. This will be the product of both higher defense and domestic spending and lower federal revenues due to a sputtering economy.
• The still overpriced stock markets, facing low corporate profits, flagging consumer demand and some interruptions in world trade will drop about another 10 to 15 percent by the end of the year. Extreme volatility will make matters seem worse than they are.
• The dollar will drop about 10 percent in value against the Euro, as our trade deficit continues to balloon.
• Saddam Hussein and his Baath Party will be out of power in Iraq by the springtime. Our occupation of Iraq will be managed without any tragic incidents.
• The fall of Saddam will trigger uprisings in at least two Middle East countries — one such government will fall to a fundamentalist/jihadist regime, the other to a more or less pro-western, moderate, democratically inclined government.
• The flow of oil temporarily will be slowed or stopped by these events. There will be a furious debate within the Bush administration and in Congress over whether to militarily intervene to secure the disrupted oil flows. Bush will decide to act. After an initially embarrassing series of U.S. military snafus and native sabotaging of the oil fields, order will be regained and by the winter oil will be flowing at record levels and the price of oil will settle at between $15 and $20 a barrel (after taking a wild ride to briefly over $100 on the spot market.)
• There will be two major, but not catastrophic, terrorist attacks. One either will be in Europe or at sea. The other will be in the United States. It will be obvious to the public that the federal emergency response to the attack in the United States was poorly conceived and carried-out.
• After the immediate shock and clean up, several Democratic Party leaders will badly misjudge the politics of those events. Democratic presidential aspirants will fall in to a contest to see who can criticize President Bush more harshly. By over-playing their hand, the Democratic leaders will lose the public. The public will rally to the President, despite the administrative failure surrounding the terrorist attack.
• Hillary Clinton, who will have kept her head down through the post-attack politics, will step forward to salvage the Democratic Party from its self-inflicted damage. She will explain that based on her 8 years in the White House, she understands the terrible challenges a President faces. Whether she runs for president or not, she will establish herself as the natural leader of the Democratic Party. With the exception of Senator Lieberman, most of the other Democratic leaders will have permanently marginalized themselves by mismanaging the politics of terror.
• Thanksgiving 2003 long will be remembered as a highly emotional coming together of the country, after which an explosion of optimism will create the most profitable Christmas shopping season on record.
• That will be the turnaround moment for the U.S. economy. A December 1000-point run up of the Dow Jones average on the New York Stock Exchange will trigger the beginning of the boom of 2004.
• North Korea will have gone back to sleep after a fitful springtime.
• After a not-so-private call by Republican Party elders to take Dick Cheney off the ticket (in order to groom an heir apparent for 2008), President Bush will successfully convince them that Mr. Cheney must remain on the ticket — for the good of the country.

Tony Blankley is editorial page editor of The Washington Times. His syndicated column appears on Wednesdays. E-mail: tblankley@washingtontimes.com.

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