San Diego-Union Tribune, August 17, 2001
Knight-Ridder/Tribune Media Services, August 15, 2001
The Record (Bergen County, NJ), August 16, 2001
The Daily News of Los Angeles, August 18, 2001
Ventura County Star, August 19, 2001
George W. Bush had not even been officially chosen President when his administration, in the person of Vice President Dick Cheney, began talking about recession. The strategy was to try to link any economic downturn with the previous administration. It was bad form -- economic growth had just begun to slow -- and the media rightly questioned the wisdom of using the bully pulpit in a way that could create a self-fulfilling prophecy.
The Democrats piled on and the Administration backed off, opting instead to use the prospect of a faltering economy to sell its tax cut. This was clever but even less honest, since its proposal to rewrite the tax code included nothing that would provide an immediate stimulus to the economy. Rather it was a massive transfer of income to the wealthy. In the end, the richest one percent of taxpayers -- average income: $1.1 million -- scored a whopping $500 billion over the next decade.
It is only because of the fight in Congress that most of us will end up with $300 rebate checks. We can thank the Progressive Caucus, a group of 51 members of Congress who originally proposed a $300 rebate for every family member. Their proposal was watered down to $300 per taxpayer, and then even further: some 34 million Americans will get nothing and another 17 million will get only a partial rebate.
But the $38 billion that these rebates will inject into the economy in the coming months are about all the stimulus that this economy can count on right now. If we look carefully at the US economy it is difficult to see where the recovery will come from. The free-spending American consumer cannot carry this load, because consumer debt is already at record levels. Corporate profits have fallen through the floor, and the forecasts are no prettier than the present.
This means that business investment is not going to lead the recovery anytime soon. And the stock market, which is still considerably overvalued despite the partial deflation of the tech bubble, promises nothing but disappointment ahead.
That leaves the government and the foreign sector. The $38 billion worth of rebates will provide some boost, but it is not even a half-percent of our $10 trillion of annual output. The foreign sector: well, unfortunately that is presently a huge drag on economic growth. Our $400 billion dollar trade deficit amounts to a record four percent of our economy.
This monster deficit persists because the dollar is overvalued, making our exports too expensive and imports artificially cheap. The Administration could do quite a bit about this, simply by talking the dollar down. But Wall Street likes a strong dollar because it makes overseas acquisitions cheaper, and lowers inflation.
There's the heart of the problem: our most important economic decisions are held hostage to financial interests that represent a very narrow sector of this country. The Fed is no better: the interests of the bondholders, who are paranoid about inflation but couldn't care less about a recession (it benefits them, actually) are its favored constituency. While everyone bows graciously to the His Excellency, Mr. Greenspan, and thanks him profusely for lowering short-term rates to 3.75 percent over the last year, no one seems to have noticed that the Fed helped cause the current slowdown by raising rates to 6.5 percent during the prior year.
The government sector could help lead the recovery with increased spending on public investment. There is no shortage of needs: school building repair, mass transit, drinking water systems, Head Start, anti-poverty programs. But the Democrats, who might be expected to fight for some of these measures, have recently chosen to re-invent themselves as the Party of Extreme Fiscal Conservatism. Their leaders insist that most of the Federal budget surplus go to paying off the national debt.
On the bright side, we live in a 24-hour-cable-news-culture adapted to the attention span of a squirrel, where hardly anyone is held accountable for what they said two weeks ago. So the Democrats could easily turn around and support increased public investment.
As for Mr. Cheney, who was all economic gloom and doom last December, he needs to take his boss aside on the ranch and say: "Son, you are going to be a one-term president who presides over a recession -- just like your Daddy -- if we don't start doing something about the economy right now."