Friday, Jul 25, 2008
The president's loose talk of recession and hype for his tax cut have economists worried he'll wreck the economy.
Mar 16, 2001 | It's a laissez-faire neoconservative's worst nightmare. Just as Republicans take over the presidency, the economy hurtles into free fall, with consumer confidence levels and stock prices racing each other downward in an ever-accelerating plummet. And suddenly, after months of bad-mouthing the economy and claiming that the '90s boom had nothing to do with Clinton administration policies and everything to do with entrepreneurialism, George W. Bush and his aides find themselves in the unlikely position of having to admit that "good public policy" may be necessary to avoid a recession.
Can it be done? Can Bush be the hero who will lead us out of the current economic darkness? Is there some mix of tax cuts, interest rate adjustments and federal tinkering that will halt the slide? Such questions, certainly, are on the tips of everyone's tongues. But as the markets continue to stumble, a growing chorus of economists is asking another, more pointed question. Never mind whether he can fix what's wrong -- is Bush making things worse?
The current situation is by no means all Bush's fault. It's been commonplace for months to observe that the technology and new economy companies that fueled the '90s boom are now leading the markets down. And it's very easy, and not at all unjustified, to lambaste the new economy leaders, especially the frothy dot-com start-ups that popped up in the late '90s, for their excesses and poor fundamentals -- including, all too often, their inability to turn a profit. There's also little point in denying that when the new economy speculative bubble finally popped, it did so on Clinton's watch.
Technically, the country isn't even actually in a recession, and some stalwarts are still convinced that we may yet avoid the worst. Unemployment is still at historically low levels and inflation is negligible. But consumer and corporate debt is sky high, and the long, slow decline of NASDAQ and the Dow shows every sign of a sustained bear market. Certainly, the "R" word is on everybody's mind. As is the "T" word, for "tax cuts." Because for Bush, that's the essence of good public policy: giving the people back their money.
But are tax cuts in general, and Bush's tax cut plan in particular, the answer? As Princeton economist and New York Times columnist Paul Krugman observes, the benefits of the Bush tax-cut plan are mostly "back-loaded" -- they won't take effect for years to come and will be of little benefit to anyone right now. If Bush really wanted to stop the oncoming recession, say both conservative and liberal economists, he would push for an immediate -- and temporary --- tax cut. And instead of a plan that puts most real dollar gains in the hands of the wealthy, who are the least likely people to run out and spend their refunds, the best stimulus for our flagging economy would be a tax cut for the poor and working class, the people who would spend it immediately.
Most economists deem it unlikely that Bush will suddenly abandon the constituency that bankrolled his campaign, give in to Democratic opposition and focus a tax cut primarily at the working poor and lower middle class. They are not even sure that any tax cut would make a significant effect. But what alarms them most is that the political strategy Bush has been employing for months to push for the tax cut -- criticizing the current state of the economy -- may well be increasing consumer fears. In effect, the strategy is a self-fulfilling prophecy that could tip the country from a downturn into a full-blown recession.
"I don't know that we've ever before had the experience of a slowing economy where the administration talks it down," says Krugman. "Remember the financial crisis of 1998, which was severe and sharp? Then you had [former Treasury Secretary Robert] Rubin and [Federal Reserve chairman Alan] Greenspan going all out to reassure the public. Now, instead of that, we have an administration that's saying it will get even worse unless you pass our tax cut."
Get Salon in your mailbox!