Bush's shaky hand

Are we in a recession? Peter Leyden, co-author of "The Long Boom: A Vision for the Coming Age of Prosperity," is skeptical.

"You've got to be very clear that the stock market is not the economy," says Leyden. "We always talk about that when we are talking about the long boom -- a fundamental boom, not an up and down in the stock market.... The macro trends that have been driving the growth of the '90s, like the fundamental spread of computer technology, the telecom buildup, the global integration economy, are still in motion. Maybe they're not as robust as they were in the late '90s, but they're still stable and proceeding at a consistent pace. The pain we have typically associated with recessions -- mass layoffs and horribly contracting economies, huge interest rates -- is not here."

But Leyden is in a minority. Economists of every political stripe see the word "recession" written on the walls.

"We're either in a recession now or heading into one," says William Niskanen, chairman of the Cato Institute and a former senior economic advisor to President Reagan. "The market is almost always a leading indicator and it suggests that things are going to get worse before they get better."

"A lot of consumer and capital spending was tied to the high levels of the stock market," says Jeff Madrick, author of "The End of Affluence." "For the consumer, it's the wealth effect -- if you have a lot of money in the market, you are spending money or you aren't afraid to borrow against your credit cards and house. Now people will still stop doing that. And for corporations, falling stock prices mean that capital is more expensive, so they are cutting back on capital spending. ... Other issues include the Japanese problem, the higher oil prices and of course the stock market is suffering from the absurd speculation on dot-coms."

The Bush administration has loudly and publicly agreed. For months, Bush, Vice President Dick Cheney and their aides have been expressing worries about the economy. In December, Cheney warned that "we may be on the front edge of a recession here." In February, Bush declared, "A warning light is flashing on the dashboard of our economy."

But to economists of nearly every political stripe, the Bush administration's statements have been appalling strategic mistakes. In a calculated attempt to build political support for tax cuts and dump responsibility for the economy on the Clinton administration, Bush is helping to create the very reality that the vast majority of Americans want to avoid.

"In [a potentially recessionary] environment, for a president to be talking about us entering a recession is dangerous, highly insensitive," says Madrick, who also places some of the blame on Federal Reserve chairman Alan Greenspan. "Economies are built on psychology, and here we have the president and vice president talking about recession... But most important, in early January Greenspan panicked and suddenly cut interest rates, which sent a signal to the market and Americans in general that he thought there was something seriously wrong with the American economy."

"Initially, Bush wanted the bad economy to be associated with the Clinton era and was framing it as worse than it was," says Leyden, "and now he is framing things as being worse than they are in order to promote his tax cut to create support and rationale for his tax cut. It was disingenuous, and a really bad move. Because he's drumming up a pessimism about the economy that's a self-fulfilling prophecy."

Even Niskanen, who is adamant in his belief that the economic slowdown started during the Clinton administration, would rather Bush kept quiet about his opinions on the economy.

"He shouldn't comment on the economy by and large," says Niskanen. "It's good to maintain good but private relations with the Fed. He shouldn't argue with or even agree with the Fed in public. It's a dangerous game. His father didn't get it. Clinton learned that early on and Bush Jr. is learning that now. He and Paul O'Neill have to create understanding with the Fed, then leave it up to them to restore demand growth."

Congressional Democrats have seized upon the issue of Bush's rhetoric as well. On Thursday, Sen. Majority Leader Tom Daschle, D-S.D., said at a press conference: "I think we're talking down the economy. And in talking down the economy, I think we're beginning to see the results in the market. The Bush administration has been talking down the economy now for some time."

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