Aug. 18, 2002
Sanjay Paul
Amid deepening gloom on the immediate prospects for the U.S. economy, President Bush presided over an economic forum at Baylor University in Texas.
Not much was expected from the confab, populated as it was by hand-picked participants whose views on economic policy were largely in sync with Bush’s. The economic forum, agreed both Democrats and Republicans, was a purely political ploy, designed to convey the impression that Bush, though dedicated to the war on terrorism, was not neglecting domestic economic concerns.
No repeat performance
Bush is determined not to repeat his father’s mistakes. Bush Sr. basked in the Gulf War victory only to see his popularity eroded by subpar economic performance. The parallels are disconcerting: Bush Jr. enjoyed skyrocketing public approval on the heels of the military campaign in Afghanistan, but has since fallen sharply in public esteem as the economy has foundered.
Just a few months ago, business forecasters were predicting a strong recovery later in 2002. Now it appears that those estimates were too rosy — a sharp decline in labor productivity, coupled with an obdurate unwillingness on the part of corporations to increase spending on equipment, computers and factories, has exacerbated the economic slowdown which began last year.
When he took office, Bush faced the pleasant prospect of budget surpluses for the foreseeable future. Aided by the then Republican-controlled Congress, he proceeded to enact massive tax cuts. Such cuts would spur growth, the conservatives argued; furthermore, they would prevent those profligate Democrats from squandering the budget surpluses on wasteful government programs. How about the criticism that the tax cuts conferred the greatest benefits on the richest Americans? “Class warfare,” they retorted. “Not worth responding to.”
Have the tables turned?
Now the picture looks dramatically different. As the GOP tax cuts, a slowing economy and increased spending on defense and security have taken their toll, budget surpluses have given way to deficits.
Corporations have laid off workers by the thousands, causing unemployment to rise sharply. Consumer confidence has been battered as revelations of misdeeds in corporate boardrooms emerge with depressing regularity.
So what is a President to do? How does he stem the economic rot?
By cutting taxes, argue the conservatives (who, for all their shortcomings, display a single-minded determination.) Having slashed the top marginal income tax rates in 2001, they have turned their attention to their other bete-noir: capital-gains taxes. If only investors had to pay lower taxes on capital gains, they argue, households would save more, firms would increase investment, and growth would pick up.
Well, perhaps, but such effects are unlikely to be felt in the short run. What is needed now is a boost in aggregate demand for goods and services, which in turn would, in all likelihood, require increased government spending and lower interest rates.
One hopes that President Bush, during his visit to Baylor, sat in a macroeconomics class to refresh his thinking on economic policy.