Since the election was resolved, President-elect Bush has been warning the nation of an impending recession, and arguing that his tax cut would set the economy straight.
The economy is indeed slowing from the booming pace it set in 1999 and early 2000. That was inevitable. But it is unclear whether the current slowdown will mean a few quarters of sub-par growth or a recession. Manufacturing is weak, car sales are way down, and holiday spending was tentative. On the other hand, some economic indicators remain strong: inflation is muted, productivity still seems high, and unemployment is very low.
In any event, by the time Bush's slowly phased-in tax cuts were enacted and implemented -- 2002 or 2003 at the earliest -- it would be far too late to affect this business cycle. If anything, fear of a huge, mis-timed tax cut and a general dissolution of fiscal discipline may have caused the Federal Reserve to think twice about backing interest rates down from their current contractionary levels.
It is also unclear whether or not Bush's high-profile pessimism could become a self-fulfilling prophecy. Consumer and business confidence are important, and Bush's stance could convince people that things are worse than they seem. After last year's disconcerting NASDAQ boom and bust, the quick run-up of energy prices, and the unsettling national election, investors are easily rattled.
Why then is Bush using such scary rhetoric on the economy? Are Bush and his advisors deliberately talking down the economy to lower expectations for their term? Is it an attempt to blame the outgoing Clinton administration for any economic troubles this year or next?
That strategy probably won't work. People will still direct their concerns to the current president if the economy falters. Besides, the Clinton economic team deftly steered the U.S. through some serious challenges: huge budget deficits, international financial crises, and so on. People know Clinton did a good job on the economy. They want to be reassured the Bush team is up to the job as well. The public wants responsibility, and will reject Washington-style finger pointing.
We fear the Bush rhetoric is an opportunistic attempt to promote the redistribution of income back toward the rich. We know that whatever the economic circumstances, Republican heavyweights always seem to prescribe tax cuts for the affluent. In years past, they justified their tax cut proposals with so-called supply side economic theory: cutting taxes for rich folks would lead to faster long-term economic growth.
When President Clinton's economic policies proved that budget discipline, expanded trade, and sensible social policies could spur faster economic growth than the supply-siders would have dreamed -- all while making the tax code more progressive -- conservatives switched to a moral argument. We should "give back" the new-found budget surpluses, they said, to those who paid the most in taxes, namely the higher-income taxpayers who prospered very nicely under Clintonomics.
President-elect Bush's new rationale for his tax cuts is just an old-fashioned Keynesian argument: tax cuts for the rich would stimulate the economy in the short run. That reasoning should make conservative supply-siders and monetarists -- who disapprove of fiscal stimulus as an economic policy tool -- blush bright red.
Whatever the justification, the common thread in Republican policy is cutting taxes for those who need it least. Regardless of the economic rationale, Bush's tax cut is redistributive politics: it bestows big tax benefits on the affluent.
Is Bush so adamant about cutting taxes for wealthy people -- like the corporate titans who jetted down to Austin for his economic conference -- that he is willing to risk pushing the economy lower than it otherwise would have gone?
If so, that seems like a new low in partisan politics. President Clinton had major successes and breathtaking screw-ups, but his administration always put the economy first. The Clinton team never risked the economy for redistributive political purposes. It would be ironic if the conservative party began to favor redistribution over growth.
As leader of the largest economy in the world, President-elect Bush should be candid and accurate in his economic statements. He should argue vigorously for the merits of his proposals. However, he should not spin up a crisis just to create a more pliant legislative climate. He should not accentuate the current downturn, and thereby risk turning a predictable growth slowdown into a more serious problem, just to promote his income redistribution proposals.
