Remember the presidential campaign — just six weeks ago? The “booming economy” was supposed to be Al Gore’s ace in the hole. All summer and fall, the Clinton-Gore administration resisted Republican efforts in Congress to cut taxes, while candidate Gore tagged George W. Bush’s tax cut plan “a risky scheme.”
Meanwhile, Federal Reserve Chairman Alan Greenspan dismissed suggestions to reduce interest rates to head off a recession. Even while warning of a downturn himself, Greenspan declined the chance to reduce interest rates to mount a revival. The stock market swooned.
The record books may well show that we already are in the early stages of a recession. There have been untold dollars in stock portfolios devalued, making 2000 the worst year in the market in two decades.
Retail spending over Christmas and charitable giving are turning down. Yet Democrats still oppose broad-based tax cuts and the Fed has refused to act until its next meeting at the end of January — a week and a half after Bush the Younger is inaugurated. At that point the misery on Wall Street may be felt in unemployment lines on Main Street. Bush himself may begin to wish for another recount in Florida.
Taxes, energy and Justice
More likely, the new president will want at once to move a comprehensive economic package to the top of his agenda. The economic downturn is certainly not his fault, but it just as certainly will become his problem. It could also be his opportunity for broad reforms if his program encompasses social and energy policies as well as monetary and fiscal measures. Such a program would include:
Tax cuts now: Bush can emphasize that reducing marginal income tax rates in the past not only benefited individual taxpayers (both rich and poor), but also stimulated non-inflationary economic growth — whether in the 1920s and ’80s under Republican presidents or in the 1960s under a Democratic president. By stimulating growth, tax cuts have consistently increased government revenues. Ironically, Bush can argue that tax cuts may prove the best way to protect the government surplus, especially if they are combined with other fiscally responsible measures.
Link budget restraint and interest rate cuts
Bush could join the chorus demanding faster action from the Fed to lower interest rates. Yet the new president would be wiser to meet with Greenspan privately to seek agreement in principle to a long-term relaxation of interest rates combined with restraint in federal spending. He can then announce his own plan to freeze federal domestic spending temporarily and ask Congress to approve his plan, giving Greenspan more latitude to cut rates quickly and in a major way.
Interest rate cuts and tax cuts together will stimulate both short and long-term economic growth. Budget restraint will ensure that growth occurs with low inflation. It is a powerful and proven formula.
Increase energy exploration
Recent increases in energy imports and energy costs have suppressed domestic economic growth. Bush should announce his decision to open a small portion of the Arctic National Wildlife Refuge (ANWR) to oil and gas exploration. Industry scientists estimate that ANWR conceals a massive, 16-billion-barrel oil potential, enough to make Saudi imports unnecessary. Bush can respond to environmental concerns by limiting new drilling and exploration to less than 2 percent of refuge land. Thanks to new drilling exploration techniques, that is sufficient. A limited opening of the refuge would signal a new policy on domestic energy exploration that would help break the OPEC cartel.
A similar market dynamic broke up the cartel in the 1980s when marginal increases in non-OPEC supply stimulated OPEC members to compete with each other by offering side deals at sub-OPEC prices.
President-elect Bush should call immediately on Vicente Fox, the new president of Mexico. He planned to do so anyway after the election to dramatize the increased importance the new administration intends to place on relations with Latin America. Now the mutual interests are especially manifest. Bush should offer Fox closer collaboration on trade and immigration issues and a guaranteed market for Mexican crude. That news alone might open spigots in the Middle East.
Stop the over-regulation of business and restrain Justice Department suits.
As a first clear signal, Bush should halt the government’s assault on Microsoft. The stock market, and especially the sensitive NASDAQ, began its long slide right after the Justice Department’s successful anti-trust suit against the software giant. Rather than helping Microsoft’s competitors, the suit has rippled through the high-tech market, contributing to a broad “sector slide” that depressed stock values, corporate earnings and productivity. Bush should make clear that the suit against Microsoft betrayed a misunderstanding of how wealth is created in the Information Age and that his Justice Department won’t make the same mistake.
Push ahead on Social Security reform
If the next boom is to be sustainable we must aspire to reach all segments of society, not just the tech-savvy participants in the New Economy. To ensure that no workers are left behind, Bush should insist on his plan to permit voluntary partial privatization of Social Security. That plan, by allowing young people to invest part of their Social Security tax in stocks, effectively would extend ownership of the means of production to non-tech workers and the less well educated – from clerks to parking lot attendants to fast food workers. These are people who often don’t own stocks and who failed to benefit in the now-fading boom. Nothing else can so quickly bridge the gap between the haves and have-nots, and end class resentment, as letting everyone become an owner.
There are political as well as economic reasons for Bush to take the initiative on economic policy even before his inauguration. If he does not stake out the case for reform now, he is likely to become identified with the economic downturn once it fully manifests itself. But if he leads strongly and early, he will position himself to receive credit for the recovery that his policies produce. It’s the best gift he could give his party in the mid-term congressional elections of 2002.
Avoiding the Bush recession
Given the closeness of the election, Bush also is now under tremendous political pressure to act in a bipartisan way. Yet he must remember that in a polarized, ideological climate there are two types of bipartisanship. In one, members of both parties in Congress cooperate with presidential initiative to benefit the nation. In the other, the executive is forced to capitulate to congressional obscurity, undermining his leadership and subverting his agenda. Bush can use his new bully pulpit to establish the urgency of the current economic situation and then enlist Congress to address his agenda before others are set.
Polls suggest that many of Bush’s specific economic policies already enjoy popular support. A recent Fox News poll shows that 61 percent of the public favors his tax cut plan. Many polls have shown a 60 percent consensus favoring smaller government and fewer services. Others show his Social Security plan has achieved considerable acceptance, while Gore-style environmentalism remains politically unpopular — especially during cold winters and energy shortages.
If Bush fails to take the initiative, he will have to settle for a form of minimalist, least-common-denominator bipartisanship that will be imposed on him. But if the new president presents a comprehensive economic package at once, he stands to gain the mandate that his opponents claim the close election denied him. And he will have set the country on course for a much better planned economic expansion than the one that now appears to be ending.
Bruce Chapman, president of Discovery Institute in Seattle, ran the Office of Planning and Evaluation in the Reagan White House. Stephen Meyer is a Senior Fellow of Discovery Institute and professor of philosophy at Whitworth College in Spokane.