The Bush Administration is not responsible for the corporate accounting scandals that have so unsettled investors, but it is deepening the crisis of confidence arising out of them. Economists say Presidents can do little, in the short-term, to stimulate a flagging economy. By cutting taxes and increasing spending Bush appears to have the fiscal policy of recovery right, and Federal Reserve Chairman Alan Greenspan, by cutting interest rates, seems to have implemented the correct monetary policy.
On closer inspection, however, the Bush tax cuts have barely begun to kick in. When they do they are likely, William Gale argues in an exhaustive Brookings Institution paper, to shrink, not expand, the economy. They will achieve this perverse effect by throwing the federal budget into chronic deficit, which will force the government into the capital markets to finance it, crowding private borrowers out. Worse, fiscal and monetary policy will part company. If it follows past practice, the Fed will move to raise interest rates to stem the inflationary pressures generated by deficit spending and to attract foreign capital to finance the deficit. Already the $5.6 trillion surplus Bush inherited on taking office has fallen by $5.2 trillion, and if we were not raiding the Social Security trust fund, Gerard Baker writes in The Financial Times, "we would be looking at a ten year deficit of about $2 trillion, which is about the same as the tax cut." As for the stimulatory effect of the Bush spending increases, it is being offset by the contraction in spending by state governments due to falling tax receipts from the drop in economic activity. Nor can consumers be counted on for stimulus. The telecom bubble and the corporate auto-da-fé combined have cost Americans more than $5 trillion since 1998. The "wealth effect" that buoyed the economy in the Clinton years is vanishing with the wealth.
Policy is primary, personnel secondary. Still, with the economy so "fragile," as Charles Schwab called it last week at the Waco economic forum, and with the financial markets needing an injection of confidence, the Bush team finds itself without a credible public voice.
Treasury Secretary Paul O'Neill has said that he does not need the aggravation of his job; he could be out sailing his yacht. To which this taxpayer can only say, Bon voyage, Mr. Secretary! O'Neill's latest gaffe—worrying aloud that an IMF transfusion of cash to Brazil might end up in Swiss bank accounts—cost the IMF about $10 billion more than it had proposed before O'Neill's remark set off a flight of capital from Brazil. Your paycheck will provide most of this kiss-and-make up money. In his blinkered certitude, O'Neill, the former CEO of Alcoa, shows the executive mind in Xanadu. Years of courtiers hanging on his every banality have left him vulnerable to himself. But why should we be?
Commerce Secretary Don Evans has been, and should remain, invisible. Evans chaired one of the seminars at the Waco conclave, and even amid the ambient flatulence his comments stood out for their vacuity. Evans is himself a former CEO. Weep for capitalism.
Tell Lawrence Lindsay, the President's economic adviser, that you have the flu and he will urge a tax cut as a cure. That is all Lindsay knows; all he says; all he dreams. He has zero credibility. Budget Director Mitch Daniels has put out statements about the budget that New York Times columnist Paul Krugman has plausibly called "lies." The President's political adviser Karl Rove has made U.S. economic policy hostage to politics. From Canadian lumber to steel tariffs to farm subsidies, Rove has prompted George W. Bush to contradict his free-trade beliefs so often as to cast doubt on their sincerity. Bush disproves F. Scott Fitzerald's observation that the test of a first-rate intelligence is the ability to hold two opposing ideas at the same time.
The SEC investigation of Enron-style accounting at Halliburton during Dick Cheney's tenure as CEO has rendered the vice president publicly mute on the economy. Privately, however, he continues to give Bush bad advice—for example, as congressional Republicans were rushing to embrace the corporate reform bill, he was telling the President to tone down his Wall Street speech on corporate responsibility. The market fell even as Bush spoke, in no small part because he listened to Cheney.
The President's business career, as Krugman has argued, reveals Bush himself as the prince of our economic disorders. His business dealings rise up out of his past to shadow his credibility: insider trading, corporate "loans" to directors sworn to uphold the interests of stockholders, crony capitalism, the use of public money to bankroll the dreams of private avarice, and the corrosive sense that the game is rigged for the connected. Bush's career of upward failure has deposited him in the one job from which he can only fail down.