Political Pulse September 2005

Pervasive Economic Pessimism

President Bush faces growing economic pessimism and a looming budget crisis.
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In the aftermath of Hurricane Katrina, President Bush is trying to turn the page. The problem for him is what's on the next page: economic pessimism and a looming budget crisis.

Bush has followed a three-step strategy for political recovery. Step One: Get rid of FEMA's director. In one week, the same Michael (Brownie) Brown whom the president said was doing "a heck of a job" was sent back to Washington from the stricken Gulf Coast. A few days later, Brown was gone altogether.

Step Two: Take responsibility. Bush has never been inclined to admit mistakes, as if doing so would be a sign of weakness in a leader who has always cultivated an image of strength. This time, however, the mistakes have been undeniable.

"Katrina exposed serious problems in our response capability at all levels of government," Bush acknowledged on September 13. "And to the extent that the federal government didn't fully do its job right, I take responsibility." That's not quite an apology or an admission of fault. But it was enough to get to Step Three: Move on.

In his September 15 New Orleans speech, Bush set out his vision for recovery and reconstruction. That vision showcased the president as fully in charge—something he was not for days after the hurricane. "We will do what it takes; we will stay as long as it takes," Bush said in language evocative of his commitment to the war in Iraq.

Almost immediately, Bush faced another problem: How is the country going to pay for a second open-ended commitment, one that members of Congress expect will cost as much as $200 billion—about the same price tag as Iraq.

Bush has ruled out any tax increases, asserting that they would damage the nation's economic growth. Instead, he said, "We're going to have to cut unnecessary spending."

Both liberals and conservatives like to spend government money—just on different priorities. Conservatives prefer to spend money on tax cuts and the military, and Bush has spent huge amounts on both. Liberals prefer to spend money on entitlement programs and domestic needs. Bush has now layered huge new spending commitments on those, too. The prescription drug benefit for Medicare participants is scheduled to go into effect this winter. And Bush has pledged himself to major public works and public assistance programs in the Gulf states.

Disaster relief is beyond ideology. It's a test of government competence. Now, the public's belief in the Bush administration's competence has been shattered. When Rep. Jeff Flake, R-Ariz., told GOP colleagues that disaster relief would have to be offset with spending cuts, his suggestion was met with "stone-cold silence," he told the Chicago Tribune. "You would have thought I was a Martian."

Faced with pressure from deficit hawks to find spending cuts, House Majority Leader Tom DeLay, R-Texas, said, "My answer to those that want to offset the spending is, 'Sure, bring me the offsets, and I will be glad to do it.' But no one has been able to come up with any yet."

The White House has recommended cuts in spending on Medicaid and the Army Corps of Engineers, but both sets of cuts seem highly unlikely, given the urgent priorities in the stricken Gulf areas. A study by the libertarian Cato Institute recommends slashing energy subsidies and homeland-security grants, steps that are equally unlikely at a time of high gasoline prices and anxiety over the country's preparedness.

"There's no question about it: The recovery will be paid for by the federal taxpayer, and it will add to the deficit," Allan Hubbard, director of the White House's National Economic Council, told reporters. The deficit, about $400 billion this year, is likely to top $500 billion in 2008.

Will that be a political problem for Bush? It will if the economy gets worse. And the signs right now are not good. The response to Hurricane Katrina is only one of the president's problems, and—at least in terms of poll numbers—it is not the biggest. In the latest ABC News/Washington Post poll, 54 percent of Americans disapprove of Bush's handling of the hurricane disaster. But 58 percent disapprove of his handling of the economy, 62 percent disapprove of his handling of Iraq, and 72 percent disapprove of his handling of gasoline prices.

The president's biggest political problem is growing pessimism about the economy. And that's tied to what most Americans now think is a permanent increase in gasoline prices. That view was held by a record 62 percent in a Gallup poll done last month for USA Today and CNN. According to the Pew Research Center, "More Americans hold a pessimistic outlook on the nation's economic prospects than at any [previous] time during Bush's presidency." The September ABC News/Washington Post consumer-confidence index shows that economic expectations have plunged to their lowest level since February 1992.

When the economy turns bad, the federal budget deficit becomes an issue. That's exactly what happened in 1992. Spending on hurricane recovery is not likely to become an issue of controversy. Americans want to repair the safety net. The risk is that high gasoline prices and low economic confidence will throw the economy into a tailspin. When that happens, people start looking for something to blame. What will they find? The deficit, the war in Iraq, and the Bush administration's ties to the oil industry.

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William Schneider is the Cable News Network's senior political analyst. He is also a resident fellow at the American Enterprise Institute in Washington, D.C., and a contributing editor for the Los Angeles Times, National Journal, and The Atlantic Monthly. His column appears every week in National Journal, a weekly magazine covering politics and government published in Washington, D.C.

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