Here are two cliches worth reconsidering: "It's the economy, stupid," and "Like father, like son." In the wake of the corporate crime wave, they may turn out to be true.
This is the most pro-business administration since President Eisenhower's. How many presidents have been business executives? Only two. And they were both named George Bush. Both President George W. Bush and Vice President Cheney are former corporate CEOs, and the Cabinet has three former CEOs (Defense Secretary Donald Rumsfeld, Commerce Secretary Donald L. Evans, and Treasury Secretary Paul H. O'Neill).
Bush has discovered that the job of a business executive and the job of a president are fundamentally different. A president's job is to ensure national prosperity. A business executive's job is to make money. Bush claims that business has "a higher calling." What could that be—ensuring prosperity? Most business leaders think that prosperity is incidental to their job. If business makes money, the argument goes, then the economy grows and everyone prospers.
But often in American history, business behavior has undermined the nation's prosperity. And that's what is happening now.
The business cycle used to work like this: Good times led to a speculation boom in stocks and real estate. The boom led to abuses by Big Business. The abuses caused the bubble to burst, and a stock market panic resulted.
So far, the pattern holds.
In the past, stock market panics brought on bank failures, which then threw the country into depression. That happened in the 1870s, the 1890s, and the 1930s. It hasn't happened since because the country created the Federal Reserve System to protect the banks.
Today's stock market decline poses a different kind of threat. In 1929, only 8 percent of Americans invested in the stock market. Now the figure is 60 percent. The decline in stock prices, caused by the corporate scandals, is undermining consumer confidence. The University of Michigan's preliminary index of consumer confidence for July has fallen to the lowest level since November.
In the 1990s, people talked about "the wealth effect." The stock market boom drove up people's net worth and made them feel wealthy, so they spent more money. Now we could see a "reverse wealth effect." Declining stock values make people feel poorer. They spend less. That could doom the economy—and the president.
Fairly or unfairly, a president is regarded as commander in chief of the economy. This President Bush learned that from the first President Bush. So what can this president do? In his July 9 speech to Wall Street, he stressed tougher enforcement, calling for "a financial crimes SWAT team overseeing the investigation of corporate abusers and bringing them to account." But critics insist that the problem isn't enforcing the rules. As New York Attorney General Eliot Spitzer sees it, Bush "hasn't come to grips with the underlying notion that the rules of the game have to be changed."
There's one hope left for the president: Keep the bad news about the stock market from spilling over to the rest of the economy. As Bush noted, "Nearly every week brings better economic news and a discovery of fraud and scandal."
Better economic news? Not for him. While the president's overall job rating has been holding in the 70s, his rating for handling the economy has begun to slip—58 percent approval in the Gallup Poll, 54 percent in the Time poll. In both polls, that's the first time the president's economic rating has been below 60 since last September.
A year ago, when the country was in recession, only 30 percent of Americans thought the economy was likely to get better in the next 12 months. The terrorist attacks actually caused a surge of confidence in the economy. By March of this year, a majority of Americans thought the economy would soon improve. Now the optimism is gone. We're right back where we were a year ago. Only 30 percent expect the economy to improve in the next 12 months.
The polls also indicate that the Democrats need to aim their criticism of Bush very carefully. High percentages of Americans continue to see him as honest and trustworthy. On the other hand, according to the Pew Research Center for the People and the Press, just one in three Americans thinks that the president is doing all he can to improve the economy.
Bush's father got into trouble when the economy soured and the public concluded he didn't have a plan to improve it. That's why the country elected Bill Clinton in 1992: Clinton was smart, well-informed, and brimming over with proposals to fix the economy. Remember Clinton's Little Rock economic summit in December 1992, when he gathered a roomful of preening economists and self-important business leaders to toss around terms such as "infrastructure" and "entrepreneurial"? The economic roundtable staged by this President Bush in Birmingham, Ala., on Monday was an imitation of the Clinton summit but with a more difficult mandate—to reassure Americans that the economy is fundamentally sound.
For all the suspicions raised by Bush's record at Harken Energy in the 1980s, it may be difficult for Democrats to convince Americans that Bush is corrupt. Democrats stand a much better chance of convincing Americans that, when it comes to economic matters, he is clueless.