What If This Is As Good As It Gets for Bush?

That calm and modest air must have been a struggle for President Bush last week. The Republicans' showing in the midterm elections was sensational enough. Then came the remarkable victory at the United Nations, where the administration's brazenly muscular diplomacy scored a success that none of the president's critics had expected. Saddam Hussein now faces an ultimatum with teeth, imposed not by the United States acting alone but by the world acting as a whole. If Iraq fails to comply with the new resolution, the United States has all the moral and legal authority to act that one could plausibly demand—and the right to insist that other countries back up its actions. The administration's credible threat of unilateral force has given the multilateralists exactly what they said they wanted. (Why do so few of them seem pleased?)

The outcome of the Iraq diplomacy owed a lot to perceptions of Bush's character—allies and enemies alike believe what he says. The election results were likewise a personal victory. The Republicans made their gains largely because of Bush's popularity as president and because of his campaigning in the close races. Despite all this, he shrewdly avoided gloating. Who any longer denies that the man is a political talent of the first order? From now on, if nothing else, the president's critics at home and abroad will surely be less inclined to underestimate him.

That would be bad news for the White House, of course. It helps to be underestimated. And the president's unmasking as a formidable opponent is only one of the mounting difficulties he is likely to face in the next two years. Democrats are saying that their midterm drubbing was a blessing in disguise, because it makes the president more accountable. If the economy goes wrong, or if Iraq goes wrong, the Republicans and nobody else will be to blame. In one way, this is laughable. Things are bad, all right, when you see losing as your best bet. The Democrats would gain more from an unsparing examination of what went wrong. At the same time, feeble as it may be to lean on, what the Democrats say about accountability happens to be true.

The administration faces two years of extraordinary testing. The problems it must deal with are not of its own making, but that counts for nothing. Democrats may see their wish come true: George Bush could look back on the past fortnight as the zenith of his presidency.

Bush is right to confront Saddam, right to say that the United States and its allies must be willing to wage war to disarm Iraq. But only a fool would deny that the operation is risky. This fight, necessary as it may be, poses big military, diplomatic, and economic dangers. One sometimes wonders how many of the administration's confident officials understand this. America and its allies had better realize what they may be getting into, if for no other reason than to avoid crumpling if the operation does encounter setbacks—on the battlefield, outside Iraq's borders, or (most likely) in managing the consequences of Saddam's defeat.

Aside from Iraq, the wider war on terrorism still needs to be fought—and America and its friends will surely suffer reverses as the struggle grinds on. With Congress on the president's side, his responsibilities in this will expand a lot; his real (as opposed to nominal) powers will not. The administration will get its way on the Department of Homeland Security, for instance. But this is one legislative victory for Bush that will almost certainly prove hollow. No mere rearranging of the security services' assorted bureaucracies is going to deflect the country's new enemies. Moving chairs around will more likely be a distraction from truly important tasks. It was an uncharacteristic miscalculation for the president to make such an issue of this reshuffling, leading people to expect much more than it can yield.

Still, Bush is a president whom Americans at war will want to rally round. That is why the biggest political risk for Bush is not foreign policy or security policy, but the economy. This is what threatens to embarrass him, much as it did his father, and just as unfairly.

The chances of recession next year are less than 50-50, but no longer much less—and they are edging up. An extended period of slow growth, slow enough to force higher unemployment, is setting in. The condition of the post-bubble economy is no more Bush's fault than the threat from Iraqi weapons of mass destruction is—but America's voters will not see it that way. In the midterm elections, they were willing to blame bad luck, or the Clinton administration, for the new-technology mania that first got the economy into this mess. It is hard to believe they will be so understanding in 2004, if unemployment is higher than it is now and the economy has settled into a "growth recession" or something worse.

Is this any more likely now than it was, say, a month ago? Unfortunately, yes. The fall in the Conference Board's measure of consumer confidence in October—a drop of more than 14 points to 79.4, the lowest reading of the index for nine years—was a heavy blow. Consumer spending, with some help from public spending, has lately been driving aggregate demand in the American economy almost single-handedly. Business investment is still in the doldrums, and external demand, with Japan still failing to improve and Europe's economies struggling as well, is lending no help at all.

If the drop in consumer confidence is followed by a fall in consumer spending, as it often is, the economy could stall. Other indicators are pointing the same way. Just before the Federal Reserve cut interest rates by half a point last week, the Blue Chip Economic Indicators survey of 50 economic forecasters showed them cutting their predictions for growth in the fourth quarter almost by half, to 1.6 percent at an annual rate. The Fed's latest move was welcome, as far as it goes, but it is unlikely to have much effect on demand until the second half of next year. The recovery is looking increasingly fragile.

Paradoxically, even the good news in recent economic data spells trouble in the short term. As the Fed emphasized when making its interest-rate announcement, productivity continues to grow faster than one would expect in current circumstances. In the medium term and beyond, an improvement in productivity growth is nothing but good. In the short term, though, if demand fails to keep pace with rising productive capacity, it may be a problem, adding to the gap in aggregate demand and hence to the risk that unemployment will rise.

Monetary and fiscal policy are not useless in this situation, but they are slow-acting and unreliable. This goes especially for fiscal policy, which offers particular scope for compounding the economy's troubles. Measures that pile up long-term deficits without delivering an effective short-term stimulus would be worse than useless.

One such measure seems to be at the top of the administration's list. The White House is keen to make permanent its previously announced tax cuts, which are now due to expire around the end of the decade. Extending the lower rates indefinitely does make sense: The idea that they would be anything but permanent was a barefaced accounting fix in the first place. But if they are to be extended, the administration needs to plan at the same time for offsetting increases in other kinds of revenue—or else the deficit will explode. But all of this discussion is about what happens at the end of this decade and beyond. As such, it is largely beside the point. The business cycle is here and now.

If the White House is to spend political resources on changing fiscal policy, it should concentrate on the issue at hand. The best way to stimulate demand quickly without adding much to long-term deficits is to do what many Democrats have proposed: Spend more generously on unemployment insurance. Bush should seize this idea, make it his own, and embarrass the Democrats again. And if Congress is going to cut taxes further, it should target cuts mainly to lower-paid workers (who will spend the windfall, not save it), and it should act now, not five or 10 years from now.

Even if the president gets all this right and the Fed does its job, America's economy will still be at risk, thanks to its deeply indebted consumers and companies, incompetent policy makers in Japan and Europe, the perils of Iraq, and suicidal terrorists intent on hurting the United States and its allies as much as possible. Americans see Bush as the right leader for times such as these, and one can see why. Given the challenges of the next two years, he will need all his talents—and a run of good luck besides.