Anyone Seen an Economic Policy?
WHAT I WANT TO KNOW IS, WHO makes the administration's economic policy?
It's sure not the secretary of the Treasury or the head of the Economic Policy Council. The recently sacked Paul O'Neill and Lawrence Lindsey, who respectively held those two positions, were canned because they weren't good communicators, and even when they were able to communicate, they tended to convey the wrong message. O'Neill in particular didn't get fired for making bad policy, but for his failure to defend bad policy that he hadn't made.
The main sins the duo committed were occasional fits of honesty, which in the Bush White House is a capital offense. Last year, O'Neill grumbled about how mammoth tax cuts would create a monster deficit. (Worse yet, this year he was proven right.) And Lindsey, in a recent moment of weakness, actually answered a reporter's question as to the projected price of war with Iraq. Two hundred billion, said guileless Larry, and in a flash, he was gone.
But read the job descriptions of their successors. Bush's appointee as O'Neill's successor is John Snow (the CEO of CSX, a rail conglomerate), who is by all descriptions a retread of Paul O'Neill, with one salient difference: He's a better communicator. Good thing, as his job, we're told, is to sell the president's economic policy better than O'Neill would have.
As I write, the White House has yet to name Lindsey's successor; the name most bandied about is Stephen Friedman, former co-CEO of Goldman Sachs. What stands out about both Snow and Friedman (should the latter's appointment go through), however, is that both are being called upon to defend policies the president has already had formulated for him and that he is about to unveil. And that both bring a long history of opposing precisely such tax-cut policies as the one they'll be expected to sell. Both come from the deficit hawk wing of American capitalism into an administration whose only economic credo is to cut taxes for the rich and, if absolutely necessary, for lesser people, too.
The administration's godawful $1.3 trillion tax cut last year wasn't intended to stimulate a failing economy: The economy wasn't in free fall quite yet, and in any event, most of the cuts didn't take effect for nearly a decade. In the past 18 months, as the economy has sputtered and occasionally self-shifted into reverse, the Fed has tried to keep things going. But one interest-rate cut after another hasn't done the trick, and now the Fed is, as they say, pushing on a string. Interest rates for the largest economic concerns are down near 1 percent, and still corporations aren't borrowing money to invest in new widgets, or upgrade their old ones, or do anything that will create new jobs.
So it falls to the administration to jump-start the economy and they've reportedly crafted a program that will be just as ineffectual as the Fed's. According to reports in The Wall Street Journal, it will allow corporations to write off new equipment faster, it will cut taxes on stock dividends, and it will further reduce tax rates on upper- and middle-income earners, perhaps even throw a penny to the poor. Much of this assumes that the problem with the economy is insufficient income for investment. Which couldn't be further from the truth.
The problem with the economy is that there is insufficient income for consumption. Official unemployment is at 6 percent, the highest it's been since the early '90s, before the Clinton recovery took hold. The federal hourly minimum wage of $5.25 is about 60 percent of what would be required to lift the wage earner out of poverty. In vast tracts of the U.S. and Los Angeles is one of them middle-income jobs have up and left.
You can see the results of such feeble consumerism in the figures on production. American manufacturing in October was limping along at 75.2 percent of capacity. The average rate of capacity utilization from 1967 to 2001 was 81.9 percent.
Let's get this straight: Business hasn't cut back because interest rates have been too high or because dividends are taxed too steeply or because it takes a year too long to write off those new widget makers. Business has cut back because too few Americans can afford to buy widgets at all.
THE SPECTER THAT IS STALKING W.'S White House is that of Poppy's defeat. Poppy made two great mistakes that Junior intends not to repeat: He left Saddam in power, and he slept through a recession. Karl Rove, Bush's longtime political consigliere, is determined that neither oversight will recur.
Rove, it is clear from Ron Suskind's profile in the January Esquire, is not merely running the White House political shop, but also its domestic-policy operation, and has a substantial, if out-of-view, role in foreign policy, too. His control over economic affairs should not be doubted, either. Clearly, it was Rove who insisted on the creation of a stimulus package and the destruction of Lindsey and O'Neill. That said, neither the package, as reported on, nor the new and prospective appointees, as reported on, are much different from the old economic policy and the old economic team. Neither Bush's tax cut then nor his stimulus now is a fix for the economy. Treasury appointee Snow is, like Messrs. Cheney, Rumsfeld and O'Neill, an alum of the Ford administration who went on to become a CEO of an old-economy corporation. The new team, like the old, has demonstrated no interest in policies that would really fix the economy: a stimulus package directed at getting more money to the poor and the middle class; a higher minimum wage; an increased Earned Income Tax Credit for the working poor.
Which brings us to our little friends the Democrats. The fact is, straight through the debacle of the November election, the Democrats had no clear ideas on the economy, either. They campaigned while paralyzed with fear at the prospect of opposing the president on anything his still-unjustified war, his meshuggeneh tax cut.
One of the few silver linings on the cloud descending on us all is that the Democrats lost so badly, they're finally beginning to regain their voice on the economy. That voice, it's important to note, has been lost for quite some time. During Bill Clinton's presidency, the Democrats became the party of the balanced budget, the better to fend off GOP demands that the growing surplus be turned into tax cuts. This strategic maneuver then became holy writ, however. Unless the Democrats stood for balanced budgets, they could never win elections, argued the Democratic Leadership Council and its green-eyeshade acolytes. During the 2000 primaries, I wince while remembering, Al Gore actually argued that the proper response to an economic downturn was to cut government spending. The ghost of Calvin Coolidge was guiding Democratic policy, and nothing good came from that. It certainly didn't change the public's perception of the parties. In polling earlier this year, with Bush having turned a megasurplus to a monumental deficit while the Democrats manfully called for fiscal discipline, the public made clear that they thought the party of fiscal discipline was the Republicans. And that balanced budgets didn't matter much to them in any event.
Now, haltingly, unevenly, the Democrats, the ever-malleable Al Gore at the forefront, are calling for a stimulus, too. Many, picking up on an idea first floated by Robert Reich in The American Prospect, are calling for a reduction in payroll taxes, which are paid by workers and employers for Social Security and Medicare, and which is the tax that takes the biggest bite out of the income of working-class families. Others are calling for a federal bailout of the states, most of which face draconian cuts in spending on schools and health care. And some not all, unfortunately are calling for rolling back the tax cuts on the rich that aren't scheduled to take effect until decade's end.
With a little leadership, the Democrats could actually structure a fight in which they're calling for a cut on taxes that affect the bottom 80 percent of Americans while the Republicans are defending a cut on the top 5 percent. On taxes, in fact, the Republicans just may be sitting ducks. Of course, that doesn't mean the Democrats remember how to hunt.
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