Fixing the Economy in Waco

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Fixing the Economy in Waco
by James Hall, Associate Editor

August 14, 2002

"Leaning Left"

James Hall George W. Bush took a short break from his month-long vacation to attend an economic summit in nearby Waco, Texas, yesterday. It's ostensive purpose is to find and implement ideas to improve our slumping economy, particularly the stock market which has lost over $4.7 trillion in value since the president took office, the largest loss since Herbert Hoover presided over the Great Depression. Unfortunately the summit is full of Bush appointees, Bush supporters, and Bush political yes-men who are unlikely to give the president the ideas he most needs to stimulate the economy---Democratic ideas.

At the beginning of his presidency in 1992, Bill Clinton convened a different economic summit in Arkansas to deal with another slumping economy inherited from another George Bush. He invited a wide variety of economic voices and developed a program of balanced budgets, freer trade, and stimulation of technology companies---the Bush/Gore "Bridge to Tomorrow." By 1994 those ideas were in place in the form of tax increases on the wealthy, NAFTA, and a series of tax and investment incentives that sparked the tech boom and eight years of growth and prosperity.

Bush needs these ideas now, but instead what he'll get is warmed over GOP boilerplate that guarantees our continued economic stagnation. Here's the advice for economic stimulation President Bush needs but won't get from his GOP cronies:

1. Switch the tax cut from the wealthy to the middle and lower classes. It's well-documented that most Bush Tax Cut money goes to the top 3% of America's wealthiest citizens. These folks are taking the money and parking it in money-market accounts or bonds while they wait for the economy to head upwards. Bush should encourage Congress to switch some of that tax cut money to the middle and lower classes. History proves that they spend it on the things they need---cars, food, clothes for their kids to go to school. This economy needs this increase in consumer spending and consumer confidence, not more money-market accounts.

2. Balance the federal budget. Take the rest of the tax cut and use it to keep the federal budget balanced. So long as the federal government is printing bonds to pay for its deficits, there will be people buying them instead of stock or consumer goods, and as the deficit grows big again, higher interest rates will kick in and make it more difficult for businesses and people to borrow money to expand their business. Higher interest rates on credit cards, auto loans, and home mortgages act like a tax on consumer spending, cutting down on consumer spending and lowering consumer confidence.

3. Pursue free and fair trade. Clinton got NAFTA passed early in his administration and pursued beneficial trade agreements with China and the European Union even after Republicans cut off his ability to negotiate binding trade agreements. Freer trade opened up markets to increased competition, kept inflation low and provided jobs as American exports increased, and these things helped kickstart the economy early in his administration.

But free trade also threatens jobs and industries in the US and that leads to political repercussions. Bush's Republican allies are likely to urge him to wait until after the November elections to sign trade agreements just to avoid the kind of political fallout that would threaten Republican candidates for Congress. Clinton chose to support free trade and lost Democratic seats in Congress while the US economy gained overall. What will Bush choose? The guess here is that he'll wait to implement free trade agreements, helping his political party but slowing economic progress.

4. Incentives to grow technology. Clinton used a variety of incentives---everything from wiring the nation's classrooms to the Internet, to tax credits to buy computers, to the economic bully pulpit to urge small tech companies to grow. These small, fast-growing companies boosted American productivity and created a bull market at the time the rest of the world was faltering. Bush's economic and public policies have been kinder instead to the large, traditional Dow Jones corporations which tend to grow slowly if at all. Bush let the smaller NASDAQ tech companies falter without comment. His stem cell research policy is single-handedly choking off the expansion of the biotech sector.

Because Clinton acted quickly and decisively, his support of free trade, small high-tech companies, and a balanced federal budget proved to be the right mix for eight years of growth and prosperity. Other than encouraging President Bush to promote free trade as quickly as possible, it's difficult to see the Republicans in Waco calling for anything that can help this economy or this president. All the best ideas for economic stimulus are Democratic ideas. And Bush is his father's son, after all. ***

Photo of the author courtesy of staff files