Wall Street banks are an honest audit away from bankruptcy. Housing prices are plummeting at rates not seen since the Great Depression. Mortgage foreclosures are ravaging neighborhoods and knee-capping state and local budgets. Incomes decline even as the cost of food, gas, electricity and health care soars. Family bankruptcies reach new heights. The gurus -- from former Fed Chairman Alan Greenspan to Republican economist Martin Feldstein to former Clinton Treasury Secretary Larry Summers -- are starting to argue about who's to blame for the recession we may already be in.
So President Bush ventures out of the White House on Monday to a Stafford, Virginia, Rotary Club meeting at the local Holiday Inn's Yak-A-Doo's restaurant "with something important to say" about the economy. His message: Don't worry, be happy.
"This economy is pretty good," says the president. Sure, there's "definitely some storm clouds and concerns" -- like "the credit issue and the housing issue" -- but "the underpinning is good, and we'll work our way through this period."
The answer to the storm clouds: Do nothing and they will pass. Don't raise taxes; pass the president's status quo budget that pares a little off of domestic spending while pumping another $200 billion into the wars in Iraq and Afghanistan.
George is as clueless about the economy as his daddy was about the electronic scanner at the grocery store checkout. Stuff just slips up on you when you aren't looking.
Bush still believes that we've had a "pretty good run" -- six years of economic growth, increased profits and higher stock market prices. "People are working, productivity is high... And that means people are more likely to get paid more."
Tilt. "Are more likely to get paid more," but aren't. This economy works only for those on the top, like the private equity billionaires who pay a lower tax rate than their secretaries (an obscenity just enforced by presidential veto). Most Americans find themselves working harder and longer for incomes that don't keep up with the soaring costs of the basics, from health care to college tuition to a secure retirement. The president -- and the Republicans who follow him like children the Pied Piper -- just doesn't get it.
So Democrats blast him. He's "detached from the reality of most middle-class Americans," says Senate Majority Leader Harry Reid of Nevada. "Out of touch," says Sen. Charles Schumer of New York, chairman of Congress' Joint Economic Committee.
And what's the Democratic remedy? Bush should "restore fiscal discipline at home" and stop spending billions on war abroad, says Reid.
"Fiscal discipline?" A balanced budget is the modern Democrats' Holy Grail. Howard Dean says one of the top four things Democrats stand for is fiscal discipline. Sen. Hillary Clinton promises to balance the budget in her presidential campaign ads. Congressional Democrats shackle themselves to "pay-go" rules that demand that spending or tax cuts be "paid for" by tax increases or spending cuts. Democratic pollsters say that committing to budget balancing is a popular metaphor for bringing government under control.
Great stuff, except -- hello? -- the economy is headed into a recession. Deficits will rise as unemployment and other benefits rise and tax revenues decline. Does anyone really plan on cutting taxes or cutting spending as the economy slows?
In fact, the reverse is badly needed. With banks cutting back credit and families tightening their belts, what's going to drive the economy? The falling dollar will make the U.S. a cheap date for foreign tourists, but that will be offset somewhat by the rising costs of imports. If we are to avoid a deep recession, it's time for government to step up.
So choose your poison: Tax cuts or government investment. The president and his fellow conservative Republicans have no doubt. They peddle tax cuts as the remedy for a slow economy in deficit or a rising economy with surpluses. So every Republican candidate was huckstering new top-end tax cuts when housing was still a bubble, the music was still playing and, in the immortal words of departed Citibank President Chuck Prince, everyone was "still dancing".
A better choice would be a big investment agenda -- in new energy (weatherizing homes and apartments, installing solar and wind energy, etc.), and in basic infrastructure like bridges and roads, next generation broadband, and schools and preschool. The advantage of direct government investment -- as opposed to top-end tax cuts -- is that more of the money and the jobs stay in this country, building investments vital to our future. The choice between a safe bridge in Minneapolis, or more speculation in the Euro or the Chinese toy industry, doesn't seem like a hard choice.
But it does require a wrenching change of gears from Democrats who have turned Clinton's commitment to balanced budgets from a clever tactical concession to an enduring economic principle. Learning to carry the new tune might be a useful way to use the holiday.
