Bush Versus Greenspan
February 17, 2003
by Irwin Stelzer
The coming war with Iraq over weapons of mass destruction is beginning to be matched by battles here in Washington over weapons with which to boost a sluggish economy. And President Bush is finding that some of his domestic allies are every bit as difficult as his French and German “allies”.
Start with Federal Reserve Board chairman Alan Greenspan, who supported the tax cuts that the president pushed through Congress a few years ago. Last week, Greenspan laid waste to Bush’s tax and stimulus package. Although supporting the elimination of the double taxation of dividends, the Fed chairman told Congress that the lost revenues should be made up by new taxes, or by spending cuts. Deficits, he testified in contradiction to administration economists, can force up interest rates if they persist during good economic times. Democrats cheered, as did those senate Republicans who are opposed to the president’s tax cuts.
Greenspan opened a second front in this new war for the hearts and minds of Congress. Glenn Hubbard, chairman of the president’s Council of Economic Advisers, has been emphasising what he calls “very prominent downside risks to the economy,” a position that supports Bush’s argument that a tax cut, and now, is needed to offset those risks. Greenspan peppered last week’s testimony with phrases that can only be taken as a rebuttal to Hubbard: “business inventories … have stayed lean – a circumstance that should help support production this year”; “output has continued to expand’; “relatively strong spending by households”; “the favorable underlying trends in productivity have continued”; “robust advances in residential construction.” And the final blow to those pushing hard for the president’s stimulus package: “Our more probable expectation” is that once geopolitical risk is removed the “economy [is] poised to grow more rapidly.” No stimulus needed.
As if a two-front war with the powerful and respected Fed chairman is not enough of a distraction from the problems created by perfidious France and a Germany devoid of historical memory, Bush also has to adjudicate a dispute between the free traders in his government and therealpoliticians. Despite the fact that the European scientific community has ruled that genetically modified foods are perfectly safe, Europe’s agricultural protectionists have prevented the sale of these grown-in-America foods in the EU. EU negotiators admit privately that they have no chance of winning should the US trigger a WTO review, which the administration’s trade mavens are eager to do. But the State Department, striving mightily to keep as many European nations as possible in America’s anti-Iraq “coalition of the willing”, are forcing them to hold back. Freer trade in agricultural products seems to be the first casualty of this almost-war.
Then there is oil. Hollywood stars, who have always been able to get attention for their often-whacky policy positions, have decided to expunge the guilt they feel about their massive consumption of the earth’s resources by trading in their sports-utility vehicles (SUVs) and 6,400 pound Hummers for smaller vehicles that run on fuels other than gasoline. After all, they argue, by driving “gas-guzzling” vehicles, they are putting money into the jalabiyas (robes) of terrorists. With the help of an overwrought journalist, Arianna Huffington, they are pressing the president to force auto makers to curtail production of the vehicles that are the major source of profit for the industry, and comfort for the nation’s soccer moms.
More troubling to this religious president is a coalition of Christian groups, The Evangelical Environmental Network, which is sponsoring a series of television advertisements that ask, “What would Jesus drive?” An SUV is not among the possible answers. This entire campaign is a domestic battle that the SUV-driving president can well do without.
Not to mention a weak stock market. Jittery traders and bankers worry that they may be the next to join the unemployed. The high level of alert that the authorities have ordered is jangling nerves in New York, not to mention Washington, where supermarkets have been depleted of bottled water and my wife’s physician reports an increase in the number of patients with elevated blood pressure and other symptoms of tension.
A report this week by the General Accounting Office did little to calm nerves on Wall Street. Entitled “Potential Terrorist Attacks”, the report suggests that another attack would disrupt trading operations, leading many firms to consider moving facilities far from New York City. All of which provides ammunition for those who say that the president should rein in alarm-sounding security chiefs, who in the end have nothing tangible to recommend to Americans other than that they stock up on duct tape for their windows in the event of an attack with biological weapons.
In the face of all of these domestic battles and distractions, the president remains focused on two things. First, he is preparing the nation for war, with UN approval if he can get it, without such a sanction if the French and Germans succeed in blocking Security Council action.
Second, ever-mindful of the fact that his father became a one-term president because he was seen to be insensitive to the plight of voters during what proved to be a minor and short-lived recession, Bush the younger is fighting for the tax cuts that he believes will give the economy some extra “oomph”. In this fight he has a secret weapon. Several Republicans will side with him, but not because they believe that his tax plan will provide much “oomph”. Rather, they are following in the footsteps of Ronald Reagan, who used deficits as a reason to cut back on spending on social programs. Every dollar they leave in citizens’ pockets, and keep out of the hands of Washington politicians, is to these latter-day Reaganauts a dollar due to be better spent.
With “war-war” with Iraq closer, and “jaw-jaw” at home increasing in volume, George W. Bush must be comforted by his belief, shared with associates, that God put him on this earth to see America through this crisis.
This article appeared in London’s Sunday Times on February 16, 2003, and is reprinted with permission.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.