March 8, 2004
by Irwin Stelzer
All of those disenchanted folks who have been staying away from the voting booths because they say that all politicians are the same, so why bother voting, no longer can claim that excuse. GWB and JFK (get used to it, that now refers to John Fitzgerald Kennedy’s initialsake) may both be millionaire Yalies, but that’s where the similarities end. Kerry remains comfortable in the liberal, upper crust New England background in which he was reared when not in an overseas boarding school, while Bush long ago decided that the hard-scrabble life of Crawford, Texas is more agreeable – suitably softened by family money and connections, of course.
From which flows a series of policy differences that promise to make America a very different place if Kerry succeeds Bush, then it will be if the president remains in the White House. This is no race between Tweedledee and Tweedledum.
Bush styles himself a war president, with all the implications that has for both foreign and domestic policy. He is willing to spend blood and treasure on a long-term war on terror that he says must be fought if America is to be secure, and on an effort to build Iraq into a model democracy that will be a beacon for other Middle Eastern nations. In domestic terms, that means spend more on defense, curtailing outlays on domestic programs if necessary.
Kerry sees things differently. During his 19 years in the senate, he has voted against funding every new weapons system proposed by the military, including many now in use in Iraq and Afghanistan. More recently, after having first voted to approve military action against Saddam Hussein, he shortly thereafter voted against the $82 billion his congressional colleagues approved to fund the military and nation-building effort in Iraq.
Like many of his liberal Democratic colleagues, Kerry would allocate more to entitlement programs and less to the military. And within those entitlement programs, his preference is for government rather than private sector management. So he would modify Bush’s recently passed prescription drug program for seniors to make government purchasing more central to efforts to control drug prices. That’s bad news for drug companies, and in the longer run for those who might benefit from current research and development programs.
On the fiscal front, whoever takes the oath of office on January 20, 2005 will inherit a major problem: a runaway federal deficit. When Franklin D. Roosevelt took the oath in 1933 he faced a crisis, and the nation knew he faced a crisis – an awareness that gave him considerable freedom to make such changes as he thought necessary. Bush or Kerry will face a different situation – a generally contented electorate.
It is highly likely that on January 21, the first day in the Oval Office for Kerry, or the day marking the return to it of Bush, the nation will be in the midst of a period of fairly-to-very rapid growth. All signs point to a continuation of the boom in home construction, a pretty good year for the auto industry, good times for manufacturers, a recovering jobs market (a forecast that I confess is increasingly a triumph of hope over experience), and inflation at unthreatening levels. Interest rates may be a bit higher, but are unlikely to have risen to levels that cause consumers undue pain while servicing their debt. Even the trade deficit might well have turned down, as the weaker dollar makes imports more expensive and exports more competitive.
All that makes it more likely that Bush will continue to reside at 1600 Pennsylvania Avenue than that Mrs. Kerry will be engaged in the delicious task of eliminating all traces of Texas from the White House – unless, of course, a series of disasters in Iraq, or an extraordinarily large turnout by aroused, anti-Bush, Democrats tips the closely balanced scales in Kerry’s favor.
No matter: either man will face a budget deficit running at close to or perhaps more than 5% of GDP (the UK figure is 3.1%), and a plan to reduce it, submitted by Bush earlier this year, that is so unrealistic as to have few defenders, even in his own party. Worse still, the next president will preside over the first wave of retirement of the baby boomers who will want their social security pensions, and an ageing population that, along with expensive new discoveries in the medical sciences, is certain to drive up health care costs.
Here we can expect profoundly different reactions. Bush is wedded to preserving the tax cuts he quite properly introduced to stimulate a slowing economy. White House sources say that, if reelected, the president will give no ground on such issues as eliminating inheritance taxes and preserving child credits. No change there. But a major reform of the tax system is already being designed by White House staffers, with the goal of removing disincentives to work and invest. Such changes as lowering the corporate income tax rate are seen by the president’s economists as essential to the rapid economic growth that will increase the flow of cash into the Treasury. So it is to supply-side reform that Bush will turn in his hunt for money to fund his tax cuts, the war, the prescription drug program, and even the first steps on the long road to Mars.
Kerry sees things differently. He has promised to raise taxes on “the rich”, which probably means all those earning $200,000 per year or more. That will produce a bit more revenue, but hardly what is needed to stanch the flood of red ink and prepare the government to meet its enormous unfunded obligations to the army of retirees, especially since Kerry plans to spend some of that new-found cash on expanding the welfare state. A portion of the budget gap will be filled by cuts in military expenditures, especially if Kerry is as successful as he claims he will be in transferring some of America’s burden as world policeman to the UN and other multilateral organizations. Remember: Republicans are already joining democrats in calling for a cut in Bush’s proposed Pentagon budget. The remaining shortfall will be covered by tax increases.
If you doubt that, recall that even the first president Bush, he of the famous, “Watch my lips, no new taxes”, finally succumbed to the pressures of the Washington tax-raisers, as did Bill Clinton in the early days of his administration. Kerry, who is advised by Clinton’s Treasury Secretary Bob Rubin and a host of other Clintonistas who pride themselves on having delivered repeated budget surpluses, will not shy from a tax rise, especially one that he can blame on the mess he inherited from his predecessor.
Which leaves another policy area that will be affected in a major way by the new occupant of the White House. Bush is by instinct a free trader who has been forced to give ground to agricultural and industrial protectionists in key states in key electoral states. Having been reelected, unable to run again, and with no need to prepare the ground for a 2008 run by his vice president, Dick Cheney, Bush can push his program of negotiating bilateral trade agreements and a new worldwide trade-opening agreement. Indeed, if rumors that Bush’s Trade Representative, Bob Zoellick, will become Treasury Secretary are true, free trade may be the signature policy of a second Bush term.
Not so for Kerry. In order to fend off a primary challenge by protectionist John Edwards, and to win trade union support, Kerry abandoned his long-held support for free trade position. He plans a skeptical review of the North American Free Trade Agreement for which he once voted, to end negotiations for bilateral agreements, to tax companies that invest in factories abroad, and to treat severely the “unpatriotic” companies and their “Benedict Arnold”, traitorous executives who outsource and otherwise seek the efficiencies available in an open, globalized market.
There you have it: Bush with his war-on-terror priorities, Kerry more interested in a funding his domestic agenda. Bush to press for supply-side reforms of the tax system, Kerry to raise taxes. Bush to press ahead with his free trade agenda, Kerry to rein in trade-opening deals.
Some presidential campaigns have presented voters with an echo rather than a choice. Not this one.
This article appeared in London’s Sunday Times on March 7, 2004.
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.
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