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You Might Call It The Bush Whacked Economy


Economic Viewpoint

YOU MIGHT CALL IT THE BUSH-WHACKED ECONOMY

After 30 months in office, President George Bush holds the record for the slowest pace of economic growth since Franklin D. Roosevelt more than a half century ago. The Bush-whacked economy has been crawling at a real growth rate of 0.1% annually-and that's before the double-dip recession that looks more likely than a strong recovery.

Bush's pollster, Robert M. Teeter, is finding increased public concern about the Administration's nonchalant attitude toward economic performance. He is now locked in a struggle for the President's ear. Teamed up against him are Budget Director Richard G. Darman and Treasury Secretary Nicholas F. Brady. It will be interesting to see whether Bush listens to Darman, the Darth Vader of the budget deal and the economy, or to the voice of the people as picked up by Teeter's polls.

The recession of 1990-91 could have been avoided. It came about because the Bush Administration decided to finance the growth of regulation and spending instead of the growth of the economy. Regulation has exploded-in the environmental, physical disability, and financial areas-and is hurting many voters as well as the economy. Spending took a sharp turn upward in 1989 and again in 1991, while revenue growth fell off because of the shrinking economy. In July's midyear review of the budget, Darman had to raise the 1992 deficit estimate to $348 billion, a new record. So much for the infamous Bush tax increase that was supposed to guarantee a lower deficit.

REALISM. Now, officials speak of a "January surprise"-when the budget will again be estimated. Unlike the Reagan deficits, which were partially offset by state and local surpluses, the federal deficits of the 1990s are worsened by state and local deficits. As states and localities raise federally deductible income and property taxes in order to abide by their statutory proscriptions against red ink, the federal deficit can only grow larger.

Just as supply-side economists predicted, the abandonment of a low-tax, high-growth policy is resulting in larger budget deficits. Only nine months after last fall's budget agreement, Darman has been forced to admit that the five-year deficit projection has actually doubled, to more than $1 trillion.

Last November, when Bush was enjoying pundits' praise for his "realism" in rejecting the "myth" that economic growth could reduce the deficit, Administration officials seized the opportunity to put as much distance as possible between the pragmatic Mr. Bush and the inflexible Mr. Reagan. The vaunted budget deal is revealed as a fraud. Bush has produced a larger deficit with a tax increase and defense meltdown than Reagan achieved with a tax cut and defense buildup.

Although you would never know it from Oval Office policy decisions, slowing the economy doesn't slow the deficit. The White House will redouble its pressure on Federal Reserve Board Chairman Alan Greenspan to ease, but easy money cannot offset excessive regulation and taxation. And unless the relationship between M2 money growth and gross national product has mysteriously changed, it is too late for the Fed to boost the 1992 economy.

BRAIN-DEAD. U.S. Chamber of Commerce economic forecaster William K. MacReynolds notes that the slow growth in money supply already experienced in 1991 will make a good showing in 1992 all but impossible. If the Administration has to revise its real-economic-growth forecast downward, the deficit will take another turn for the worse.

It is ironic that the "pragmatic" Republicans who put deficit reduction first have reeled in the biggest deficit ever. Tax-rate reductions may not pay for themselves, but by stimulating the economy, they raise more revenues than tax hikes. None of the tax increases of the past decade succeeded in reducing the deficit. As the government recently conceded, the expected revenues from the tax increase aren't being realized. The failure of the budget deal to reduce the deficit has left the Laffer Curve with more credibility than the government's static revenue estimates.

Today, the GOP is as brain-dead on economic policy as it was before 1977, when Jack F. Kemp became its economic voice and revived its fortunes. Kemp's talent is now being wasted in managing the huge bureaucracy known as the Housing & Urban Development Dept. Darman and the rest of Bush's economic team cling to traditional Republican economic doctrine, which holds that the key to expansion is a lowering of interest rates achieved through reduction of the budget deficit, yet this same team creates ever bigger deficits by weakening the economy.

The Republican Establishment is blinded to this paradox by its envy of outsider Ronald Reagan's success. Traumatized by the uncouth outsiders without Ivy League pedigrees who seized control of the party, Republican moderates are endeavoring to improve their image with the media by distancing themselves as much as possible from Reagan. If Bob Teeter's samplings of public opinion don't persuade Bush to return to a Reaganite pro-growth policy, the only thing that stands between the GOP Establishment and failure is the even greater incompetence of the Democratic Party.Paul Craig Roberts


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