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Commentary: Stow The Rhetoric


Growth is off the charts, jobs are in the pits -- and economic anxiety is shooting straight up the income scale. In a close and bitter election campaign, that ought to be the formula for a great economic debate. Indeed, the two political parties are facing off squarely: Republican President George W. Bush staunchly defends his Ownership Society vision of tax-cut-fueled growth eventually stoking the job machine, while Democratic nominee-in-waiting John F. Kerry maintains that the way to fire up employment is to reclaim and redirect those tax revenues.

But instead of debating smart policies, both parties are backsliding into hot-button rhetoric. Kerry, a lifelong free-trader, threatens to veer into protectionism and border-closing, rolling back Bill Clinton's historic gains in moving Democrats toward open markets. And Bush has been reduced to singing the praises of a small fiberglass outfit that's set to hire two -- count 'em, two -- new employees, because he has little to offer stymied job seekers besides tax cuts on income that they won't earn.

As the campaign gets into full throat, it's time for both parties to deal with the real issue: How government can best help Americans adjust to a world where productivity grows rapidly, demand for skills changes constantly, and global competition threatens even well-educated service workers? Arming Americans to compete in that world -- without undercutting the flexibility and innovation that makes the U.S. economy so productive -- will demand more careful thought and more sensitive policies than either campaign is serving up. And it will require a patient approach to intractable long-term problems -- from cracking foreign-trade barriers to reining in out-of-control health costs -- that don't make for campaign sound bites.

It's easy to see why the candidates choose to bludgeon each other instead: It works. Senator Kerry has been handed a precious rhetorical gift -- 2.7 million jobs lost since March, 2001, and a widespread perception that Bush hasn't responded vigorously to the decline. By 53% to 41%, likely voters think Kerry would do a better job managing the economy than Bush, according to a Mar. 4-7 ABC News/Washington Post poll. "George Bush thinks exporting our jobs is good policy," Kerry told the AFL-CIO Executive Council on Mar. 10. "I believe that we need to create and keep good jobs here and export goods."

Bush is trying to regain the edge by painting Kerry as a serial tax hiker. When voters hear a neutral outline of the two candidates' economic agendas, Kerry holds a 17-point edge, according to a poll conducted for National Public Radio between Feb. 26 and Mar. 1. But when Bush's message includes reminders that Kerry voted for tax hikes and has favored higher levies on gasoline, the President ekes out a 4-point advantage. "My opponent has plans for [the 2001-03] tax cuts -- he wants to take them away," Bush said on Mar. 8. "He will use that money to expand the federal government."

Attack politics also disguises a simple fact: So far, neither candidate is addressing what ails the American workforce. Examining Bush's call for permanent tax cuts and mild spending restraint, the nonpartisan Congressional Budget Office concluded on Mar. 8 that the President's plans wouldn't budge the economy's growth rate, up or down, by more than a couple of 10ths of a point. And Bush's tilt toward lower taxes on capital income -- effectively raising the relative tax burden for labor income -- seems designed to emphasize investment-driven productivity gains over hiring.

Kerry, for his part, is likely to back away from some of the more protectionist ideas that he adopted to appeal to Rust Belt primary voters, such as reopening NAFTA. But his ideas for halting the flow of software, keypunching, and call-center jobs to India offer more symbolism than real help. He would repeal tax breaks for "Benedict Arnold" companies that move their headquarters to offshore tax havens, but that movement stopped in 2001. A 90-day notification period for workers -- so "companies will no longer be able to surprise their workers with a pink slip instead of a paycheck" -- might delay job moves but won't stop them.

Neither candidate emphasizes the right policies to help Americans adapt to global job pressure in the long run. And there are ways that Washington can help. Start with the right balance on trade. As White House National Economic Council Director Stephen Friedman notes: "No country has ever become prosperous by building walls around itself." Reopening trade pacts could jeopardize the global system that America has spent the past 60 years promoting.

But rules are made to be followed -- a principle the Bush Administration seems to have missed. Wealthy and middle-income nations have erected plenty of trade barriers -- from Europe's blocking of U.S. farm goods to India's protectionist rules on imports and investment -- that could fruitfully be attacked in the World Trade Organization. Such cases would not only help U.S. exports but could strengthen the global trade regime. To his credit, Kerry does talk about more muscular trade enforcement, but that message gets lost amidst his NAFTA revisionism.

China poses a special case: A major part of its competitive advantage stems from currency controls, which peg the yuan to the dollar and keep its value artificially low. That peg can't be abandoned quickly because China's banking system and economy couldn't weather the shock. Nor could the U.S., which owes its low inflation and interest rates in part to China's cheap goods and hefty purchases of U.S. Treasury bills. But the Bush Administration hasn't put enough pressure on Beijing to phase out the currency crutch. Nor is the U.S. working hard to protect intellectual property -- its economic crown jewels in the knowledge-based future. Piracy of foreign movies and software, for example, cost Hollywood and Silicon Valley up to 20% of their Chinese sales. And it's not just China. Washington must crack down on countries that condone piracy, and U.S. companies must be allowed to invest abroad without surrendering their technology.

Back at home, antsy employers have been discouraged from hiring in part by the high cost -- in payroll taxes and benefits -- of taking on a new worker. Kerry would offset payroll taxes with a two-year tax credit for manufacturers who create jobs. That idea needs to be extended to service workers, but only if the credit is limited and carefully targeted so that companies can't churn workers to get the tax break.

Health care is a tougher nut. Kerry would cut employers' costs by having the government underwrite catastrophic insurance claims. Bush favors individual tax credits that could gradually divorce a family's health coverage from the breadwinners' jobs. In the long run, either approach could lower benefits costs for employers, albeit at the price of higher taxes.

Easing workers' fears of lost health insurance would do much to lower job anxiety. But more is needed. Outsourcing will force even white-collar Americans to retrain and relocate for midcareer course corrections. Current trade adjustment relief, aimed at factory workers, needs to be extended to all displaced workers. Bush's $50 million pilot program for Personal Reemployment Accounts -- $3,000 that a worker can spend on training and services, with a financial incentive to get rehired quickly -- is a step in the right direction. Kerry emphasizes retraining for factory jobs. That's small comfort to the software engineer facing displacement.

None of these policies is an immediate panacea. Even if all were put in place today, they wouldn't create a job boom before November's vote. But unlike broad tax cuts or steep trade barriers, they address what American workers really need: a fighting chance to survive in an economy that's relentlessly becoming global. By Mike McNamee

With Richard S. Dunham, Paul Magnusson, and Howard Gleckman in Washington


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