January 11, 2001
We already are getting articles about how President Bush's economics team will combat the developing slump. There is one major problem with those articles - President Bush has not yet announced his economics team.
To be sure, Treasury Secretary O'Neill has been nominated. Aside from being CEO of a major company, Mr. O'Neill's credentials include government work on budget issues and his friendship with Alan Greenspan, chairman of the Federal Reserve. His connections with the New York capital markets moguls are weak and his understanding of international economic issues are not sufficient to offset this one area of weakness in Greenspan's arsenal.
Those weekly breakfasts that former Secretary Robert Rubin initiated with the Fed Chairman are shaping up to be more maestro and disciple rather than working meetings. Furthermore, although Greenspan is a major player on any economic team and is formidable in his understanding of U.S. economic conditions, he was reappointed by President Clinton.
Which brings us to how Clinton contrasts with Bush in selecting his economics team. Although both transitions included an economic summit with the powerful business decision makers, Clinton included academics in his gatherings. None were apparent at Austin last week.
Furthermore, the first eight appointments of the Clinton administration were his economics team. He also created a National Economic Council (whose importance remains dubious, but it shows effort). The head of that council, the head of the Council of Economic Advisors, the head of the Office of Management and Budget and several other important economic appointments were announced before the Clinton cabinet was assembled.
No one could doubt that "it was the economy, stupid" in the first Clinton administration.
By contrast, it appears to be "international diplomacy, stupid" on the Bush team. Certainly diversity mattered in the selection of Colin Powell as Secretary of State, but the major supporting cast, including the head of the National Security Council, was announced very early. Does this show where the interests of the new administration lie?
Dad Bush also concentrated on diplomacy with significant success. But he was turned out because he failed to realize that the first line of strength was a strong U.S. economy. Can we already assume that the son will have the same narrow vision?
These questions have not yet been raised because President elect Bush ran on a program of large tax cuts and because his lead economic advisor, Larry Lindsay, is among his closest advisors. In other words, the economy was a part of the Bush campaign. Therefore, it is assumed that economic issues will be aggressively addressed.
What most people do not know is that the tax cut proposals have very little to do with management of economic cycles. Indeed, most of the provisions are phased in over many years. The across the board tax cut proposed by Bush does not even begin to become effective until 2002. Let us hope that any economic slump is turning around by then.
Some of the largest revenue reductions, especially in the repeal of the estate taxes, do not even appear until after the initial ten years of the Bush tax cut program. I have yet to hear an economist argue that estate tax repeal will help the economy out of its current decline.
Indeed, the Bush people reaffirmed their desire to send the entire tax proposal, including its existing pattern of phased in tax cuts, to the Congress. The President elect did not even acknowledge that making some of the tax cuts retroactive to the beginning of 2001 may be useful if economic weakness intensifies.
We will see whether the tax cuts are reasoned economic policy or merely an enticement when the bill arrives in Congress. If the timing of the proposed tax cuts is not significantly altered from the campaign proposal upon arrival, we will know that economic policy is not a strength of this administration.
To be sure, the economy steered into an economic storm on Clinton's watch. But it will be up to the new captain to steer us out. The elder Bush muffed his economic policies and was replaced. Let us hope that the son has learned from those errors.
I hope for the best but, judging from the early appointments of the new administration, expect worse.