The Nixon Recovery
By CHARLES R. MORRIS
Published: February 7, 2004
esterday's good news on the job front, on top of strong growth in the last half of 2003, may finally signal that President Bush's economic recovery is on solid ground. There is still plenty to worry about. Unused production capacity continues to drag down business profits, and job growth, while finally rebounding, remains slow. Consumers have loaded up on debt and could be devastated by a spike in interest rates. But the economic tea leaves are more positive than they have been for a long time.
If President Bush can maintain the recovery through his re-election campaign, he will be in rarefied company. Richard M. Nixon, in fact, may be the only recent president to accomplish this feat, timing a recovery from a midterm recession to coincide with his 1972 race. The reason this is so hard is that, despite all the bragging about creating jobs or speeding growth, presidents really have few economic tools at their disposal. Most federal spending is outside a president's direct control — locked up in things like retirement programs that chug along pretty much by themselves. The same is true of taxes and interest rates. A president can set the agenda, but taxes are ultimately controlled by Congress. Interest rates fall under the domain of the independent Federal Reserve.
Yet Nixon proved that if a president plays his weak hand ruthlessly — without restraint or regard for long-term consequences — he can make the economy sit up and roll over at his command. In the end, of course, the Nixon "recovery" was short-lived and America soon paid a steep price for it. Unfortunately, Mr. Bush's economic performance so far is eerily similar.
Back in the early 1970's, with both high inflation and slow growth, Nixon's economic challenge may have been even more intractable than Mr. Bush's. So, with his re-election in jeopardy, Nixon and his Treasury secretary, John B. Connally, bludgeoned both the Congress and Federal Reserve into a truly radical experiment. Congress passed wage and price controls and the Federal Reserve simultaneously increased the money supply.
The gamble was that a big jolt of money would rev up the economy while the price controls would suppress inflation. It worked, allowing Nixon to win in 1972. But success came at a huge cost. Once the price controls were removed through 1973 and 1974, all the suppressed inflation came roaring out, hitting the double digits and plaguing the second half of the 1970's. Worse, the resulting collapse of the dollar led to the 1973 OPEC "oil price shock." Altogether, it was one of history's most expensive election campaigns.
Many analysts worry that a Bush-style recovery could be similarly catastrophic. Taking a page from the Nixon playbook, Mr. Bush has wielded his fiscal tools aggressively. Over the last two years, there has been a half-trillion dollar swing in the federal books, from a $100 billion surplus in 2001 to a deficit of about $400 billion in 2003, and an expected $521 trillion in red ink for 2004.
The deficits have been driven by deep tax cuts and unrestrained spending. That includes big increases for domestic security, but other initiatives as well, like a generous new subsidy program for industrial farmers. On the surface, this looks like a standard, if unusually forceful, application of textbook economics. The government is supposed to run deficits in slack times and stash away surpluses during the fat years. So why the worries? Mr. Bush's program, like Nixon's, is not the textbook one-time kick in the pants, but a rejection of a half-century's consensus on the proper management of a modern economy.
The Bush program was not originally intended as a response to the recession. Instead, it was just the opening wedge of an unprecedented 10-year program to eliminate virtually all taxes on businesses and investment income, on the theory that everyone's better off when investors are well fed. The administration, in fact, first justified its program as necessary to head off high federal surpluses, then opportunistically switched the argument when the recession started to bite hard. The tax cuts, moreover, have come at a time when federal taxes, as a share of gross domestic product, are already at their lowest level since 1959.
President Bush's planners claim that budgets will be back in balance within the decade. But a recent Brookings Institution study makes those calculations look like sleight of hand. To keep cost estimates down, for example, the administration has built "sunset" provisions into almost all of its tax cut programs. In theory, when the sunset dates arrive, the tax law will switch back to its pre-Bush status. Fat chance. The administration itself is pushing hard to abolish all the sunset provisions. The Brookings analysts foresee deficits increasing every year for the next decade, with total red ink around $8 trillion.
The consequences of that could be bad enough — higher interest rates and declining competitiveness and growth. But it gets worse. In the coming years, baby boomers will start making their first claims on Social Security and Medicare. There is no way the country can run deficits on the scale of the Brookings forecasts and decent retirement programs at the same time. Boomers do not take rejection with good grace, and their tolerance will not improve as they get older. From the perspective of 2010 or so, citizens may look back on the post-Nixon 1970's as halcyon days.
Charles R. Morris is the author, most recently, of "Money, Greed and Risk."
http://www.nytimes.com/2004/02/07/op...99a7ae428c6f64 Bush is looking increasingly like he doesn't give a monkey's what happens when he's gone. He's screwing the US economy so that he can get re-elected.
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