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Posted on Tue, Mar. 09, 2004



We need real debate on new economic realities

By THOMAS STROUD
Guest Columnist

It is often said that the true test of maturity is controlling your reaction to a situation or conditions over which you have no control.

No one person has control over the economy, though the president, along with the Federal Reserve chairman, can impact it.

Bill Clinton was lucky enough to reside in the White House when times were good. Companies were begging for workers as we built our new wired world at the same time we supported the old infrastructure. By 2000, most of the rewiring and re-engineering was complete.

George W. Bush entered the scene just in time for the less networked workers to be laid off along with many “new network” builders, as their mission had been accomplished in time for Y2K.

Enter “slack” in the economy. Bush has not reacted to this poor hand with particular finesse.

First and foremost, he does not portray the global digital shift as anything more than a typical recession. Failing to advise the public that something new and different is here paints him into a corner.

Dismissing the emergence of “network productivity” that renders at least 25 percent of our capacity excess and no job safe has enabled Bush to extol the tried-and-true remedies of recessions past — cut taxes and spend money.

As these remedies have only served to expand the deficit, favor patrons and widen the wealth gap without creating jobs, the president has developed other coping mechanisms to avoid the responsibility so unfairly heaped upon his shoulders.

Consider the evolution of his economic analysis:

• This is Bill Clinton's recession. But three years of absence lets Clinton off the hook.

• The unemployment numbers are wrong. There is a stealth recovery of people starting businesses below the radar. But arguing a failure of economic intelligence might not be wise just now.

• Congress can be blamed for too much spending. But Republicans control both houses.

• The numbers look better with certain adjustments. Focus on stock prices, not new jobs. Use measures of unemployment that tend to undercount. But the Bush administration's gimmick-strewn budget has members of both parties questioning all numbers.

• Perhaps talking up the economy will inspire enough consumption to cut unemployment. Saying that the economy is great and recovering rapidly could be a self-fulfilling prophecy. If someone talks about a “bad economy,” they are making it bad.

Enter Federal Reserve Chairman Alan Greenspan, ineffectively scapegoated by the previous Bush administration. Will he, through commentary or idle gesture, be negative?

Headline: The economy is great. The danger of deflation is abating.

Fine print: The homebuilding and refinancing boom is about tapped out. Perhaps households should behave like investment bankers and use variable debt instruments to further leverage their home equity. But Fannie Mae and Freddie Mac may collapse due to bad housing loans.

Japan and China may be about to demand higher treasury returns. Imports are cheap because Asia wants to maintain market share — but for how long? Because of the distortions caused by artificially pegging currencies to the dollar, international currency markets are starting derivative strategies taken from the Long-Term Capital Management playbook.

Headline: It is possible to have the job growth projected by the president.

Fine print: This assumes no further productivity gains while demand explodes. But there is no foreseeable boost in demand that will overrun the slack that now holds down inflation and employment.

Headline: I support the Bush tax cuts.

Not-so-fine print: As long as they are covered by Social Security benefit cuts.

Actually, Greenspan has been arguing for reform since the 1980s, but never so unenigmatically.

Greenspan is very old, but still holds down a very powerful job. He also is very smart. That's not a coincidence. He has bluntly raised issues while avoiding the role of Bush's scapegoat.

Bush's current reaction to economics: Ban gay marriage.

Hopefully, the noise of the culture wars will not succeed in muffling a debate on the new economic realities — realities that are not the direct product of either Bill or George.

Thomas Stroud is general manager of Evans Enterprises, a Spring Hill-based agricultural fertilizer company.