Bush Needs a Pro-Growth Agenda -- ASAP
The failure of the White House to promote an aggressive economic recovery plan may severely imperil GOP chances of holding on to the House and taking back control of the Senate in 2002. As economist Larry Kudlow points out, we are now officially in a private-sector recession (two straight quarters of no growth in the economy outside of government). A weak economy in 2002 will mean major and potentially catastrophic GOP losses at the polls in the crucial midterm elections.</br></br>Yet ever since the passage of the president's tax cut back in June, the GOP's legislative momentum has slammed nose first into a concrete wall erected by Tom Daschle and Dick Gephardt. Virtually every bill that now is speeding through Congress is a growth depressant. The legislative docket is filled with financially bearish legislation -- to wit, the patients' bill of rights (which will cause a rash of lawsuits and enrich the trial lawyers); the Medicare prescription drug benefit (which could cost taxpayers $300 billion over the next 10 years); the farm bill (which would give away record subsidies to the agri-business industry); and the appropriations bills (that could allow spending to grow by 8% or 9% this year). President Bush should announce that he will veto any or all of these until the economy recovers.</br></br>This is America's first New Economy recession. American investors, of all incomes, have lost an unprecedented $4 to $5 trillion in wealth in the past 18 months. There's no reassuring market signal that these losses will be recouped anytime soon and there's certainly little federal action to revive growth. These enormous wealth losses have not yet punctured consumer confidence or spending, and they have not caused many net job losses. Nor have real estate values taken a hit. Not yet, at least.</br></br>We are surfing uncharted waters. This recession is driven by a drought in investment, not a conventional drought in consumption. High risk capital investment funding -- one of the driving forces behind the powerful expansion of the mid- and late-1990s -- has dried up. Venture capital funding is down more than 50% so far this year and the IPO market is moribund.</br></br>Over the past several weeks, the White House proclamations on the economy by Larry Lindsey and Treasury Secretary Paul O'Neill have been mostly happy talk about recovery by the end of the year. Let's hope they're right. But what if they're not? Where is the economic and political contingency plan? A pep talk is not enough to rescue the economy from its doldrums. True, many Wall Street economists are also predicting a resumption of growth soon, but they have been totally wrong in predicting the direction of the economy and stock market over the past several years, so their confidence is actually discouraging.