BY FREDERICK POLLOCK
SPEAKING BEFORE THE House Budget Committee last week, Federal Reserve Chairman Alan Greenspan brought some sobering news: baby boomers will eventually retire, under current law retirees are entitled to substantial government payments, and the Bush administration’s current policy of spending money like it is going out of style is inconsistent with honoring those promises. Greenspan posited a number of solutions, including raising taxes, raising the retirement age, and adopting a change in the way that benefits are indexed – one not too different from that recommended by HLS’s Robert Pozen in an intelligently crafted New York Times op-ed piece a few weeks back. Adding more pressure, the Congressional Budget Office later in the week released a report projecting that the administration’s proposed budget would result in deficits of $2.75 trillion over the next decade.
The Bush administration was quick to respond on all fronts. To Mr. Greenspan, the answer was a flat no. Acting more the part of a caretaker fearing replacement than a leader, Bush tabled the issue. On the CBO front, the administration found fault with the estimation process, calling projections that extend out more than 5 years guesswork. A more jaded observer might find it somewhat hard to believe that the ability to foresee socioeconomic shifts that will significantly impact the federal budget – like the inevitable aging of the population – ends so near the close of Bush’s hoped-for second term.
Despite the attempts, the Bush administration will not be able to avoid these mounting criticisms for much longer. The problems are systemic, lasting, and ones that have been acerbated by poor executive-level decision-making. One can expect that Democratic contender John Kerry will note that America is rapidly becoming the sovereign equivalent of a credit card debtor that never pays more than the monthly minimum. Able to recognize political sophistry, especially my own, I offer no predictions. However, I do offer an assessment of the merits of the current and impending criticisms.
George W. Bush’s economic and fiscal policy ranks among the worst Americans have ever been subjected to. One might be quick to defend that times were tough or that the President can only be as good as his or her advisors. Well, actually times haven’t been that tough. There was a minor recession, followed by an unprecedented rebound in economic activity. Never has a bubble burst so softly nor have major economic shocks like those caused by terrorist activity been handled so deftly by the Federal Reserve through refinement of monetary policy. And those economic advisers – all of whom together aren’t worth as much as Robert Rubin alone – were picked by President Bush. The administration will no doubt argue that its policies, particularly the tax cuts, spurred the rebound. No, they didn’t. It was a cyclical recovery compounded by productivity gains among sectors predominated by low and moderate-income workers, that is, those least incentivized on a cashflow basis by the cuts – it being an open question whether anyone was a net long-term beneficiary.
Would fiscal policy improve if a new administration took the helm? Who knows? Few would have guessed that a Democratic governor from Arkansas would end up with an amazingly talented set of economic advisers and that he would choose to pursue their better recommendations. What can be said is that since its installation, the Bush administration has shown itself to be well-suited to short-term crisis management and poorly suited to long-term economic policy setting. Given that the great economic and fiscal problems that America now faces are being caused by gradual, long-term trends, it is particularly disturbing that President Bush has provided no evidence that he is even capable of, let alone the best person to, respond to them. More disturbing still though is that 4 more years of Bush economic policy seems the lesser of two evils as John Kerry’s nascent economic proposals look like those of a person whose only experiences with wealth accumulation have been birth and marriage.
Fred Pollock’s column appears bi-weekly.