Bush's Economic Policy for Fall: Crossed Fingers

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PAUL J. RICHARDS/AFP

Democrats like Tom Daschle will keep Bush's feet to the economic fire

Over 1 million layoffs so far in 2001, goes the glum economic headline from the head-counters at outplacement firm Challenger, Gray & Christmas, and it's just the latest. The economy is barely above zero growth. Wall Street keeps selling off its rallies. C, G & C claims that "there is no evidence reported by any industry that anything that could be called a significant sustainable rebound is on the horizon for this year or even into early next year."

That's the longest estimate yet. Yet in the short political week since the White House promised the Washington Post that addressing the economic slowdown would be George W. Bush's "number one priority" all fall, the President has already made it clear that he's done all he's going to do. No new tax cuts or gaudy deficit spending — budgets are tight in Washington too — and certainly nothing so gauche as to have Paul O'Neill talk down the dollar to help manufacturing, or to jawbone the Fed when it's practically jawboning itself.

No, Bush is standing pat with his $300 tax rebate checks, which are still making their way into mailboxes, and will try to mix sympathy for the present with a hearty confidence about the future. "Tax relief was the right thing to do, at the right time," Bush told some union workers on Labor Day. "Even though people are hurting today, and I know they are…I'm confident that we'll recover."

When good economies go bad

Bush has at least learned that lesson from his father — sympathize. The 1991 recession caught 41 having his own budget troubles, grappling with Reagan's deficits, and when he did talk about the recession he wasn't much for feeling people's pain — or doing much about it. Washington should stand back and "let the economy right itself," Bush the Elder used to say, occasionally, and it eventually did — just in time for him to lose the election to Clinton.

Bill Clinton, of course, loved to talk about the economy. He finished the job on the deficits that Bush had begun, Alan Greenspan went to bat for him with the bond markets, long-term interest rates flattened, and two terms of bragging and bulletproof prosperity ensued. But toward the end, a huge market bubble formed and burst, just in time for Clinton to skip town and leave Bush to deal with the tab.

It's not necessarily 1991 all over again. George W. has plenty of time for the recovery to take root before the 2002 midterms — and certainly before re-election time in 2004. Just one thing can really go wrong — if the voters stop spending.

The Almighty Shopper

Consumer spending is two-thirds of U.S. economic activity and so far this year — with some help from the housing market — the shoppers have come through. But the warning signs are flashing. Consumer confidence is slipping again, and this time spending may be starting to follow suit.

And why not? Old people are hearing nasty things about their Social Security. Baby boomers are hearing even nastier things about their 401(k)s. The young, cheap or skilled are doing all right, but they're doing a lot of job-hopping, and they're now well aware that those stock options aren't going to retire anybody anytime soon.

America does seem to be taking the forecasters at their sooth that things will pick up again by spring — that widely gut-wrenching consumer confidence report last week also contained an uptick in Mr. and Mrs. Public's expectations of economic conditions six months from now. But even six months is a long time to shop on faith, especially when all that waits on the other side is more shopping.

And in the meantime, headlines like "Job Cuts Top 1 Million" certainly don't help. The saying goes, a slowdown is when your neighbor's out of work; a recession is when you are. And while the unemployment picture is not really all that bad — as the August unemployment number is expected to show, not all announced cuts turn into real cuts, some pink slips get torn up, and decently skilled workers are finding other jobs — a million job cuts is the kind of number that can make even a patriotic consumer stop and think: What if next month I'm the neighbor?

When people who fear for their job, they don't, as a rule, spend as much as they would otherwise. It's known to Fed-watchers as a "breach of consumer confidence," and the funny thing is it tends to feed on itself. Consumers are at both ends of the food chain — when demand drops, they have to fire themselves, and they stop shopping. Without customers, businesses stay in their caves. Stocks keep shaking themselves out. Nobody gets rich, sometimes not for a long time. And then you get a potentially serious recession.

And before long people are doing silly things like taking it out on their politicians, whether they sent them $300 or not.