Quotes of the Day

Last week, George W. Bush placed his re-election in the hands of people he used to despise. When Bush was running for president, he rarely concealed his disdain for the sharpies of Wall Street, the financiers who made money by trading paper instead of building businesses. He came by his views honestly, via Midland, Texas, where he had struggled and ultimately failed in the oil business in the 1980's, and had watched as investment bankers fled, taking their cash with them, as soon as crude prices began to plummet. As recently as last July, Bush was sharing his dim view of Wall Street with the world. "When I used to watch the stocks in Midland," he said, "I was somewhat skeptical about what was taking place on the floors of these exchanges. They'll buy you or sell you, depending upon if it's in their interest."

Buying and selling according to your self-interest is, of course, the fundamental idea behind investing in the markets. It is also now the fundamental hope behind Bush's $300 billion proposal to eliminate the tax on corporate dividends paid to shareholders. Administration officials have helpfully volunteered that they expect the elimination of the dividend tax to spark a sustained stock market rally, which in turn will convince Americans that good times have returned, causing them to spend more money and thus give a boost to the economy. And that, they hope, will ensure that this President Bush will escape the fate of his father, who lost in 1992 largely because consumer spending collapsed while he kept insisting that the 1990-91 recession was over and done.

What Bush has only lately come to realize is that, thanks to the boom of the 1990s, many Americans, especially the 60 percent who own stocks, now view the economy and the stock market as pretty much the same thing. Which is why, despite the fact that the shallowest recession in history ended more than a year ago, and despite continued low interest rates, relatively low unemployment and negligible inflation, many Americans persist in believing that the economy is faltering and getting worse. With the markets in their worst slump since the Great Depression, it's no wonder. And so, as Ryan Lizza wrote in this week's New Republic, Bush's plan is driven by a faith in the "wealth effect" -- the theory that as average Americans watched their retirement portfolios expand during last decade's boom, they felt wealthier and therefore spent more, causing a consumption binge that in turn fueled economic growth. However much a chimera it was as a measure of real wealth, the Bush team wants the "wealth effect" of the Clinton years to come back.

Lizza points out that Bush "is embracing the idea that the stock market is the most important economic indicator in the United States." But Lizza skips by the irony behind the embrace. When Bush took office, he was so disdainful of investment bankers and the financial markets that he rejected the suggestion that he include a Wall Street savant, similar to Clinton Treasury Secretary Robert Rubin, on his economic team. Instead he made Alcoa CEO Paul O'Neill, who shared Bush's negative views of Wall Street, his secretary of the Treasury. As his national economic adviser Bush chose Larry Lindsey, an economist and former Fed governor who was so suspicious of the markets that he refused to invest his own money in them. O'Neill and Lindsey are now gone, and in Lindsey's place is former Goldman Sachs co-chairman Steve Friedman, the kind of Wall Street sharpie Bush once loathed.

There is another lovely irony to Bush's stimulus plan. Neither the president nor his economic advisers believe the broader economy actually needs a stimulus. As Bush and his spokesmen have been saying for months, the economy is growing, albeit fitfully, and its underlying fundamentals remain sound. What does need stimulating -- and this is where political advisers like Karl Rove come in -- is the public's perception of the economy's health. And that is tied directly to the markets. "People look at the Dow and the Nasdaq and they feel queasy about the economy," a White House official told me the other day. "They look at their retirement portfolios and they want to throw up."

Politics can be a perception game, and Bush's plan is all about creating politically helpful perceptions. First, it is imperative that Americans perceive that he is addressing their fears about the economy. For this, the details of Bush's plan are far less important than the fact that it is big and bold and is seen as such by observers and commentators. Second, if the stock market rises for the next two years, Bush is counting on the public to perceive the economy as on track, even if growth rates stay pretty much where they have been for the past year and the deficit, in part thanks to his tax cuts, balloons. But this is the tricky part, because before the public can link a rising stock market to a healthy economy, the stock market must actually rise. And it must keep rising. The markets have spiked upwards in the few days since Bush's plans became public. But they could sag just as quickly. As Robert Rubin used to say when asked to predict Wall Street trends: "Markets go up, markets go down."

That's a level of uncertainty that Bush will have to endure. Congress will likely pass much of his $674 billion stimulus plan, including the $300 billion dividend tax cut. When that happens, the president will have placed his faith, and his fate, in Wall Street. Which is why he may be spending a lot more time in front of the television, watching CNBC and crossing his fingers.

• James Carney
• James Carney on why George W. is catering to investors with a $300 billion proposal to eliminate the tax on corporate dividends