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First, the "incredible shrinking surplus," as it's been described in the press, is not the result of the tax cut passed into law earlier this year. Second, the slide toward the nation's anemic economic growth, reported last week at a near recession-like 0.2 percent for the second quarter of this year, began midway through the final year of the Clinton administration. These are well-documented facts, not interpretations. However, as Congress reconvenes, I suspect they will, unfortunately, bear repeating over the next month. The blame game has begun. Case in point: "The administration has undone . . . the success of the last eight years in less than eight months." Such was the sound bite last week from a certain Senator from New York, clarifying little about those eight long years besides their failure to exhaust Nero's capacity to fib and fiddle while Rome burns. My own discussions at home in south-central Louisiana tell me people are earnestly concerned about their current financial situations, which makes it all the more a shame that some Democrats are already taking up inflammatory and misleading political posturing instead of substantive proposals. The hard-working people I talk to are much more interested in how Washington plans to help get the economy going again. Yet, because both parties have vowed not to touch Social Security revenues to pay for other government programs, conventional wisdom has it that the latest downward surplus estimate has boxed everyone in and left leaders little room to maneuver in jumpstarting the economy. In reality, just the opposite is true. While recent economic developments have been far from good, I believe these events and the political climate have converged to form an unprecedented opportunity to pursue a purely pro-growth agenda. Actually, the fact that the economy has slowed in the midst of federal budget surpluses (which have subsequently begun shrinking) is a perfect refutation of the main "success" claimed during the Clinton years: that deficit reduction (read tax increases) spurred economic growth. Rather, it's proof positive that the world works the other way around. Economic growth, when robust, wipes away deficits and overflows the government's coffers. When the economy weakens, as it has for more than a year, no budget tinkering can account for the surplus-depleting loss in tax revenues resulting from the corresponding slowdown in economic activity. The key then, as always, is adopting policies that help stimulate economic growth and avoiding those that don't. The people and markets agree: It's all about growth. The American people, almost instinctively it would seem, already know this, as two other economic reports from last week indicate. After holding steady most of the year, consumer spending finally flat-lined in July. Additional data also suggests that a majority of Americans have deposited into savings rather than spent the tax rebate checks they began to receive in July. While most likely temporary, these activities both suggest that jobs and other financial concerns are beginning to give people pause — leery, even if momentarily — for brighter signs in the economy. The markets, too, appear even keener than usual in searching for a pulse in the economy. According to a study in the latest issue of The McKinsey Quarterly, the recent run-up and run-down in the stock markets has mainly occurred among speculative "megacap" stocks, leaving investors to concentrate once more on the three factors that traditionally drive share prices: inflation, interest rates, and earnings growth. Inflation, however, continues at a historically low level and the Federal Reserve has finally ratcheted down interest rates, with neither event bringing more than a yawn in ever-slumbering stock prices. Hence, the markets have no place to find direction other than from earnings reports and a heightened sensitivity to the publication of every national economic indicator that might herald a growth turnaround. In light of these events, how out of touch with the worries of the American people and the markets would someone have to be to suggest rolling back tax cuts — or worse, raising taxes — just when the country is in its direst moment of needing stimulus in economic activity? Almost unbelievably, some Capitol Hill Democrats have actually begun advocating precisely that. They won't succeed, of course, because it would result in calamitous and unnecessary economic devastation. All the same, it will be important — and informative — for the American people and the markets to watch them try.
— Rep.
Baker is chairman of the House Subcommittee on Capital Markets, Insurance,
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Senators and House members return to Washington this week, I wonder, what
are the chances we'll agree on two first principles?
