 |
|
|
|
||
|
<% dim printurl
printurl = Request.ServerVariables("URL")%>
Version |
|
December
10, 2002, 12:35 p.m. By Donald Luskin |
|
t
was said that Bill Clinton used to listen to the bond market. Let's hope
now that President Bush will listen to the stock market. It collapsed
Monday on the news of the potential appointment of Stephen Friedman to
head the National Economic Council to replace Larry Lindsey — a post
that would make him the top White House advisor to the president on economic
policy. The stock market understands that Friedman would be the worst
possible choice for that post — both in terms of his policy convictions
and his political convictions.
In political terms, a Friedman appointment would be absurd on the face of it. Treasury secretary Paul O'Neill was forced to join America's 6% unemployed precisely because he was not a consistent public advocate of Bush administration economic policy. This problem would only be worse with Friedman. Nominally a Republican, he and his family have been contributors to the campaigns of several Democrats who have stridently and fundamentally opposed Bush's economic agenda — notably Senators Charles Schumer of New York, Joseph Lieberman of Connecticut, and Jon Corzine of New Jersey.
Think he can put that behind him? Hardly — those Democrats won't let him. Today Senator Corzine — who worked with Friedman when both men were at Goldman Sachs — told the Washington Post, "I would think Steve will think long and hard about whether he wants to be in the position of selling supply-side economics…I can't imagine that he is going to find comfortable the fiscal structure that [Bush] has put in place."
Indeed he would not. Friedman is vice-chair of the Concord Coalition, a self-styled "grass roots" organization dedicated to root-canal federal budget discipline — and one that has vehemently opposed all initiatives by the Bush administration to cut taxes or stimulate the economy.
Not that Bush would ever go on record as favoring budget deficits — but deficits per se are not the issue. The issue is the interaction of tax rates and deficits. The Concord Coalition's analyses consistently treat every proposed tax cut as a deadweight "cost" to the budget — ignoring the reality that tax rates affect incentives. According to the Concord catechism, if tax rates were cut in half people would work no harder and invest no more — and if rates were doubled people would work just as hard and invest no less.
If you believe that — and you oppose deficits and debt — then tax cuts are simply out of the question.
If all this sounds eerily familiar, it should — it's called Rubinomics. Indeed, Friedman may be the separated Siamese twin of Clinton Treasury secretary Robert Rubin — the two men shared the helm at Goldman Sachs, and seem to share most of the same economic policy convictions — including the demonstrably false belief that deficits cause high interest rates.
Perhaps that association with Rubin gives Friedman a certain totemic charm — after all, when Rubinomics reigned the economy was booming and the NASDAQ was at 5,000. But Rubin and Rubinomics had nothing to do with that. Rubin didn't invent the technologies that set off a productivity boom (Al Gore takes credit for that one), he didn't conquer inflation (Alan Greenspan slew that dragon), and he certainly didn't cut the capital-gains tax in 1997 (a Republican Congress did that).
No, Rubin didn't cause the 1990s boom, and his clone Friedman is going to do nothing but prolong the 2000s bust. With someone like Friedman working the inside to block tax cuts, the only way the federal government can try to stimulate the economy is with one form or another of direct subsidy or intervention. That's a recipe for bigger government and slower growth — and in the last analysis, growth is the only way that the deficit will ever get cured.
Let us congratulate President Bush for having the good sense to let the market vet Friedman before the appointment became official. Now, Mr. President, let's go with what the Washington Post is already reporting — that there are some "complications" with Friedman's financial holdings — and let this little mistake fade into memory. One Robert Rubin was entirely enough, thank you.
— Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your comments at don@trendmacro.com.