About a year ago, newly minted Vice President-elect Dick Cheney described the U.S. economy as being “on the front end of a recession.” The veep’s statement was made during the bitter recount period, and he was viciously attacked by outgoing Clinton officials as bad-mouthing the economy, merely improving the chances for George W. Bush’s across-the-board tax-cut pledge.
A year later, it turns out that the indispensible Mr. Cheney was a prescient economic forecaster.
It’s well known that third-quarter gross domestic product contracted by 0.4% and that virtually all measures of business investment, production, construction, jobs, and profits are heading downward. Even the service sector is registering recession.
A few weeks ago, economists at the Federal Reserve Bank of San Francisco published an influential article concluding that “if economic activity starts to deteriorate more quickly in the months ahead, then it seems likely that a business-cycle peak would be designated in March 2001.” That, of course, would be a short three months after Vice President Cheney’s original forecast.
A popular rule of thumb is that two consecutive quarterly declines in real GDP signal a recession. While it is almost certain that fourth-quarter GDP will show a deeper decline than the third quarter, the ultimate verdict will soon be determined by a committee of six academic economists who work under the aegis of the National Bureau of Economic Research. This is the Cambridge, Massachusetts, think tank that sets the official dates for recessions. In recent days, three out of the committee of six have unofficially told reporters that a recession “call” will be made next month for a backdated downturn beginning last March.
None of this is news to the millions of investors who have suffered huge wealth loses over the past year and a half. Nor is this new information for the roughly one-million workers who have lost jobs during the past six months. But the recession call may surprise Tom Daschle.
The Senate Majority Leader recently told a news conference that the House-passed tax-cut bill is “not a front-burner issue.” Though President Bush has repeatedly asked the Senate to complete an anti-recession stimulus package and send him a tax-cut bill he can sign, thus far the Democratic majority is content with a foot-dragging, stall strategy.
What’s more, the Daschle Democrats in Washington seem to be ignoring a conservative, pro-business message arising from off-year contests in New York City, New Jersey, and Virginia. With the declining economy clearly uppermost in voter minds, conservative Democrats Mark Warner and Jim McGreevey pledged not to raise taxes to avoid further pain to job-creating businesses. The same is true in New York City where Republican Wall Street-wiz Mike Bloomberg will spend the better part of the next four years engaged in business-favorable economic redevelopment.
However, the Daschle Democrats in the Senate drafted a big spending bill in order to head off the tax-cut package sent over by the House. The Finance Committee’s Senator Max Baucus (D., Mont.) would prefer to add new health-care entitlements and massive pork-barrel spending items rather than accelerate tax cuts for business and individuals.
Meanwhile, Mr. Daschle relentlessly insists on turning the economic-recovery debate into a class-warfare campaign. “We should be helping those who need it the most, not those who need it the least,” said the South Dakotan.
But President Bush is right to insist that all taxpayers get speedier relief, including those upper-end earners who pay the most. For those who believe that heightened consumer spending will jolt the economy toward recovery, it’s worth noting that taxpayers earning more than $70,000 account for nearly 40% of total consumer spending. Those earning $20,000 or less — the priority target group for Senate Democrats — account for only 16% of consumer expenditures.
Moreover, it’s the top earners that account for 25% of total saving and investing — exactly the seed corn necessary to finance new business start-ups, the single-biggest job-creator in the economy.
The partisan, class-warfare Daschle Democrats are stalling, a tactic that leads to the question: Do they truly want wartime economic recovery? Perhaps they’d rather stand pat and let unemployment rise in the mistaken belief that this will improve their chances of regaining total control of Congress.
A recent USA Today/CNN/Gallup poll gives President Bush an 87% approval rating on military action to fight terrorism and a 71% approval on his handling of the economy. Daschle & Co. may understand that Americans are resolved to beat the Taliban overseas. But they’ve greatly miscalculated the nation’s determination to win the economic war at home.