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From: Bart (
Subject: NY Times: Bush Economic Policies Have Created A Massive Deficit And Joblessness
Date: August 12, 2004 at 8:48 am PST

Painting the Economy Into a Corner

President Bush reacted decisively to this month's shockingly bad employment report - by quickly changing the topic to terror. The Federal Reserve chairman, Alan Greenspan, also focused elsewhere, namely on rising oil prices. Mr. Greenspan used inflationary energy costs as the rationale for raising interest rates a quarter point, despite the drastic slump in hiring and a recent slowdown in productivity growth.

What neither man seems ready to acknowledge outright is that policy makers have run out of tools for stewarding an economy that - nearly three years into a recovery - has yet to flourish and may even be downshifting to neutral. The president's fiscal policies, mainly high-end tax cuts, have resulted in a record federal budget deficit without spurring hiring or income growth. If Mr. Bush continues on the tax-cut path, continuing high deficits will further threaten job creation and living standards.

Mr. Greenspan passed up opportunities to discourage Mr. Bush's disastrous tax-cut strategy back when it might have done some good. Instead, the Fed pursued its own stimulative policy, pushing interest rates to the lowest level in a generation. One result has been a debt load that is a big factor in the overall decline in households' net worth, despite the rise in housing values. That alone argues for tightening the money spigot. Another reason for raising rates is that the continuation of a cheap-money policy would probably precipitate inflation, as a glut of dollars would eventually feed rising prices.

Mr. Bush and Mr. Greenspan have now exhausted almost all of their stimulus options. The economy is on its own, and it is not clear whether it is on track for a stronger recovery in the second half of the year.

No wonder, then, that Mr. Bush won't acknowledge the bad news on jobs. Doing so would imply a need to re-examine the policies that have led to this point, something he is not willing to do. Given the facts, his intransigence is appalling: according to a new research report by, an independent provider of economic data and analysis, the $700 billion swing from surplus to deficit under President Bush accounted for nearly two percentage points of economic growth a year. But it has generated economic gains of just over one percentage point.

The main reason for the crippling discrepancy is that the tax cuts were mostly handed out where they did the least good - that is, lavished on the people least likely to spend the largess. The reduction in the tax rates, the largest of Mr. Bush's tax boons, provided only 59 cents of economic stimulus for every dollar of lost tax revenue. The tax cut for dividends and capital gains produced 9 cents of stimulus for every forgone dollar. (Did someone say, "Deficits as far as the eye can see"?) In contrast, the economic bang for a dollar of aid to state governments is $1.24. Yet such assistance accounted for only 3 percent of the total cost of Mr. Bush's fiscal policies.

The president was right to use a fiscal stimulus to counter a recession - it's just that his favorite tactics were wrong, and they failed to create an environment that fosters growth in jobs and income. Now, along with outside factors like oil prices, Mr. Bush's priorities are actually contributing to the weak picture for jobs. And in a perverse feedback loop, a continuation of these policies will further swell the deficit, impeding job growth even more.

While the economy is still expanding and jobs are being created, the pace pales in comparison with the pace of other recoveries at this same stage. For real prosperity to take hold, a much broader swath of the labor force must be able to find jobs and earn decent wages. That isn't likely to happen under Mr. Bush's policies.

Copyright 2004 The New York Times Company

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