December 17, 2004


Changing for the Better -- or Worse?: In Policy Proposals, Bush Offers Dueling Views on Economy (Jonathan Weisman, December 17, 2004, Washington Post)

Throughout a two-day conference on the economy, President Bush and his allies extolled the virtues of his tax cuts and "pro-growth" policies, which they said have lifted the nation from recession and propelled it well above its international economic competitors. If Washington adheres to the path of fiscal restraint while following the president's tax prescriptions, it was suggested, policymakers could secure powerful economic growth far into the future.

Yet when the subject turned to the nation's legal or Social Security systems, the picture grew suddenly dark. Frivolous lawsuits have hobbled America's businesses and have put them at the mercy of their enlightened overseas competition, administration officials said. As for federal entitlements, a rising tide of retiring baby boomers will inevitably slow economic growth and bankrupt Social Security.

"The crisis is now," Bush warned in his closing speech.

Such contradictions emerged repeatedly, pointing up the delicate balancing act that Bush faces as he tries to sell his economic proposals. [...]

"I'm frankly somewhat skeptical of this vision that we all have" of an aging work force cutting economic growth, James Glassman, J.P. Morgan Chase's senior U.S. economist, told the president in one of the few discordant notes of the conference. "If you think about it, we've been growing 3.5 percent to 4 percent per year since the Civil War. If we can match that performance in the next 50 years -- and I don't see why that's so hard to do -- then I think the fiscal challenge that we see in our mind's eye will be a lot less daunting than is commonly understood."

By confining the economic discussions to discrete panels discussing specific subjects, conference organizers usually kept the contradictions from clashing head-on. But to an observer of the entire gathering, they were not hard to find.

"The economy is in good shape. Employment is rising. Inflation is low. Our growth rate is nearly 4 percent, twice the rates of Europe and Japan," Harvard University economist Martin Feldstein said to open the conference Wednesday. [...]

"Under the trustees' projections, growth is going to slow to half the pace we've been growing for 150 years," Glassman said in an interview. "That might be, but I don't know why I should believe that." [...]

Other economists believe an economic slowdown is inevitable, as the number of retirees begins to surpass the number of workers. But in that case, stock market gains may also slow considerably from the market's historical 7.8 percent annual rate of return.

Indeed, there is no crisis nor much sign of one on the horizon--the real reason for the reform is that it's just good policy to capture that 7.8% annual return on the money we're setting aside for retirement and take advantage of the magic of compound interest. By doing so there's every reason to believe that we could boost that historic growth number even higher, maybe to 5%...or higher. But good policy doesn't move legislation--crisis does.

Posted by Orrin Judd at December 17, 2004 10:55 AM
Comments for this post are closed.