Why Bush likes a Bad Economy

Why Bush likes a Bad Economy

OCR From The Progressive Magazine, October 2003

James K. Galbraith-teaches at LBJ School of Public Affairs,
University of Austin, Texas, and Senior Scholar at the
Levy Economics Institute

........ (intro not OCR'd)

The baseline outlook, then, is not one where a
return to full employment prosperity might be
achieved by modest changes in policy. A little "stim-
ulus"—pushing a few well-chosen buttons in the tax
code—will not do it. Nor can Greenspan be counted
on; the Federal Reserve has largely run out of tricks.
An Administration committed to changing this situ-
ation will have to be prepared with strong measures.

No such measures are coming from George
Bush. The men in charge under Bush talk
about growth, of course. One might think
that they must be disappointed by this dilemma if
they understand it. They do, after all, face an election
next year.

But, in fact, we are seeing an interesting departure
from the normal pattern of Republican election-year
populism. Richard Nixon in 1972 and Ronald Reagan
in 1984 ran strong-growth policies that reduced unem-
ployment and produced whopping election margins.
(Nixon even imposed price-wage controls, which drove
real wages through the roof.) Under Bush—despite the
seemingly large fiscal deficits brought about by reces-
sion, tax cuts, and war—the expansionary impetus is
weaker. And Administration policymakers are making
no concessions in their war on labor rights.

Why not? It may be that economic stagnation is to
their taste. They don't want a new recession, obvious-
ly, and they look set to avoid that. But do they really
want full employment and strong labor unions and
rising wages? Probably not. The oil, mining, defense,
media, and pharmaceutical firms who form the core
of their constituency rely on monopoly power,
patents, and the control of public resources for their
profits. They do not depend, very much, on strong
consumer demand.

As for the election, there are no Bush Democrats.
The Nixon Democrats in the South long ago turned
Republican, while the Reagan Democrats up North
seem to have largely returned to the fold. (Michigan,
for instance, went comfortably for Gore.) In a weak-
er economy, too, it may be that turnout will decline,
helping Bush. The calculation is therefore plain: A
strong economy won't help that much, and a weak
economy won't hurt that much, either. And if it does,
the effect can be drowned in a sea of grateful cam-
paign money—or perhaps by some new national
security crisis.

Stagnation, moreover, helps to justify more tax
cuts. The Administration's core policy objective in
this area is to shield financial wealth from all taxation.
Two years ago, estate and income taxes were cut. This
year, it was capital gains, dividends, and again the top
tax rate. Next year, the sunset provisions in these
measures will probably be removed. As things are
going, quite soon, taxes will fall mainly on real estate,
payrolls, and consumption. This is to say that taxes
will be paid mostly by the middle class, by the work-
ing class, and by the poor. That is what the Adminis-
tration wants, and what—if not defeated—it is
exceedingly likely to get.

Finally, stagnation and the Bush tax policy pro-
mote righrwing plans to cut and privatize essential
services, including health, education, and pensions.
As financial wealth escapes tax, neither states nor
cities nor the federal government can provide vital
services—except by taxing sales and property at rates
that will provoke tax rebellions, especially when mid-
dle class incomes are not rising. Every public service
will fall between the hammer of tax cuts and the anvil
of deficits in state, local, and federal budgets. The
streets will be dirtier, as also the air and the water.
Emergency rooms will back up even more than they
have; more doctors will refuse public patients. More
fire houses and swimming pools and libraries will be
closed. Public universities will cost more; the public
schools will lose the middle class. Eventually, federal
budget deficits will collide with Social Security and
Medicare, putting privatization back on the agenda.

I am from Texas, where you can see this future
happening now.

Say what you will, the leaders of the Bush team are
plainly not pandering after votes. They are pursuing a
governing agenda that favors the factions they repre-
sent: tax cuts for the misanthropic wealthy; tax increas-
es for the middle class; imperial control over oil; dereg-
ulation, privatization, and cuts in public services at all
levels; defiance of international agreements; a system-
atic spoilage of the environment; an all-out offensive
against labor rights; and the placement of right-
wingers in government, most insidiously in the courts.

In the face of this reality, full economic recovery is
going to be hard, even if a Democrat wins the next
election. It cannot be done, certainly, by a return to
policies of the Clinton era. Nor can it be done by
stimulus alone—a simple matter of spending more
and finding the right taxes to cut. We will need to
rewrite—once again—the tax code. We will need a
revenue-sharing program to stabilize the states and
cities. We will need to reestablish the rule of law in
the corporate world. We will need to help labor reset
minimum fair standards. We will need a new energy
and environmental strategy consistent with geophys-
ical realities and the dangers of, among other things,
climate change, and including, as we just learned, a
public initiative to re-regulate power and rebuild the
electricity grid. We will need a new international
financial structure and possibly a new trade regime.
Along the way, there will be the hard economic chal-
lenge of overcoming the financial obstacles left over
from the late 1990s—compounded as they are by the
indifference and corruption of the Bush gang.

It would be good if the Democrats were to begin,
fairly soon, to think seriously about these issues. It is,
of course, possible that Bush has miscalculated. The
election next year may turn out to matter after all. If
so, some poor Democrat could end up in very deep
trouble, come January 2005.