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October 18, 1992
"Economic Bad Luck Hurt Bush"
San Jose Mercury News

By Timothy Taylor
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THE ECONOMY has been dead in the water during George Bush's presidency, and the combination of higher unemployment and negligible growth appears to be drowning his chances for re- election.

But there is a difference between bad policy and bad luck. Like a football coach whose team is decimated by injuries, Bush can argue that the economy has been beaten down by circumstances beyond his, or any president's, control.

For example, any president would have presided over reductions in defense spending during these past few years, after the collapse of the Soviet Union. No president could have blocked the growing global interdependence of the U.S. economy. Although both events have caused considerable economic dislocation and industrial restructuring these past few years, they will help to bolster future growth.

No matter who was president during the last few years, the upheaval in the financial industry would have caused economic weakness. The invention of many ingenious ways of borrowing during the early 1980s -- from home equity loans to junk bonds -- led to a flood of household and business debt. In the past few years, the economy has been working off some of that debt, and thus slowing its purchasing of new goods and services.

The problems of the savings and loans and the banks have also slowed the economy, by making credit less available. But remember, the savings and loan industry was deregulated during Jimmy Carter's presidency, and the failure to regulate it properly during the mid-1980s was bipartisan. Bush supported a reasonable bank reform bill in 1991, but it didn't survive the special interest in-fighting in Congress.

Worldwide slowdown
With the independent Federal Reserve determined to fight inflation, no president could have forced it to stimulate the economy by making credit more available. And no president could have prevented the worldwide economic slowdown, which hurts U.S. exports and job growth.

Bush isn't likely to get much sympathy on any of this. When Ronald Reagan won the presidency in 1980 by asking voters if they were better off than four years earlier, he offered a clear tutorial on how to beat an incumbent president suffering from a weak economy. But whether or not Bush is to blame for the economic frailty of the last few years, either he or Clinton will have to find a way of dealing with it.

Clinton's economic agenda is heavy on proposals targeted at particular issues: education and adult training, infrastructure investment, health care reform, welfare reform, and support for new technology. Rudiger Dornbusch, an MIT economist and Clinton spokesman, argues that Bush is not truly pro-business, because he fails to recognize that reforms in all these areas are needed for the global competitiveness of U.S. industry.

The strongest economic case for Bush, as I see it, is the argument that the federal government should focus first on creating a fundamentally healthy economic environment. That means keeping inflation and interest rates low. It means free trade, and support for civilian-oriented research and development spending. In other areas, from education to health, Bush seems to put his faith primarily in private parties or state and local government, perhaps acting with federal tax breaks as inducement.

Neither candidate offers any particular hope for a short- term economic boost. That's sensible enough; a nearly $6 trillion economy doesn't change direction like a skateboard, and increasing long-term growth is far more important than what happens to unemployment in the next few months.

What about the deficit?

Also, neither candidate has much to say about the deficit. Clinton seems to have adopted a variant of the supply-side theory that the economy can outgrow the deficit. In Clinton's version, however, his policies are needed to ignite that growth.

Bush promises a more aggressive assault on the deficit, but his main weapon appears to be a cap on "mandatory" payments, which mainly seems to mean health care programs like Medicare and Medicaid. Unless the health care industry undergoes substantial reform, such a cap would effectively reduce medical care payments for the poor and elderly by perhaps 5 percent per year, which doesn't seem politically sustainable.

I believe that a pragmatic middle ground is possible, somewhere between the Bush and Clinton agendas, which would combine economic fundamentals, like medium-term deficit reductions, low inflation, and free trade, with targeted federal reforms in areas like health care, job training and welfare reform, and the development and spread of new technology.

However, the actual choice in this election appears more frightening. Whether because of personal inadequacy or political gridlock, I don't believe that Bush will be able to do anything beyond preserve sound economic fundamentals in a second term. But I am also afraid that Clinton would underestimate the dangers of inflation and protectionism, and that his policy proposals, however well-designed, would be distended and distorted beyond belief by the Democratic Congress.

On economic issues, it's an election for holding your breath, suspending your disbelief, and hoping to be pleasantly surprised.

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