Bush confronts a bonfire of economic vanities
Special report: George W Bush's America
Martin Kettle in Washington Tuesday January 9, 2001
The removal trucks queued up outside the Governor's House in Austin, Texas, yesterday to collect the Bush family possessions and transport them to the White House in Washington in time for the presidential handover next week. But George W Bush's prized baseball collection and his wardrobe of snakeskin boots are not the only things that will now be seen in a different setting. The new president's most cherished fiscal and budgetary policies are also being reinvented too, in the wake of a transformation in America's economic mood.
Five months ago Mr Bush told the Republican national convention in Philadelphia that "the promise of prosperity" had never been so vivid for average Americans. "America has a strong economy and a surplus," he announced, and it was time for the federal government to share it with the voters in the form of a massive tax cut.
Mr Bush is still pressing for tax cuts, but his reasoning has changed sharply. With the American economy in slowdown, and with some economists even predicting recession, he has rediscovered Keynesianism and is pressing for the same tax cuts in order to reinvigorate demand and help stimulate growth.
The change in America's economic mood has been astonishingly rapid. Only a few short months ago economic activity was booming. Profits were high. The stock market was soaring. Inflation was low. New jobs were everywhere. The rich got unbelievably richer.
But now, as the economy begins to slow, "it's beginning to look like Paradise Lost", as yesterday's front page story in the Christian Science Monitor newspaper put it.
The macroeconomic warning signs include the falling stock market, but they go beyond it. GDP growth is down to 2.2% in the last quarter compared with almost 6% a year previously. Layoffs are beginning to dwarf new jobs. And these changes take place against a background of a high trade deficit, of Americans' traditionally low rate of savings and of the sharpest rise in income inequality since the 1920s.
But they also have to be seen against the background of the continuing strength of the US economy. Unemployment remains exceptionally low, as does inflation. Disposable income has risen steadily for more than eight years. Home sales have boomed and half of all Americans now hold shares in a stock market whose long-term upward trend far exceeds its recent short-term losses.
The headlines, though, tell of an increasingly sick economy. In the hi-tech "new economy" sector, companies are learning the hard lessons for the first time. A succession of dot.com businesses have closed and even the technology giants are lowering their forecasts.
In the so-called "old economy", car companies like Ford and Daimler-Chrysler are putting their plants into idling mode, hoping for an upturn in demand. The manufacturing sector as a whole lost 54,000 jobs in December and companies have already exceeded that figure in January. Retailers did badly over Christmas, and last week the Montgomery Ward department stores went into liquidation after 120 years as a high street business.
Economists are still struggling to interpret all the signs. All are agreed there is a slow down. But opinions differ as to whether recession is on the way, while only a handful of observers predict anything approaching a market crash.
"An honest but unhelpful answer is that nobody knows. A more detailed but equally unhelpful answer is that it's possible to make a case either way. But on the whole I'd vote for panic," says the Massachusetts Institute of Technology economics professor Paul Krugman in his weekly New York Times column.