SYNOPSIS: No matter the next government, it probably will have neither the will or power to fight for the Economy
So the election is still in doubt. As of Friday evening Mr. Bush led in Florida by a margin smaller than the enrollment in my Econ 102 class; I'm no constitutional scholar, but I think we should suspend judgment until those absentee ballots have come in and some of the votes have been triple-checked.
But however it comes out, how will economic policy fare? The answer, I'm afraid, is badly.
Broadly speaking, the next administration, whatever it is, will face two big economic tests. One — the one that was the center of the campaign — is whether it can stick to a fiscal policy, including a policy toward Social Security, that prepares this country for the demographic deluge. The other is whether it can deal adequately with the risk of economic instability, both here and, especially, abroad. Unfortunately, whoever wins we are likely to botch one or both tests.
In the last few years we actually started to have an almost responsible fiscal policy; but it was mainly an accident, the result both of an unexpected surge in revenues and of a deadlock that prevented either party from dissipating those revenues. If Mr. Gore ends up being declared president, that deadlock will continue, with an added dose of vituperation; so I guess you could say that that's a good thing.
Many commentators have been suggesting that if it's Mr. Bush, our fiscal policy will be almost equally tight — that the moral ambiguity of Mr. Bush's victory, together with the narrowness of his party's hold on Congress, would deter him from implementing the budget-busting proposals he made during the campaign. I'm not so sure. Suppose that what we all fear turns out to be true — that a Bush presidency is really a Trent Lott regency. Wouldn't the hard-line conservatives who run Congress try to rush through as much as possible — tax cuts, a diversion of Social Security taxes into private accounts, whatever they can pass — just in case they lost control of the legislature in 2002? Congress managed to run through about $900 billion of the surplus in the three months or so leading up to this election; think of what it might do in two years.
And then there's the other problem: economic instability.
It's amazing how quickly the terrifying financial crises of the 1990's have faded from memory. The globalization of financial markets created many new opportunities for things to go disastrously wrong, and they often did. In that unstable world the Clinton administration was willing to play firefighter, and — in my opinion — did a yeoman job of containing a series of blazes that could easily have engulfed much of the world. But would either candidate be willing and able to do the same?
Mr. Gore would have the will — and, if he keeps on some of the key players from the Clinton administration, the skilled team — to contain the fires next time. But one doubts whether he would have the room to maneuver. Congressional leaders violently opposed the Mexican rescue of 1995 — the rescue that, again in my opinion, saved Mexican reform and made this year's remarkable democratic transition in that nation possible. Mr. Clinton was able to carry out that rescue only by exploiting a legal loophole that has since been closed. And until the next Congressional election anyway, a Gore administration would be even more hobbled.
Mr. Bush might have the room to act — though he would have to fight his own party to do so — but one wonders whether he would have the will. Mr. Bush's economic advisers are a mixed bag, but the inner circle seems to consist of men who have a purist opposition to government intervention in markets. My guess is that this would eventually change — there are no atheists in foxholes, and no purist free-marketeers in banking crises — but a lot could go wrong in the meantime.
As luck would have it, our election took place during a sunny interval when neither of our big economic problems seemed pressing. A booming economy and a soaring stock market had filled federal coffers; Asia had, sort of, recovered from its 1997-98 financial crisis. But the clouds are already gathering. I expect to see those projected surpluses dwindle rapidly over the next year or so. And by a number of indicators the global financial picture is deteriorating again. So fix this year in your memory; you may not see one as good for quite a while.
Originally published in The New York Times, 11.12.00