SYNOPSIS: VP-Apparent Cheney's tax cut prescriptions are bad long-term Economics

It has become fashionable to say that if and when George W. Bush makes it to the White House, Dick Cheney will be the de facto president. This may be unfair — or it may be wishful thinking. But in any case it was Mr. Cheney, speaking last weekend, who gave us our first post-election hints about Mr. Bush's economic policy. And the news is not good.

Mr. Cheney suggested — with more confidence in his forecast than any professional economist I know — that we face a looming recession. And this, he argued, means that we should press ahead with that $1.6 trillion tax cut.

Why is this bad news? Let me count the ways.

First, on their face Mr. Cheney's remarks were those of a vulgar Keynesian — a believer in the now- discredited doctrine that taxes and spending should be routinely twiddled in an attempt to "fine-tune" the economy. Decades of experience shows that this is a bad idea, that when governments try to fight garden-variety recessions by cutting taxes or increasing spending they almost always get it wrong. By the time Congress has finished negotiating who gets what, and puts the new law into effect, the recession is usually past — and the fiscal stimulus arrives just when it is least needed.

Fiscal pump-priming has its place; it's appropriate in the face of deep and persistent slumps. But otherwise we should make budgets for the long run, and let the Fed deal with short-run problems by adjusting interest rates. It's disturbing that Mr. Cheney seems unaware of this basic policy rule.

Mr. Cheney's argument also sounds strange when one recalls that during the campaign Mr. Bush's advisers made a point of arguing that his tax cuts wouldn't pump up demand. Most notably, his economic guru Lawrence Lindsey declared that tax cuts wouldn't further overheat a booming economy, because they would be phased in only gradually. How gradually? Mr. Lindsey declared that "no one knows what the economic circumstances will be in 2004 or 2005." (What he didn't point out was that while promises of future tax cuts probably won't fuel today's consumer spending, bond traders take a longer view. Realizing that the government will pay off less debt, they will immediately drive up long-term interest rates, depressing investment.)

But let me not accuse Messrs. Cheney and Bush of inconsistency. I don't really believe that they are vulgar Keynesians. They may advocate tax cuts when the economy is down, alleging that this will perk it up; but they also advocate tax cuts during booms. So they are perfectly consistent: they always want to cut taxes. Only the sales pitch changes with the state of the economy.

And that is the more serious bad news in Mr. Cheney's remarks: They suggest that the administration-in- waiting is not at all chastened by the questionable nature of its victory.

Many have argued that Mr. Bush, having lost the popular vote and won Florida (if he has) in a way that leaves his legitimacy in doubt, will try to calm the nation with centrist policies. Among other things, it is often assumed that those huge tax breaks for the rich that were the centerpiece of Mr. Bush's campaign are now on hold. Indeed, The Economist, which endorsed Mr. Bush and continues to cling to the belief that he is more moderate than his party, has even suggested — in what strikes me as delusional thinking — that he might keep the austerity-minded Lawrence Summers on as Treasury secretary. But now Mr. Cheney has signaled that he and Mr. Bush are as inclined as ever to push for big, irresponsible tax cuts.

And they may get them. Congress always has a hard time resisting calls to give away the store. It will be especially hard to maintain discipline after new budget projections are released next month. Because these projections will assume a higher rate of growth, and will not yet have factored in the revenue effects of slumping stock prices and the growth effects of declining technology investment, they will create a false sense that there is plenty of money to give away. Add a specious recession-fighting rationale and the temptation may be irresistible.

Some people have taken comfort from the fact that Mr. Bush will be a president without a mandate. But a president doesn't need a mandate to do a lot of economic damage.

Originally published in The New York Times, 12.6.00