Global View: Bush's 'stupid' economy

QUERETARO, Mexico, Nov. 4 (UPI) -- And so the United States comes to the midterm elections and President George W. Bush stands on trial, accused of presiding over a deteriorating economy. "Guilty!" scream the Democrats.

He is, isn't he? Well, yes and no. The economy has gone down but it is hard to make the case that Bush is to blame, and then again ...

The modern developed country economy is a frustrating thing for the politically partisan. Over a presidential term, which lasts only four years, little the president does is likely to have so much influence on the overall performance of the economy in the rest of his term. It is in the longer term -- that is, usually, when another president is serving -- that his actions may have more impact.

In the short term, the president, like King Canute, cannot direct the powerful tides of the international economy. George W., in office for only two years, inherited an economy that had stormed ahead for some years, driven on by the stock market boom, and that was beginning to weaken. Bush's contribution to the economy's struggle can be argued either way. Let's take first the case for the prosecution: Bush guilty of poor economic management, the Democrat case.

"I think most Americans are concerned primarily about their economic situations," said the Democrat leader, Dick Gephardt, incontrovertibly, during the campaign. Jobs and wages and pensions and education "are the issues that people live with every day and worry about every day," he went on. "It's obvious the Republican plan is an absolute failure and has let everyone down in this country," he concluded.

We can go with Gephardt only some of the way. Yes, the economy ought to be the telling issue in this as in so many other elections. But few Americans are going to leap to share his conclusion that the downturn is all the fault of the "Republican plan."

In the first place, the charge of "absolute failure" is a difficult one to press because the U.S. economy, while ailing, is far from being a corpse slain by Bush. On the contrary, in many regards it can continue to be regarded as strong. An unemployment rate of just 5.7 percent of the workforce is still low by historical standards. There have been hundreds of thousands of lay-offs in U.S. manufacturing in the past three years -- yes, it started, inconveniently for Dick, before Bush was even in office -- but the service industry has remained remarkably buoyant.

Most Americans have held on to their jobs and their earnings have continued to rise during the first two years of Bush's term even though the economy did fall into recession briefly in 2001. And though most of the one-half of American households who, directly or indirectly though pension plans, own shares, have suffered losses in the past two years, homeowners -- and there are more of them than shareowners -- have seen the value of their property rise.

Do Americans feel worse off two years into the Bush presidency, or better off? It is a close call.

That is why the re-run of "It's the economy, stupid," the campaign run successfully against President George Bush senior by Bill Clinton in 1992 is unlikely to work so well now. In 1992 the U.S. economy was emerging from a period of low growth that had begun in 1990. The unemployment rate was 7.5 percent. Some real pain had been felt. It was timely, though probably wrong, to blame Bush Sr. for the pain.

This time round, Bush junior has had only two years in office, little pain has yet been felt and the Sept. 11 terrorist attacks which briefly depressed the economy are another factor making it less clear that George W. has anything to be blamed for.

And, in fact, where the overall growth slowdown is concerned, Bush, in our view, cannot be blamed. It is even possible to argue that he has done a good job. By cutting taxes Bush has fed some extra money into Americans' pockets and into consumption and therefore into overall growth. If Bush had not cut taxes, it is safe to say that the slowdown in the economy in 2001 and now would have been deeper than it has been. An interesting question is whether that would have been better, helping to bring to an end sooner the consumer boom that accompanied the boom in stocks. But most voters would not have welcomed a deeper slowdown, while they did welcome Bush's tax cut.

Never mind ordinary voters, most economists will take a more tolerant view of Bush's tax cut because it was implemented in a slowing economy -- not the booming one for which he prepared the tax cut plan in the election campaign of 2000. It is better to run a deficit when attempting to avert recession than when the economy is strong and revenues buoyant. So the fact that Bush has presided over a deterioration in the federal budget position of about $280 billion in the past two years can also be excused, provided the deterioration does not grow worse or persist for too long.

Looked at in this light, the case Gephardt and the Democrats are making against Bush looks weak. Not guilty! Yet there is a case to be made against him. It is simply not the case the Democrats have been making.

Trade fosters growth. Numerous studies have proven that. But Bush has put obstacles in the way of trade, protecting the U.S. steel industry and raising subsidies for U.S. farmers.

Giving further subsidies to the farming population is a particularly harmful and illogical step. Encouraging Texans to grow sugar by giving them a subsidy robs farmers in poorer, tropical countries -- where rainfall is higher and sugar is grown more easily -- of a market and has an environmental as well as a fiscal cost. The taxpayer pays for farmland to be used unwisely and thereby helps to keep poor countries poor. This is a strategy with neither sense nor morality. But there may be votes in it in farming states. So Dubbya can get away with it. The Democrats won't even attack him on it.

Other countries will though. (Perhaps there are votes in that!) But by offending the rest of the world with his protectionist measures Bush is simply damaging the cause of free trade, and in the end it is Americans that will pay for that.

Increased farm subsidies are one of the factors, too, that have helped to push up the U.S. fiscal deficit. Bush has been obliged to raise defense spending because of the Sept. 11 attacks and their sequels but he has not shown any readiness to cut spending elsewhere. In this regard, Bush is a profligate president. But, again, the Democrats, though they criticize Bush's deficit, will not attack him for spending too much for they call themselves for higher spending.

The Democrats are also refraining from attacking Bush on his desire to attack Iraq and unseat the repugnant Iraqi leader Saddam Hussein. Bush's "war" on terrorism is popular. The Democrats want to shift attention from it to the economy. But if he invades Iraq Bush would be running a huge economic risk. An attack could be followed by the sabotaging of pipelines in Saudi Arabia and by other unrest in the Middle East that seriously harms oil supplies. That would push world oil prices up much higher and thereby threaten to keep the U.S. economy struggling throughout 2003 and into 2004.

With Bush popular following the terrorist attacks on the United States and with the Democrats failing to attack him on his true areas of vulnerability the elections Tuesday seem unlikely to produce much change. But Bush's successful effort to avert deeper recession in 2001 and his determination now to pursue Saddam Hussein risk leaving him with a weak economy for the remainder of his term. By 2004 Bush's war on terrorism defense may be wearing thin. The Democrat attack now on Bush's weak economy looks like being a tame rehearsal for the real battle in 2004.

Global View is a weekly column in which our economics correspondent reflects on issues of importance for the global economy. Comments to icampbell@upi.com