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Global View: The TAXCUTS election

By IAN CAMPBELL

"When are people going to learn. Democracy doesn't work!" says the cartoon character, Homer Simpson. The opening gambits of the U.S. presidential campaign bring the comment to mind.

Think back. The last U.S. presidential election, in 2000, came down to a fight between the eventual president, George W. Bush, and Al Gore. It is sobering to remember what they debated. They argued on and on about what they would do with the ten year fiscal surplus of $6 trillion then predicted (idiotically) by the "non-partisan" but myopic Congressional Budget Office.

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The whole debate was about a fiction. It was about a surplus which was counted like money in the hand and which was never going to exist --because the U.S. economy was not going to boom late 1990s's style forever. It was going to cease booming and then -- whoever was in the presidency -- the surplus was going to disappear. Money would cease to rain down from heaven. Miracle would end.

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After this empty debate, Bush emerged the narrow loser, or rather victor. And he was confronted with an unhappy reality: an economy that was turning down, losing momentum, ready to fall into recession--which it did do in 2001. What was Bush to do?

His answer was to take the bottle he had touted in the election -- TAXCUTS, come and buy it! -- and amend its label. Instead of being A Principled Return of a (virtual reality) Surplus to its Rightful Owners, TAXCUTS became An Essential Recession Fighting Tool. (Directions: drink in huge quantities as though there were no tomorrow.)

And America has drunk. Boy, that TAXCUTS stuff is good. I drank it and I felt so good I bought a new SUV. It works. Look at growth. Mind you, it's expensive.

And since Bush has also shown no inclination to control spending --despite his occasional theatrical broadsides at Congress -- and has spent heavily on the Afghan and Iraq wars, he has rolled up the largest deficit ever recorded in the United States in nominal terms -- though Reagan exceeded him as a share of GDP.

This deficit, unlike the future surplus which dominated the 2000 election campaign, is not something imagined. It is real. But it has bought something fictional, this campaign's equivalent of the ten year surplus.

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The fiction that is going to dominate the 2004 election is that Bush's policies have brought about solid economic recovery. For the truth is different. Bush has bought himself a high level of growth as the United States enters the election year. Federal Reserve Chairman Alan Greenspan --unconsciously, one must suppose -- has helped him by fostering inflation in house prices and creating a mortgage refinancing boom which, just like TAXCUTS, has kept the U.S. consumer well oiled.

For the Democrats things could hardly be worse. Their difficult task is to argue that Bush's economic policy has been wrong when Bush can point to 8.2 percent GDP growth, "the highest in 20 years," as he said in the State of the Union address Tuesday, a rallying stock market and what Greenspan has ridiculously referred to as "solid gains" in house prices.

How are the Democrat would-be presidential candidates going about their difficult task?

Howard Dean's Web site tells us that "Under the unfair and misguided policies of the Bush Administration, our country has lost nearly 3 million jobs."

General Wesley Clark tells us that "In President Bush's America, nearly 3 million private sector jobs have been lost in three years, more than at anytime since Herbert Hoover was President."

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John Edwards' Web site says "Bush believes in rewarding the wealthy, a few people at the top, not the work of the middle class, and during his Presidency, America has lost more than 3 million private-sector jobs."

And John Kerry? "The first thing John Kerry will do is fight his heart out to bring back the three million jobs that have been lost under George W. Bush."

But, Mr. Kerry, don't you think that having gone out and bought 8.2 percent growth with government money, Bush has not himself fought his heart out to save jobs?

Especially his own.

No, the Democrat problem is that quack remedy TAXCUTS has worked for now. Growth is high and, though 3 more million Americans are unemployed than three years ago, unemployment is still low by historical standards. Most Americans feel well off. Just look at how much their house prices have gone up, after all.

Bush's expensive TAXCUTS boom is perfectly timed to win the 2004 election. It will leave the Democrats struggling to make their case. The election debate is set to be waged in virtual reality just as the 2000 one was. Homer Simpson has a point.

For just like the 2000 surplus, the TAXCUTS recovery is going to evaporate very quickly -- leaving the U.S. economy with huge twin deficits, a collapsing currency, weak growth or outright recession, and soaring unemployment.

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Perhaps it's fitting that Bush is likely to be there to enjoy it.


Global View is a weekly freelance column commenting on issues of importance for the global economy. Comments to [email protected].

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