The US Economy

So, come November with a million and half new jobs along with a big drop in unemployment, and rising interest rates and the looming spectre of ruinous inflation will be the Democrats' war chant.

<chuckle>

I happen to believe, as I've been saying since back when this thread started, that the economic policies of The Current Administration are doing a credible job of resolving the mess left by the economic policies of The Previous Administration . . .

O'Neill -- the budget hawk -- already had a plan. Prior to this meeting [between Greenspan and O'Neill], he had written on his pad:

"We can strengthen our own hand on what to do with the surplus by articulating the principle of a dedicated flow of continuning debt reduction."

He recited the line to Greenspan, who considered it for a moment. Fine -- reduction of debt is a priority -- but what happens to the big item, the tax cut, if the surpluses evaporate? he asked.

"Triggers," O'Neill said. "A good enough idea, if it can be sold."

It would be a statutory enforcement of fiscal prudence. Balance-sheet behavior common to most companies and households -- whereby spending is linked to availability of funds -- would continue to apply to the country's largest balance sheet. Moving into deficit would "trigger" a host of reactions. To wit: Fiscal policies based on the availability of a surplus would be altered if that surplus disappeared. Of course, as both Alan and Paul knew, that would include the President-elect's proposed tax cut . . .

Neither man opposed a tax cut. Total federal revenues as a percentage of GDP -- a key calculation that shows the level to which the U.S. government taxes its citizens -- hit 20.8 percent in 2000, the highest percentage in the last forty years, during which time the average was 18.6 percent. . . .

If a combination of tax cuts and depressed tax receipts from an economic slowdown caused the surplus to evaporate -- and if there were not spending cuts to avoid slipping into deficit -- the tax cut would be reined in. O'Neill and Greenspan's view of history's "top line" was succinct: We went through this before, under Ronald Reagan, and it took nearly two decades to pay off the debts. Tax cuts are easy, spending cuts are hard. If you want one, you need to embrace the other. And if the political system is too dysfunctional to have that debate, you stay put and avoid dramatic action.

"Our political system is what needs fixing," O'Neill said in a moan that Greenspan had heard many times. "It needs to be based on reality. Not games."

And so it was hatched: a secret pact. What they were doing felt perfectly natural. Two men with nearly ninety years of experience in and around Washington, colluding to prevent an elected president -- with virtually no experience in setting national economic policy -- from acting in a way that they were convinced was ill-considered. He'd thank them later.

. . . that the economic pilicies of The Current Administration are doing a credible job of resolving the mess left by the economic policies of The Previous Administration . . .

[Regarding O'Neill's comments during his confirmation hearing in front of the Senate Finance Committee in which] he said the Federal Reserve, through it's control of monetary policy, was the "first line of action" to fight a downturn and suggested that even cuts of the magnitude Mr. Bush has promised would likely have relatively little immediate impact on the nation's economy.

Karen Hughes, White House communications director, Karl Rove, and others close to the President read the story and boiled, especially about one particular paragraph [in the New York Times story about the hearing]:

"Mr. O'Neill also praised the Clinton administration's record of fiscal discipline and economic stability as 'wonderful.' He said the Bush administration should aim to collect enough in taxes to pay for government operations each year without going into debt -- even when the economy barely expands."

O'Neill read the Times at his desk in the transition building. He had known there'd be some stir, but he thought it was important to make clear where he stood. He and Greenspan had studied these issues longer -- and together had more relevant practical experience -- than almost any other pair in town. And they were in concert about everything he'd said at the hearings. The President's views were general and evolving. O'Neill felt his candor would nourish that evolution, or at least offer a counter weight to whatever Larry Lindsey was saying.

The Times noted that O'Neill's position "differs in some respects from the view held by some supply-side economists, who steadfastly defend President Ronald Reagan's tax cuts of the early 1980s as having revolutionized the economy, even if they also contributed to giant budget deficits. Lawrence B. Lindsey, Mr. Bush's cheif economic aide, is a leading proponent of Reagan-era tax cutting and the main architect of Mr. Bush's tax cut plan, which is estimated to cost $1.6 trillion over 10 years."

I heard on CNN's Inside Politics today that the Saudis, in an attempt to influence the election here, have a deal with the Bush administration to lower the cost of oil right before the election.

Scrat,

I wonder what you think about Suskind's revelation that Greenspan and O'Neill had a plan at the beginning of this administration to save the country the pain of Reagan-era ecomonics and it's consequences.

That's right, c.i. And many employers have been reducing benefits, cutting salaries and hours and disallowing over time to workers in order to "cut expenses."

Timber,

Here's a little bit from Ron Suskind's book, The Price of Loyalty,"

pp. 50 - 51.