The Bush recession?

April 13, 2001|By Christopher Carroll

The Bush administration's persistent public pessimism about the economy runs a serious risk of becoming a self-fulfilling prophecy.

The downbeat pronouncements began even before the Florida election controversy was over; on "Meet the Press" Dec. 3, Vice President Dick Cheney said "we may well be on the front edge of a recession," though no reputable economic forecasters were predicting recession at the time.

Since then, Mr. Cheney, Mr. Bush and other administration officials repeatedly have made statements conspicuously more gloomy than would have been expected from the objective economic indicators.

The administration's gloom could turn prophetic if it convinces consumers to cut back on spending. Household spending accounts for two-thirds of economic activity, and research indicates that spending decisions are strongly influenced by consumer sentiment.

Starting from near all-time record highs before the election, sentiment deteriorated in the four subsequent months more than in any comparable period since the collapse in sentiment (and spending) that marked the beginning of the 1990-1991 recession.

Of course, it's hard to prove that the recent declines in sentiment can be laid at the administration's doorstep. But traditionally the most important determinants of sentiment have been, in order, the inflation rate, the unemployment rate, and movements in the stock market.

Inflation and unemployment remain near their most favorable levels in 30 years. The fall in the broad stock market has not been nearly large enough to explain the decline in sentiment (tech stocks have fallen more, but it's the market as a whole that should matter).

Much, perhaps most, of the recent slide in sentiment may therefore reflect the public's reaction to the virtually unprecedented spectacle of a president and administration who regularly emphasize the possibility that a recession is imminent or even under way.

Part of the reason the administration has been playing up the possibility of recession is to provide yet another reason for Congress to pass the Bush tax cut. But this explanation may be too charitable to be the whole truth.

In purely political terms, if President Bush can lodge in people's minds the idea that the economy he inherited from Bill Clinton was shaky, he will be in a better position to claim success for his own economic program in 2004.

From this perspective, even a self-inflicted recession might not be unwelcome, if it starts soon enough to be blamed on Mr. Clinton.

Whatever its motivation, the administration's public pessimism has been a reckless and irresponsible way to begin its stewardship of the economy. The contrast with the Clinton economic team's steady professionalism is striking and does not bode well for economic leadership over the next four years.

Christopher Carroll, an economics professor at the Johns Hopkins University, was a Federal Reserve economist and was a senior staff economist at the White House Council of Economic Advisers in 1997-1998.

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