The return of Clintonomics?
http://www.guardian.co.uk/uselectio...1163632,00.html
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New ball game, same old team
Judging by John Kerry's economics advisers, a Democratic White House would mean a return match for Clintonomics. Faisal Islam reports
Sunday March 7, 2004
The Observer
A deficit expected to top $521 billion this year is the key statistic in the US presidential election campaign. But it is a surplus of another kind that is shaping the competing economic policies of the two camps.
Judging by the entourage of economic advisers that surrounds US presidential hopeful John Kerry, Clintonomics may be primed for a comeback. The senator, who this week clinched the Democratic nomination, has recycled old Clinton-era thinkers such as Alan Blinder, a Princeton economist and former vice chairman of the Federal Reserve; Laura Tyson, formerly White House economics chief and now the Dean of London Business School; and Gene Sperling, also a former economics chief.
The candidate's top economic adviser is Roger Altman, briefly Bill Clinton's deputy Treasury Secretary. Clinton's Labour Secretary Robert Reich has written Kerry's health care plan.
Another former Clinton economist - the Nobel prize-winning Joseph Stiglitz - says that there is a simple reason for the 1990s reunion. 'Clearly there's an aura of success from the Clinton years. The economy did so well it was natural for them to gravitate back to the advisers involved,' he says.
And the identity of these advisers may offer better clues to the broad macroeconomic strategy of a prospective Kerry administration than mere election rhetoric.
In 2000, few could have envisaged the seismic shift in economic policy that would accompany the arrival of President Bush in the White House. At that time government forecasters predicted a surplus over the decade to 2010 of some $4.6 trillion. Four years on, the outlook for that period is a deficit of about $2 trillion.
Yet a look at Bush's entourage during his election campaign - mainly recycled from the high-deficit era of Reaganomics - would have given clear indication of how his administration would go.
Larry Lindsey, Bush Jr's chief economist, was charged with fleshing out the economic policy details of Dubya's 'compassionate conservatism'. Lindsey's expertise was in tax cuts, and that putative surplus gave him the opportunity to cut like never before - to the tune of $1,300bn. Glen Hubbard, who headed the White House Council of Economic Advisers, argued that the 1990s boom years were not the work of Clinton policies at all, but the long-term consequence of the feted two-band (15 and 28 per cent) Reagan tax reform of 1986.
Hubbard's most famous paper dis puted the widely held belief that, between 1977 and 1988, Reaganomics had exacerbated inequality to the point that the richest 1 per cent of American families had gained 70 per cent of income growth. Taking account of lifetime incomes, he said, the proportion was markedly lower.
So the zeal with which Bush would cut taxes, and the focus of those cuts on the rich, was clear from before he set foot in the White House. George W. Bush's economic policy was always going to be a return to a type of Reaganomics.
So how do the two candidates' broad economic strategies compare? 'Both men aim to halve the deficit over the next four years. The key policy difference is that Bush will make his tax cuts permanent and hold back spending, while Kerry would repeal the Bush tax cuts for high-income earners to pay for his spending programmes,' says Ian Morris, US economist at HSBC.
Stiglitz is unconvinced by Bush's plan. 'The basic outline of Bush's economic policy is reckless. Tax cuts for the rich is disguised as a stimulus which did not provide much stimulus but a large deficit. With Kerry's plan we will get more stimulus with less deficit and more equity. The economy is still anaemic. We need more stimulus, and you can't do that with tax cuts,' says the Nobel prize-winner.
Bush's sums simply don't add up, he says. 'The truth is that Bush is lying when he says that he'll halve the deficit. Expansion of the military and making his tax cuts permanent means that there is no way he'll cut the deficit in half,' he says.
Kerry is specifically planning to reverse Bush's tax cuts for those earning above $200,000 to pay for $72bn worth of healthcare reform.
But HSBC's Morris points out that clashes with Congress are likely to stifle the deficit-cutting verve of whichever candidate is elected. 'Deficits of $400-$450bn are likely until 2008 and beyond under both men. This would raise the public debt-to-GDP ratio from 37 per cent currently to 45 per cent in 2008,' he says.
Stiglitz sees the imprimatur of the Clintonian economics team. 'They are all very centrist. Kerry has adopted clearly a very mainstream macroeconomic policy, whereas with Bush you have non-mainstream people saying deficits don't matter'.
Altman, Kerry's electoral economics chief, demonstrated strong worries about deficits under Clinton. Gene Sperling is 'very committed to educational issues', says Stiglitz.
Blinder is famous in economics circles for a speech saying that the objective of monetary policy should not just be inflation but unemployment and growth - in contrast with Alan Greenspan, chairman of the Federal Reserve Board. Indeed, Blinder resigned after just 18 months' service at the Federal Reserve in 1994 because of such tensions.
That experience marks him out as a potential successor to Greenspan should Kerry get elected. Greenspan himself has controversially become embroiled in the election campaign following a series of speeches. He has discussed the drawbacks of 30-year fixed-rate mortgages, the privatisation of public mortgage companies Fannie Mae and Freddie Mac, cutting pensions for future generations, and current laws on intellectual property rights.
'Many of us have long suspected that Greenspan had a political agenda and has not fulfilled the role of an independent non-partisan central banker,' says Stiglitz.
Greenspan is likely to be reconfirmed in the summer for a final stint at the Fed until 2006. But Blinder would be a hot favourite to replace him under a President Kerry.
Blinder's analysis of the role of 'pointy-headed' economists is perhaps relevant whoever wins November's election. His 'Murphy's Law of Economic Policy' says: 'Economists have the least influence on policy where they know the most and are most agreed and the most influence where they know the least and disagree most vehemently.'
Whatever they disagree on, neither camp is likely to revert to the formal strong-dollar policy tacitly abandoned by Bush during this time of relatively high unemployment in the US. The difference, says Stiglitz, may be that a more multilateralist Kerry administration would take greater account of the dangers of a weak dollar to other countries.
And so, a real choice has opened up. As Stiglitz says: 'The strange thing is that the Republicans have become extremists, and the Democrats are centrists [in that they are] for fiscal conservatism and stimulus. This is a contest between two alternative philosophies'.
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....whoa, that like makes sense and stuff....
