Politics of a Slowdown
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JIM LEHRER: And now for both sides of that weather report. Congressman Bill Thomas, Republican of California, chairman of the House Ways and Means Committee; and Senator Kent Conrad of North Dakota, the ranking Democrat on the Senate Budget Committee. Senator, do you agree with the leadership in the Democratic side in the Congress that the president is hurting the economy by his words?
SEN. KENT CONRAD: Well, unfortunately, I don’t think there’s any question but the president’s talking down the economy and the vice president has hurt confidence. But more than that, their economic plan has got things upside-down and backwards. There is virtually no stimulus in the president’s plan for this year. It’s all back-end loaded. So it hurts you two ways: number one, you don’t have stimulus when you need it, and your cost confidence in the markets because you’ve got an overall budget plan that doesn’t add up.
JIM LEHRER: All right, we’ll come back to that in a moment, but how do the president’s words hurt the economy?
SEN. KENT CONRAD: It hurts the economy because it puts doubt in people’s minds about the underlying strength of the American economy. And any economy is in part based on confidence. So when the Vice President was talking about recession back in December, that set off a string of newspaper headlines that led to additional emphasis on the negative. Look, in almost any situation, you can see the positive or the negative. When you consistently emphasize the negative, you contribute to a climate that loses and lacks confidence.
JIM LEHRER: Congressman Thomas, do you agree with the Senator?
REP. BILL THOMAS: Well, actually, I guess their Lexus thing isn’t working so they’re trying something else.
JIM LEHRER: You’ll have to explain that.
REP. BILL THOMAS: Well, the argument of the Lexus versus the muffler. They tried one gimmick and now they’re trying this. It reminds me of the movie “Jaws,” Jim, where the mayor of the town didn’t want the police chief to tell the tourists that there was a shark in the water. Is the President reporting, or is he causing? The London markets are down 10 percent, the Japanese Neikkei is down 14 percent. The German markets will down 9 percent. When the fundamentals are wrong, no amount of jawboning plus or minus will turn those markets around until they have been corrected.
And if that’s the case, then what in the world do the Democrats say about Federal Reserve Chairman Alan Greenspan? In one month he reduced the interest rates twice. Was that a reaction to the market? Was he creating a downturn because people’s confidence is now less because he’s trying to respond? What we really need to do is to get off this business of trying to use politics in a negative way.
The president has said he’s concerned about the marketplace. Everybody is. What we need to do is do what we can do with as many tools that we have available. Obviously, Chairman of the Federal Reserve Board has a monetary policy tool available to him. Congress and the president have a fiscal policy tool available. The House of Representatives have sent the Senate marginal rate reductions — the most stimulative fiscal policy we could, and it’s sitting there on the steps of the Senate because they want to talk about process and they’re complaining that the president is telling people that the market’s down when the Dow goes below 10,000?
JIM LEHRER: Senator, what about that? What should the President be saying when the market goes down?
SEN. KENT CONRAD: I think the most important thing is for this President to have a plan that makes sense, and the one that he’s got and the one the House sent us doesn’t do anything. Look, they’ve sent us a stimulus package? Now, come on, let’s be serious and let’s be honest with the American people. They’ve just sent us a plan from the House that has about a trillion dollars of tax relief, one half of one percent is effective this year, and they call that a stimulus package? Now that’s not being straight. Two-thirds of this tax cut takes effect after five years. That’s not going to help the economy now.
We should move up the tax relief, have it be stimulative this year when we know the economy is in trouble and reduce the overall amount over the ten years that’s based on an uncertain forecast that shakes confidence in the markets because they know it doesn’t add up, and they know that it threatens to raid trust funds, and they know that it threatens to put us back into deficit.
JIM LEHRER: Congressman, what about that, you can talk about this tax cut plan as a stimulus plan, but very little happens in the immediate way to help anybody?
REP. BILL THOMAS: Well, I really almost have to chuckle because I was in the minority for 16 years, and I know all the tools that the minority uses. We have rules. The Democrats were arguing, and I think rightly so, because Republicans actually did it, that we need to pay down the debt. We’re doing that. They’ve argued that we need to protect Medicare, and we need to protect Social Security. We did that in the last budget.
But the only way that you can move all of those marginal rate reductions up at the front end is to take money away from somewhere else. If the package had been to do the marginal rate reductions this year and next year, the argument you would be hearing from the minority in both the House and the Senate is “you’re not protecting Medicare, you’re not protecting Social Security and you’re not paying down the debt,” in other words, whichever way we try to go to be positive and assist this economy, they have a negative argument.
JIM LEHRER: But specifically, how will this tax plan stimulate the economy?
REP. BILL THOMAS: It will two do things: One, it does put money in. No matter how small the number is that they may argue, it’s bigger than what it would otherwise be. But most importantly, it shows we’re doing something. The Democrats’ goal is to do nothing and then say, “see, the economy continues to go down.”
JIM LEHRER: Is that your goal, Senator?
REP. BILL THOMAS: Doing something is the most important thing.
JIM LEHRER: Senator?
SEN. KENT CONRAD: Well, they’re doing nothing and calling it something. That’s not going to solve anything. Look, they have a plan that provides $6 billion of the trillion dollars of tax relief this year in a $10 trillion economy. That’s not serious. That’s not going to do anything. And then their overall plan is so big over the ten years, based on an uncertain forecast, that it costs the market’s confidence because they can add, and they know this plan doesn’t add up. We ought to have a much bigger stimulus package this year so we really are providing some lift to the economy. We ought to reduce the overall size of the package so that it’s fiscally responsible, so that we can continue to pay down debt and really have a package that makes sense fiscally.
JIM LEHRER: Let me back up a second to both of you. And beginning with you, Congressman Thomas, what is your assessment of what is happening in the economy right now?
REP. BILL THOMAS: There are a lot of fundamental things that have changed. For example, if you go to Vegas and put your money in a slot machine that’s called gambling, but people are called investors if they put their money in dot-com companies and they expect to have some major return on the investment with no risk. Look at the Standard and Poor. Right now it’s at 24. Historically, it’s been at 14. They’re still overvalued. At some point when the saxophone music stops, people began to realize that this is a world with risks. There are going to be fundamental adjustments when the market is not correct. There is risk involved, there is too much high side, there are going continue to be adjustments.
JIM LEHRER: You’re just talking about the stock market. I was thinking about the economy generally. Are we in a slowdown, are we in a downturn, are we about to go into a recession?
REP. BILL THOMAS: I can only rely on the economists and what they tell me and that is – and Alan Greenspan is the one who’s usually pointed to — We have had no growth; it’s either zero plus a half a percent or minus a half a percent. Unemployment usually lags a downturn in the economy. We are seeing unemployment go up. That means the economy has begun to turn down. But also, the psychological impact of what we do I believe is greater today than ever before. If the Dow went below 10,000, if you’ll allow me when Walter Cronkite was doing the news, it would have been a ten-second statement and move on.
Today, you’ve got seven networks 24 hours a day talking about financial news and the markets and the rest. You’ve got people with 401k savings in the market. If you give them the choice of a conservative investment or one with some risk that gets you a greater return, they tend to go up for the risk. It’s just a different world today. And if you tell them that you’re going to change marginal rates permanently and you’re doing it over time because those are the rules and you have to follow the rules — I believe there’s a greater psychological advantage to addressing the fundamental problems and correcting the tax code than was ever the case before. And they want to dismiss any psychological benefit.
JIM LEHRER: Senator Conrad, first, what would you add or subtract to Congressman Thomas said just as to what the situation is right now?
SEN. KENT CONRAD: I believe what’s happened is we’ve had a build-up of inventories. That means we’ve had economic slowdown; consumers have high debt levels, and so you have the normal slowdown. We see this in economic cycles. It’s going to take some time to work off these inventory circumstances. It’s also going to take some time to get money in people’s pockets. That’s why the President’s plan and what the House Republicans have sent us is just not going to do much of anything. This idea that you just pass a tax cut that’s way off in the future and somehow that’s going to influence behavior today is kind of dream-world economics. It’s a bad economic plan. It’s no wonder we’ve got a problem. Look, we ought to have a plan that provides more stimulus now but is more responsible for the ten years because that’s what costs people confidence. They see an economic plan that doesn’t add up, that threatens to put us back into deficit, when we have no time to recover as we did in the 80s, that hurts.
JIM LEHRER: All right, both of you take positions about what should be done about what the situation is now. As a practical matter, Congressman Thomas, did the federal government, either the Congress or the President, present or before, have anything to do with what’s happening in the economy right now. Are they to blame for what happened? Are you all to blame?
REP. BILL THOMAS: I don’t know that you’d necessarily say to blame, but I did find it ironic that the President has been in for three months and he’s now the cause of what’s occurred. This is a big economy. It’s tied now to the world more than ever before. And you can do some things monetarily; You can do some things fiscally. But frankly, if the fundamentals aren’t right, they’re going to get readjusted. Remember when we used to invest literally billions in trying to influence the monetary rate between nations? There were so many other folks involved that you simply threw the money away. If the fundamentals are there, it will work. If they’re not, it won’t. But by the way…
JIM LEHRER: And no legislation’s going to change the fundamentals, right?
REP. BILL THOMAS: You can help the psychology of the fundamentals and you can put dollars in people’s pockets because we have additional tax-reduction plans, on the marriage penalty, on the death tax question coming out over the next several weeks. The problem is we’ll put them on the step of the Senate and you’ll hear talk over there instead of action.
JIM LEHRER: Senator Conrad, do you agree with Congressman Thomas in general that about all Congress and the president can do is kind of around the edges? I mean you cannot change the fundamentals. You can put more money in people’s pockets and that’s about it.
SEN. KENT CONRAD: No. What matters to the economy is fiscal policy controlled by Congress and the administration and monetary policy controlled by the Federal Reserve. Most economists would say, and I agree with them, the quickest thing to do to respond to an economic downturn is use monetary policy because it’s effective immediately: Lowering interest rates. But it is also true that we can do things through fiscal policy. We can stimulate, either by a tax cut or by spending. I believe in this circumstance, we ought to enact a tax cut, we ought to make it effective retroactively. It ought to be much larger than the very tiny amount that is part of the president’s plan. But then we also need to send a signal we’re going to be responsible for the whole ten-year period, reduce the size of the president’s tax package so we can continue to emphasize paying down debt and have an overall plan that adds up. That’s critical to confidence in the economy.
JIM LEHRER: What about Congressman Thomas’ point that it’s unfair to blame President Bush for what’s going on now? Are you all blaming President Bush?
SEN. KENT CONRAD: Look, he in part has a responsibility. I don’t certainly blame him for all that’s happening. That would be unfair, and untrue. But he’s not helped the situation in two ways: Number one, by the kind of tone he has set with respect to the economic health of the country. And number two, and most importantly, by the plan he has sent us that does nothing to stimulate the economy in the short term and threatens fiscal responsibility in the long term.
REP. BILL THOMAS: Jim, I guess I just don’t get it. If we pass a tax cut that’s real, that will put money in people’s pockets and create confidence, that won’t work. But the simple fact that the President utters some words has a real effect in the marketplace. Now, you can’t argue both sides of that question.
JIM LEHRER: We have just done so and we’re going to leave it there.
REP. BILL THOMAS: Well, he has just done so.
JIM LEHRER: Okay. We’ve argued it. Thank you both very much.