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| PLANNING AHEAD | |
 October 24 , 2000  |
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Margaret Warner interviews four experts about how the presidential candidates' economic plans could affect the nation.
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| Who will keep the prosperity going? | |||||||||||
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JOHN MAKIN: I think Governor Bush would do a better job of keeping the prosperity going. There are really a couple of problems that we have to address. One, as you mentioned, is the problem of higher oil prices, which really amounts to a tax on households and businesses, and lower tax rates would help to reverse the effect of that. Secondly, I think probably over the next four years, we're going to experience a recession. I know we've had a great expansion, everybody is very happy with it. But it's probably prudent to think about what one would do in a recession. And I'm surprised to see so much resistance to the idea of cutting tax rates. It was such a popular idea in the 1980s. It was such a popular idea with President Kennedy in the 1960s, to get the economy moving. So I think the idea of cutting tax rates, which would help demand as well as production, is a sounder idea than spending more money and would be a better antidote to any possible recession we might have. MARGARET WARNER: All right. Bill Spriggs, how do you see it in terms of who would keep the economy stronger?
MARGARET WARNER: Morton Marcus, how do you see the impact that each of these plans would have on the economy? MORTON MARCUS: Well, it's very much the way we have the World Series going on right now. Whichever team wins, we still have a winner in New York City, and I think that the differences between Bush and Gore are very great, but the results turn out to be the same. And that is, if you look at the tax cut plan of Governor Bush or if you look at the spending plans or tax plans of Vice President Gore, in both cases, you have more money pumped into the economy. You have more pressure on inflation. You have more of a tendency for Alan Greenspan to raise interest rates. I don't think that either of those approaches is necessarily healthy. On the side with Social Security, both candidates are encouraging private money going into the stock market. What they want to do is they want to take money from Social Security, and they want to put that into the stock market. And one way or another, that's what they're trying to do. I don't think we need to boost up the stock market. So both of them come at this in different ways, but they have the same kinds of results. |
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| Envisioning a permanent surplus | |||||||||||
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MARGARET WARNER: Professor Kennedy, how do you see this in terms of the likely impact?
MARGARET WARNER: What about that point, John Makin, that both candidates are basing their economic plans on this huge surplus that they're projecting, and that it's a pretty shaky assumption, whether you just look at what's happening in our economy now, or as Professor Kennedy is, if you look at history?
MARGARET WARNER: Let me just make sure I understand it. You're saying that the tax cuts in a time of recession are actually a good idea. You're not saying that a President Bush could roll back those or would roll back those tax cuts even in a downturn? JOHN MAKIN: No, I think it would be all the more appropriate to have them in a downturn. Again, when I - there's a bit of revisionism under way here. Most standard approaches to how to deal with a recession would be that the government tries to stimulate the economy. It used to be by spending more money. I think one of the things we've learned over the past 40 years is that it's probably better to stimulate the economy by reducing the burdens of taxation, by cutting tax rates and encouraging more effort and leaving more money in people's hands. |
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| The real possibility of a downturn | |||||||||||
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MARGARET WARNER: All right. Bill Spriggs, you do the same thing. Look at the real possibility of a downturn. Where would president... a President Gore's plan leave us, because as you said, tax cuts or spending are both spending?
MARGARET WARNER: So Professor Marcus, are you at all reassured by either of these arguments? MORTON MARCUS: No. I think the real issues are what do we do in terms of stimulating the economy now? I think both of them have programs of stimulus that we do not need in the economy. I think that if anything, Mr. Gore's program at least gives us a more targeted approach. He's interested in the environment and certain kinds of spending that is really national investment of the best sort. Tax cuts very often lead to a lot of discretionary spending by consumers and we'll have more people taking cruises, but that's not necessarily investing in our economy. MARGARET WARNER: What do you think is the most likely scenario for a downturn? I mean, what might the next president face that could trigger such a downturn?
MARGARET WARNER: So, Professor Kennedy, I know you're an historian, not an economist, but you have written a lot about this, as we just pointed out. Do you think that we are, as a nation, as vulnerable to a massive depression, such as we had in the 30s, at the end of the 1920s, or is our whole economic so different, with so many more sort of safety nets and features and institutions that we aren't? DAVID KENNEDY: Well, I don't think we'll have that particular depression again. I think we've learned a lot of ways to protect ourselves against it. We've built in protections for consumers and bankers and homeowners and so on and so forth. So that one is not likely to repeat itself. But again, history is full of surprises. And whether there might be some other kind of recession or depression perhaps on that scale, though not precisely the same thing, is impossible to say. You know, the difference here it seems to me between these two candidates is one that really goes back to a long-standing difference between the two parties. The American philosopher William James said, "in the last analysis, all philosophical differences come down to a difference in temperament." And I think basically there is a difference in temperament here. Republican platforms and candidates tend to be more risk prone, more willing to take risks of various sorts in order to energize and stimulate the economy. The Democratic Party I think traditionally has been more risk averse, more prudential in the face of risk in order to protect people from the volatilities of the free-market system. And I think these two candidates reflect that. This difference isn't so much big government or less government, it's really - it's a question about one's aversion to or predilection for risk. |
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| Presidential influence and control | |||||||||||
| MARGARET WARNER: Professor Marcus, how much impact really
in the end does a president actually have? In other words, he comes into
office, he has this economic plan he talked about during his campaign,
but he's got a Congress to deal with, he's got a Fed to deal with, all
other kinds of factors. How much control does he really have?
MARGARET WARNER: Bill Spriggs, influence but not control in terms of impact on the economy from a president? WILLIAM SPRIGGS: I think the president has a great deal of influence. The last eight years was a different type of recovery. People at the bottom benefited in a way they didn't during the 1980 recovery. I think that when you look at that, that makes a difference. When you also look at the difference in projections, when the Bush... when President Bush's administration left in 1993, they left behind what they thought they could accomplish, and again, using numbers that were, had proven to be rosy in the past. And yet the Clinton administration's program exceeded each one of those markers, lower unemployment, a lower deficit, in fact, surpluses. So I don't think you can call it luck. I think that the direction and the course of an expansion can be set by those priorities. Does the president prevent recessions or that sort of thing? I don't think so. MARGARET WARNER: John Makin, as an investor, how much impact do you think a new president has or a president has?
MARGARET WARNER: And, Professor Kennedy, final thoughts from you on what history teaches us about the president's impact. DAVID KENNEDY: To repeat, history's full of surprises. That's the main thing it teaches us. Just to return to your original question, I think the distinction between influence and control is a good one. This $9 trillion economy that we have now is like the fabled supertanker, it's very difficult to change its direction or its speed. But the president is the person who can ring up more steam or order a change in the rudder direction or whatever. Those are not insignificant measures by which to influence the direction and the pace of the economic development. So I think it's crucially important who is at the helm, even when seas look calm, as they do today. MARGARET WARNER: All right. Thank you all four very much. |
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MARGARET
WARNER: The presidential campaign comes at a time of unprecedented prosperity.
The nation is enjoying its tenth year of economic growth, with inflation
of just 3.5% and unemployment near a 30-year low. There are also some
troubling signs. Higher oil prices have fueled fears of rising inflation,
and uneven corporate earnings have roiled the stock market. To explore
how the candidates' competing plans would affect the nation's economy,
we turn to John Makin, chief economist with a New York investment hedge
fund, and a resident scholar 
at
the American Enterprise Institute; William Spriggs, director of research
and public policy at the National Urban League; Morton Marcus, director
of the Business Research Center at Indiana University's Kelley School
of Business; and Stanford historian David Kennedy, whose book, "Freedom
From Fear: The American People in Depression and War," won a Pulitzer
Prize this year. Welcome, gentlemen. You all just heard the two candidates
lay out a synopsis of their economic plans. John Makin, based on those
plans, who do you think would do a better job of keeping the prosperity
going? 
WILLIAM
SPRIGGS: Well, they don't come with empty slates. One of the key issues
is credibility on the budgeting process. And eight years ago, I think
we've been spoiled by the fact that the Office of Management and Budget
used to turn out numbers that we couldn't believe, and there was no
credibility in the fiscal policy of the government. Now at least we
believe these numbers, and in fact, the economy has performed better.
So I think that's a big thing in favor of Vice President Gore in evaluating
the credibility of their plans. The other thing is that I think that
we don't want to spend, and tax cuts are spending away that surplus
in a way that's so broad and so massive. So I think that the cautious
and prudent approach of a narrower tax plan, and of making sure that
we get the national debt down, buy down the debt, so that we have the
room to invest in the future, as well as make sure that we have funds
available for a next generation, when they have to figure out what they're
going to do with Social Security. 
DAVID
KENNEDY: Well, I was struck throughout the presidential debate at how
uncritically virtually everybody accepts the premise that there will
be surpluses off into the indefinite future. It seems to me that that's
a very dubious assumption. The Congress has broken the budget agreement
for each of the last several years and is already spending the surplus
before it officially arrives. The current moment reminds me in many
ways of another decades that resembles ours in many ways, the 1920s
- a period which was often referred to sometimes in Herbert Hoover's
campaign slogans, in fact, as the new era - the phrase with which our
current, new economy resonates. There were new technologies, such as
radio and automobiles, which were creating wholly new industries, in
a way that telecommunications and computer technologies are today. And
it was a time filled with confidence that the future would be prosperous
out into all the foreseeable horizons. But every schoolchild knows how
that story ended - with the Great Crash of 1929 and an 11-year depression
that ensued. So I think if the study of history teaches us anything
here, and in other case, too, it's that we need to be cautious about
the future. It's full of surprises.
JOHN
MAKIN: Certainly it's not a good idea to think that you're going to
have surpluses forever, and, you know, one of the problems we've had
is we have gotten into this ten-year budget projection syndrome, which
is I think very dangerous. The other thing I'm surprised at is the notion,
however, that just paying down the debt is a good thing. Both candidates
seem to accept the idea. You know, it's not always a good thing to pay
down the debt. It may turn out that instead of paying down the debt,
which by the way now is only 35% of GDP, the lowest it's been in many
years, and the lowest among G-10 countries -- it might make more sense
to invest in the economy by lowering tax rates -- again, as the Kennedy
administration did in the 60s and the Reagan administration did in the
80s. Secondly, if we have a recession, the idea of paying down the debt
would be a bad idea. You'd certainly want to help the economy with less
burden from taxes, and perhaps some spending stimulation. 
WILLIAM
SPRIGGS: Well, I think that a President Gore plan in the case of a downturn
still puts you in wiggle room. I think the problem with Governor Bush's
proposal is that you're spending the entire proposed surplus ahead of
time. A tax cut really spends the money ahead of time. And so it puts
you in a weird position. If there was a downturn, I'm not sure that
the tax relief needs to go to those at the top. And I think that there
are other ways of figuring out how to stimulate the economy that would
be more fair. One of the things that really helped this current expansion
look so different is the massive tax cut we gave to those at the bottom.
And that's why we've been setting record low poverty rates, because
we have restored progressivety to the tax system in a very different
way than we had in the 1980s. 
MORTON
MARCUS: Well, a downturn could easily be triggered by increases in petroleum
prices that stay high. We haven't seen that yet. They've been bouncing
around. We could also have downturns triggered by international considerations
similar to what we had in 1990-91, which was also oil related. But I
think that the most likely situation that we have to look for first
is an increase in inflationary pressures in the near term as these presidents
might come in, and then try to push these inflationary programs. 
MORTON
MARCUS: I don't think the president has a great deal of control, but
he has a great deal of influence. That's really what we're talking about
is what kind of course does the president try to set in his program,
what does he try to do, what kind of direction does he give, and then
he has to respond to the pressures you mentioned. The real question
is, how would Mr. Bush or Mr. Gore be capable of dealing with those
various forces. Either one of them running on ideological gas could
be dangerous for the country. 
JOHN
MAKIN: I think the main thing you look for from a president, as others
have suggested, is to do no harm and perhaps lead in the right direction.
That is, if we have some kind of a crisis or the economy slows down,
to lead in a direction that avoids, let's say, protectionism, that avoids
being too rigid about paying down the debt and actually being a little
more imaginative and perhaps taking some of the chances that David Kennedy
is suggesting. So it's really a matter of avoiding a move in the wrong
direction when there's a problem and tilting the economy in the right
direction. Remember, the President can offer the leadership, but on
many of these measures of economic policy that we're talking about,
the Fed controls monetary policy, and the Congress disposes on tax and
budget matters. So it's the leadership of the president in the right
direction that matters.