Did ever a president damage the US economy more than George W. Bush? John Kerry and his fellow campaigners do not seem to think so. In the build-up to the election they have argued that Mr Bush's spending and his tax cuts are catastrophic. They have insisted that Mr Bush is reversing the course of a healthy economy. And they have likened Mr Bush - repeatedly - to a president who committed many of the errors that brought on the Great Depression: Herbert Hoover.
Lending authority to Mr Kerry are some of America's most important economists. Ten Nobel prize winners recently signed an open letter, warning Mr Bush of his economic folly. The group included two figures of especial renown, Robert Solow of the Massachusetts Institute of Technology and Paul Samuelson, the author of Economics, one of the country's most used textbooks. The professors claim that Mr Bush has followed a "reckless and extreme course".
Such positions are themselves reckless and extreme. Today, growth is strong, unemployment and interest rates low, home ownership at a record high. This is not a Hoover economy. It is an economy to be proud of.
Still, let us suppose the Bush-bashers are correct and it is only a matter of time until his economic consequences cast a dark shadow across the land. What remedies would America's senior economics professors then propose? The answer is the same as Mr Bush has been delivering. That is because many professors, especially those old enough to win Nobels, were trained in the theories of John Maynard Keynes. And Mr Bush has often employed Keynesian devices in setting policy - sometimes so rigorously that he has driven to despair classically oriented economists, who reject a Keynesian focus on demand.
Start with his outlays, which are indeed generous. Criticism is certainly justified. Conservatives, in particular, believe government expansion always imposes costs on the private sector.
But an attack on big spending is hard to take when it comes from Keynesian economists. After all, such economists have long posited that extra spending is just the thing to jump-start a disappointing economy. In fact, the place many Americans first encountered that notion was in Mr Samuelson's legendary textbook. In good times, he wrote, a country should cut expenditures or raise taxes. But "to fight a recession, there are likewise two ways open: raising expenditures, or lowering tax receipts".
And what about taxes? Mr Bush has cut them frequently - starting with one-time rebates to taxpayers, then rewriting the rate schedule with temporary cuts across the board, and moving on to reductions in taxes on capital. The temporary aspect of some of the cuts has been especially controversial. A Nobel laureate who happens to support Mr Bush - the latest winner, Edward Prescott - got his prize for pointing out among other things that short-term fiscal fiddling could damage the economy.
Still, non-permanent cuts ought to please Keynesian types. Mr Samuelson wrote: "If there is good reason to think that a recession will be brief, a temporary cut in income-tax rates can be one way of keeping disposable incomes from falling." Other aspects of the Bush cuts also conform to the standard Keynesian view that tax reductions can be valuable stimuli. And Mr Bush's seemingly endless corporate breaks for training, investment and research should not disturb Mr Solow. In another time of deficit he testified that "my hopes for faster growth of potential ride primarily on industrial equipment, industrial R&D [research and development], and a higher quality labour force. Expenditures on those items are almost sure to do good."
The authors of the anti-Bush letter insist that Mr Bush's behaviour does not represent standard countercyclical policy. He is doing something worse: threatening "the long-term economic security" of America. It is disingenuous for Keynesians to suggest, however, that the three-and-a-half years in which he has battled a recession and fought two wars is not the right occasion for countercyclical moves. As for the deficit "time-bomb" of Social Security, Mr Bush has already opened discussion on reforms that would defuse it.
One reason voters tend to overlook inconsistency is their selective memory of the 1990s. Everyone recalls that in the second half of that decade Bill Clinton and Robert Rubin, his Treasury secretary, manfully narrowed the federal deficit. What is forgotten is that they probably could not or would not have done so without intense pressure from the Republican Congress elected in 1994. Americans also forget that Mr Rubin pursued his life's goal of taking the deficit into surplus in good times. In good times, deficit obsessions can prove useful. But to focus on the deficit and to argue for tax increases during the "bad times" that Mr Kerry says the US is experiencing is to repeat the errors of the late 1920s and early 1930s. Mr Rubin did not introduce a huge tariff in the way that Hoover did he supports free trade. Nonetheless, Rubinomics in bad times are essentially Hoover economics.
Which brings us to a final point. Americans under 45 are people who have experienced only one enduring market downturn - the recent Nasdaq crash. They therefore too readily see serious but soluble problems as an apocalypse. But this explanation still leaves the mystery of the economists. What's their excuse?
© Copyright 2004 Financial Times
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