By Richard S. Dunham No question about it, President Bush has a lot on his plate these days. A war in Afghanistan, an international dragnet against al Qaeda cells, and growing concerns about homeland security, from mail to nukes to bridges. But the President has another problem that eventually may overshadow all the others - especially if the U.S. emerges triumpant in the war on terrorism. It's the deteriorating state of the domestic economy.
Recent economic news could hardly be worse. The U.S. gross domestic product dropped by four-tenths of a percent in the second quarter, presaging an official recession when the third-quarter GDP number comes out three months from now. Unemployment jumped a half-point in a month and was accompanied by loss of a staggering 415,000 jobs. Corporate profits -- and government tax revenues -- have fallen even faster after September 11.
Worst of all, consumer confidence, which had been keeping the U.S. economy from free fall, has taken a precipitous dip. Though Treasury Secretary Paul O'Neill gamely predicts that the economy is on the mend, most seasoned economists feel that things are going to get worse before they get better.
A BURNED BUSH? While President Bush's popularity remains in the stratosphere -- an 84% approval rating, according to an Oct. 31-Nov. 1 Fox News/Opinion Dynamics Poll -- a bad economy eventually could sting him the way the 1991 recession hurt his father, despite Bush Sr.'s Gulf War success. If the current President Bush wants to avoid the economic fallout suffered by his father, he's going to have to put together a recovery battle plan now. Before a recession is officially declared.
For starters, the White House has to articulate a strategy that goes beyond telling Congress to pass whatever pet piece of legislation the Administration wants at the moment. The U.S. and global economic slowdowns won't be solved solely by a new tax cut for business, or by an energy bill designed to encourage domestic drilling, or by new Presidential "trade-promotion authority" that would let the Administration negotiate deals without congressional micromanagement.
It'll take more than simple political spin -- and aggressive monetary policy from the ever-vigilant Alan Greenspan -- to solve the problems. It's time for a new approach from the White House economic team. Here are a few suggestions:
Cheerleader-in-Chief. The President's first job is to restore consumer and business confidence. He can't do that by simply blaming Bill Clinton or Osama bin Laden for the nation's economic ills. Bush has to be a cheerleader. His primary roles: Convincing consumers that the economy will turn around if they just keep on buying and convincing business to invest in people before profits.
That means Bush has to find ways to encourage businesses to spend on technology to boost productivity. And it means jawboning Corporate America, making sure the barons of business know that it's their patriotic duty to avoid new rounds of layoffs, even if it brings a slightly smaller profit margin in the quarterly report. Maybe a few well-placed incentives (such as more generous expensing rules) could help a bit.
Jobs, jobs, jobs. Back in 1988, Democrat Michael Dukakis promised good jobs at good wages. That's what Bush needs to do now. The President must figure out a way to create private-sector jobs. While some Democrats already are lobbying for a new version of the New Deal, public-sector jobs won't help the economy in the long run. Look at Japan, where public-works spending has done little to reverse a decade of economic decline.
The President and Congress should work in a bipartisan manner to forge compromises that lead to trade liberalization, which would help create jobs among American exporters from the Farm Belt to Silicon Valley. Some targeted incentives make sense: Senators Joseph I. Lieberman (D-Conn.) and Orrin Hatch (R-Utah) would cut capital-gains taxes for investors in certain startup companies.
Saving the safety net. The best way Bush can reinforce the notion that he's a compassionate conservative is to make sure that poor and middle-class Americans don't fall through the social safety net in this recession. Even before the economic downturn, the number of uninsured workers was going up. Now, millions of unemployed Americans will lack health benefits, job training, and, in some cases, eligibility for any welfare benefits.
A few short-term solutions are obvious: extending unemployment benefits for the victims of the September 11 fallout and letting newly unemployed workers pay to extend their employer-supplied health benefits. If the recession worsens next year, Congress might need to rethink some of the tough measures included in the 1996 welfare-reform bill signed into law by President Clinton. The challenge for President Bush: showing that he cares without betraying Republican principles of individual responsibility and minimal government.
Remember the governors. Despite the economic decline of 2001, the federal government is still running a surplus. But many states are facing economic crises due to plunging tax revenues and increased health and welfare costs. Bush, a former Texas governor, must work to prevent panic in 50 state capitals. It may take new federal assistance to compensate the state for homeland-security expenses such as extra police and public-health vigilance.
If Bush needs any added incentive, it's the political reality that two-thirds of the governorships up for grabs in 2002 are held by Republicans. A bad economy and a slap in the face from the White House won't help GOP candidates from Wisconsin to Alabama next year.
Like the war against terrorism, the battle to revive the economy can't be won overnight. Bush will have to apply the same kind of vigilance and the same kind of public persuasion he's using against Osama and the Taliban to achieve a crucial economic victory at home. Dunham is a White House correspondent for BusinessWeek's Washington bureau. Follow his views every Monday in Washington Watch, only on BusinessWeek Online