How George W. Bush Would Steer The Economy

He lays out a philosophy that blends free-market principles with West Texas populism

George W. Bush is trying hard to keep his trademark grin and confidence in check. But clearly exhilarated by his lead in the polls over Democrat Al Gore, the Republican standard-bearer was brimming with confidence on May 11, when he sat down with Business Week in Austin. In a wide-ranging interview with Washington Bureau Chief Lee Walczak and White House Correspondent Richard S. Dunham, "W" provided the most detailed look yet at his economic philosophy -- a typically Bushian blend of free-market folk wisdom and noblesse oblige.

Among the highlights: Bush is shifting the rationale for his gigantic tax cut from supply-side growth elixir to recession insurance, and he says he's dead serious about fixing Social Security and tilting federal programs to help struggling workers. When the topic turned to Microsoft's antitrust problems with the Justice Dept.'s breakup gang, Bush was cagey. He repeated his support for traditional enforcement policy based on abuses of pricing power or harm to consumers. At the same time, the Texan said he would reserve judgment on the matter as the case works its way through the judicial process. Here is an extended, excerpted version of the conversation that appears in the May 29 issue of Business Week.

Q: In economic terms, it looks like "morning in America." Growth is strong and people feel prosperous. Can "Bushonomics" really improve on the record of the past eight years?

A: First of all, my job is to think down the road. Up until a couple of months ago, your assessment of the economy was true. But the stock market appears to be somewhat skittish these days, and there is nervousness on the horizon. I certainly do not want the economy to turn down. I think I can improve the environment so capital continues to flow and entrepreneurship flourishes.

Q: How would you do that?

A: I have a strong commitment to free trade. Secondly, I'm a tort reformer. I believe that we can reform our legal system in such a way to enhance productivity and reduce the cost of frivolous and junk lawsuits. And I believe in less regulation. I also believe that you share some of the [federal] surplus. As an insurance policy against a potential downturn, we need to share a little over a quarter of the surplus with the people who are paying the bills. I come from the school that says a cut in the marginal [tax] rate will enhance growth. So the question I ask is not [about] today or yesterday, but tomorrow. And I've got a program that keeps our growth strong.

Q: Would a recession cause you to change your economic plan?

A: Well, I would accelerate the tax cut. Right now, my tax cut is phased in over a five-year period. If there were a recession, that would call for a quicker tax cut.

Q: Not everyone is sanguine about a $1.7 trillion tax cut now. The other day at the Business Council meeting, Citigroup Chairman Sandy Weill was quoted as saying this is the wrong time to take the plunge. Your response?

A: I appreciate that chairman's comments, but he has greater faith in the [congressional] appropriators than I do. The surpluses will be spent.... There are some parts of our tax code that aren't fair. I'd like to simplify the code, I'd like to get rid of the death tax -- I think that's unfair. The Business Council can say what it wants, but I want to remind them that this tax code is unfair to people at the bottom end of the ladder. The marginal rates [for] people who are making $22,000 are higher than [for] someone making $200,000. And that's not right. One of my jobs is to make the middle class more accessible. And I would tell the chairman, with all due respect, this code needs to be fixed while we've got money to do so.

Q: You're an optimist, but your top economic adviser, Lawrence Lindsey, is a market bear. How do you integrate the two views?

A: It's interesting. I've known Larry for about a year, and Larry has raised a caution flag. The important thing is that Larry reminds me that there are signs that could affect economic growth in a significant way. You need to think proactively and not be reactive. What Larry talks about is balance-sheet growth [vs. sustainable growth].... By that he means that consumer debt is rising faster than people's personal finances, and things are just getting out of whack. That's why I think a tax cut could help out.

Q: You're a fan of Federal Reserve Chairman Alan Greenspan, but there's a lot of talk these days that Greenspan's small-steps approach to raising interest rates may give way to bolder moves. Any jitters as we bid farewell to "Quarter-Point Alan?" [Greenspan did in fact raise interest rates 50 basis points on May 16.]

A: He's obviously sending a clear signal. What I want to do is resist getting involved in Fed policy and commenting upon Alan Greenspan every time a decision is made. But I believe he deserves a lot of credit for the current expansion. I'm sure there are some moments when sitting Presidents get nervous about how the Fed acts, but I'd keep mindful of the fact that the Fed is independent. His track record speaks for itself.

Q: The next President will get the chance to name several Fed governors. What kind of person will you be looking for?

A: The first question I would ask is: Does the person understand growth and the New Economy, where free trade fits into [these things]. I really haven't thought beyond that.

Q: So you're a New Economy devotee?

A: I am. We're living in a changing world. The generators of wealth are changing. It's changing how productive the U.S. can be, and it's also changing how the world interrelates. Globalization is real. Capital moves quickly. Information is instantaneous. That presents great opportunities. It also presents some frustrating situations for countries that can't adjust to the new world. It's going to be an exciting time. There are a lot of issues related to commerce over the Internet, privacy, disclosure [policy], etc. There are some economic rules that won't change, though. If your cash in is less than your cash out, you're broke.

Q: Have you thought about ways to protect privacy online?

A: I'm a privacy-rights person. The marketplace can function without sacrificing the privacy of individuals. Customers should be allowed to opt in [to sharing their information, but] the company has got to ask permission. There are all kinds of issues related to biogenetics. One is a trade issue that I think is going to be very important to the [next] President -- I'm going to insist to the Europeans that biogenetically engineered foods are safe and they should open up their markets.

Q: Many politicians in Washington, including some in your own party, don't understand why you're jumping into the thicket of partially privatizing Social Security. Why are you doing it?

A: Because I want to lead. I am frustrated with the politics of Social Security. My opponent is more than willing to attack on a regular basis and try to scare seniors. If America wants that kind of old way of thinking, then I'm not the right person. The facts are, if we don't do anything differently by 2037, there's going to be a huge problem. It seems a perfect time, as we go into the 21st century, to seize the moment and change Social Security.

Q: What's your approach?

A: I'm going to talk about a framework for change. It starts with saying I'm going to spend the [political] capital. I've got to say to the older people: "Nothing will change for you." When I campaign in Florida, I'll make it clear that what I'm talking about is how the system is going to affect younger workers. My vision -- and the vision of reform-minded Democrats and Republicans -- is to trust younger workers with some of their payroll tax in the private sector. Investments will be overseen by a board that will make sure that fly-by-nighters and [their] schemes don't affect [their investment choices]. The vision is a retirement system that's safe and secure, but a retirement system in which somebody owns an asset base that can then be passed on to a spouse or children.

Q: Isn't the transition cost of switching to a system like this extremely expensive?

A: You bet. And there's a series of plans that have got different ways to transition. My job is to put Democrats and Republicans together. I like John McCain's idea to have a commission -- it's also [Senator Bob] Kerrey's and [Senator Pat] Moynihan's idea.

Q: Would you fund the new private accounts from general revenues or use trust-fund money?

A: It just depends on ultimately what the details look like. My job is to lay out the framework.

Q: The vote on normalizing trade relations with China is coming up. What will the impact be if the legislation fails?

A: I believe it will pass. I'm going to join the battle with the President to get the bill passed. [Failure] would be a missed opportunity. When a country has an entrepreneurial class that is making money because of trade, people will demand other freedoms. All of us in America should be concerned about human rights and freedoms of religion, press, and speech. [But] those freedoms are more likely to come if there is an aggressive trade policy.

Q: What do you think of reports that Microsoft, which is facing a possible breakup under the Justice Dept.'s antitrust suit, is "Waiting for George" -- for a more sympathetic ear?

A: Well they shouldn't be waiting for me, because I'm not going to take a position. Now that this is in the judicial branch, the case must work its way through the judiciary.

Q: Haven't you been quoted as saying that you wouldn't favor aggressive antitrust enforcement?

A: What I said was I'd enforce the law, and generally in the past price had been the consideration...

Q: And consumer harm?...

A: Right.

Q: So does your traditional view leave room for the Justice Dept.'s pursuit of a legal theory that claims Microsoft's business practices have stifled innovation?

A: That's why I want to watch and see how this evolves through the judiciary. I'm not going to comment on it.

Q: What do you think of Vice-President Al Gore's depiction of himself as Mr. Tech?

A: The problem with that is, it's not going to translate into votes, with all due respect to Mr. Gore. I am very strong in Silicon Valley and Tech Valley here in Austin.

Q: What do you offer techies that Gore isn't proposing?

A: They gave me the chance in the first place because the Clinton-Gore Administration broke many a promise. They go out to Silicon Valley and talk about tort reform and do nothing. They're not true free-traders. Watch what happened [at the WTO meeting] in Seattle -- with Mr. Gore absent, by the way, and the President blinking as a result of pressure from special interests. [Tech execs] believe I will fulfill my promises. And I've dealt with enough of these issues as governor of Texas to give me some credibility.

Q: The House voted recently to extend the moratorium on Internet taxation...

A: That's my position.

Q: ...Like many governors, you've resisted calls for a permanent ban.

A: But unlike many governors, I've called for the moratorium to be extended.

Q: Do you worry that states will be denied an important source of revenue if Internet commerce becomes dominant? And do you believe that Net business deserves a special tax break that bricks-and-mortar outfits don't have?

A: I don't believe in special breaks. I think there ought to fairness. Second, I don't think we know where the market is evolving in e-commerce. And that's why I think it makes sense to have a moratorium.

Q: You recently held a summit meeting with former rival John McCain. But given the inroads you have made with Democrats, independents, and women voters, do you still need McCain's backing?

A: I do. It's a lot easier for me to be elected with his help. John and I had a good meeting. I think people expected two bulls butting heads and a lot of tension. There was no tension at all. John has raised some interesting issues, but John also helps remind people that if you don't want four more years of Clinton-Gore, there is an alternative.

Q: You have pledged to bring more civility to politics in Washington. How do you do that, given the poisonous atmosphere?

A: I'll be able to change the tone in Washington, and I think the tone needs to be changed. Let me describe how you do that. I believe that a clear-cut agenda, if properly spelled out, can pass. Members of both parties have got to understand I'll be willing to share credit. My agenda items are going to be the budget and fiscal control coupled with [a tax cut that] shares some of the surplus, [plus reforming] Social Security, Medicare, and defense.

Q: You have pulled ahead of Al Gore now that you're talking about such core Democratic issues as Social Security and education. There's a joke going around to the effect that you would be leading by 20% if only you dropped your big tax cut. Are you laughing?

A: Guess what? I'm still talking about that tax-relief package. It's not just tax cuts. It's tax relief and simplification. Al Gore loves to talk of "risky schemes." But people are hearing me talk about the bottom of the economic ladder. I'm not kidding. I was raised in Midland, out in West Texas, a remote part of our country where there was no class distinction. It was who you were, how hard you worked, how you treated your family.... If you're around Washington too long, you begin to think that all wisdom is in Washington. We trust the people.

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