Danger for Dubya on the Economic Tightrope

With his loose recession talk, Bush could spook the markets, anger members of Congress -- and find himself saddled with an actual recession

By Richard S. Dunham

At the wrap-up press session following his two-day economic forum, President-elect George W. Bush wore a dark suit very similar to the tailored outfits favored by the Republican execs he had invited to Austin. But an acrobat's costume would have been more appropriate for the man who is soon to become the 43rd President.

The reason: Bush is finding himself walking a tightrope on issue after issue relating to the economy. After eight years of record-breaking growth, American business has hit a rough patch, and some CEOs and investors are worried the boom may be turning to bust. That's exactly what approximately 50 handpicked business leaders told the former Texas governor. "We have a real slowdown," said General Electric's venerable CEO, Jack Welch. "We're not afraid of scaring people."


  It's fine for Welch to speak with his customary candor. But as the next President, Bush must be careful what he says, for fear of spooking the markets, dampening consumer confidence, or angering any faction in the evenly divided Congress. The result: a series of delicate balancing acts for the nation's soon-to-be chief executive. Those risks were readily apparent at the Austin gabfest.

The first tightrope to cross: talking down the economy without creating a self-fulfilling prophecy of economic collapse. To succeed, the younger Bush will need all of his father's considerable diplomatic skills. Trouble is, Bush's political advisers want to blame any possible recession on the outgoing Clinton Administration. They also hope to use the national nervousness to build support for a huge tax cut. "The warning signs are real," Bush said after his Jan. 3 session. "A lot of folks in this room have brought some pretty bad news -- that their sales are slowing, that they're having to trim back their workforce."


  So what does America make of Bush's message a day later? Meeting with high-tech execs, he made sure to put a happy face on the long-term future of the economy, predicting that American innovation would guarantee a brighter future to all.

Meanwhile, Bush is exhorting Congress to embrace his "economic recovery plan." Here's the question: recovery from what? "Recovery" is a technical term for the period following a recession. According to the latest economic statistics, there hasn't been a recession, only a slowing of an overheated economy.

If Bush isn't careful, his careless use of economic terms could lead to a recessionary mindset among investors and employers. That could lead to a real recession. Then Bush has real problems.


  "It's a risky strategy," says Diana Evans, a political scientist at Trinity College in Hartford. "People don't give Presidents much of a break for coming in when the economy is bad. If he says now that the economy is bad and establishes that as a [national] mindset, he may really pay a price."

Bush also has to walk a tightrope when it comes to Federal Reserve Chairman Alan Greenspan. The President-elect immediately hailed the Fed's half-percent interest-rate cut on Jan. 3, declaring that it showed Greenspan favored "bold action." But Bush then took it one step further. To Bush, Greenspan's move called for "bold action in the halls of Congress" to enact an economic "stimulus" package, including a tax cut of $1.6 trillion (or possibly even more), reduced regulation of business, new trade-liberalization initiatives, and increased domestic drilling for oil and natural gas. Pretty ambitious. Problem is, it can be dangerous to involve Fed actions in Washington intrigue. The Clinton Administration studiously avoided playing politics with Greenspan's decisions. Indeed, Clinton adopted a flat policy of never commenting on Fed action. That policy will change in a Bush White House. "If the President-elect thinks he should speak out, he will," Bush press secretary Ari Fleischer said on Jan. 4.


  There's a real danger here: If Bush praises Greenspan every time the Fed chairman does something the new President likes, what will happen the first time he refuses to comment on a Fed move? Investors will likely assume it means Bush disagrees with the nation's financial oracle. Stories of a Bush-Greenspan rift will start, reminiscent of the old tensions between the Fed chair and Bush's dad. Some analysts fear the central bank could be drawn increasingly into political controversies. Not so, insists Fleischer. "I haven't seen them influenced by things politicians do and say," he says.

While Bush, a Harvard Business School grad, has a good grasp of economic issues, he'll soon discover that the Presidency is a pressure cooker like no other. Even the current Wonk-in-Chief committed a couple of early blunders that sent markets reeling before he learned how to walk the economic tightrope. Unless he wants to commit some economic gaffes of his own, Bush needs some practice in that acrobat's costume.

Dunham is a White House correspondent for Business Week's Washington bureau. Follow his views twice a month in Washington Watch, only on BW Online

Edited by Douglas Harbrecht