During the days of partisan conflict over the presidential ballot count, it became fashionable to suggest that gridlock would greet the winner. This talk has been succeeded by hopeful expectations of a new bipartisanship. Unfortunately, any bipartisanship that thrives in the current political climate is likely to neglect the interests of the great majority of working and middle class Americans.
The first deadlock in Beltway politics the new administration may confront is not the typical Democrats versus Republicans squabble. The Administration may face a long running in-house argument between conservatives in both parties. This battle pits traditional fiscal conservatives against Reaganesque supply siders. The former regard big government surpluses as the best way to free capital for new business investment. The latter are confident that further tax cuts for business and the wealthy will more than pay for themselves by creating incentives for work and investment.
Economic policy is likely to be on the front burner for the new administration. I am not eager to join the long list of progressive Cassandras forced to eat their words. But if business cycles are not a thing of the past, there are reasons to worry. High oil prices and a sluggish stock market have cut into consumer confidence. Substantial debt in both the consumer and business sector could exacerbate any downturn.
The fiscal moderates have always trusted Alan Greenspan to keep the economy moving. If the economy starts to slide, he'll simply lower interest rates to encourage new investment. Yet the historical case for their optimism is weak. George W. Bush's father became a former president sooner than he intended because of the limits of Federal Reserve policy. Even drastic cuts in the Federal funds rate were slow in extricating the economy from a Fed-induced recession that emerged in the middle of his term. Low interest rates don't stimulate much business borrowing when inventories are accumulating.
Furthermore, Greenspan may face formidable obstacles to interest rate reductions this time around. High oil prices have widened the trade deficit. Foreign banks and financiers are currently willing to invest the dollars they receive in US markets. Nonetheless, as Jeffrey Madrick points out in a recent New York Times column, foreign investors may have second thoughts if US growth continues to slow: "As the dollar falls, because of falling stock prices and the pullout of investors, it could precipitate still more capital flight. And the falling dollar would be inflationary, pushing up import prices and probably persuading the Fed that to attract foreign investors, it has to keep interest rates higher than it would otherwise."
No one can predict the point at which a domestic slowdown would trigger an erosion of foreign confidence in the dollar. After Jan. 20, look for Bush to advocate an anti-recession economic agenda. He may try to compromise with centrist Democrats and fiscal conservatives in his own party on a less sweeping tax cut. Capital gains and estate taxes may be cut in deference to Bush's core constituency. Centrist Democrats will argue that they saved a large measure of the surplus by keeping Bush from going overboard with goodies to the rich.
The only problem is, in a real recession we need constructive government spending and more equitably targeted tax relief. Madrick notes that enhancement of the earned income tax credit would be more beneficial not only in terms of equity but also efficiency. The working poor put more of any new Federal largess into the economy than do the wealthy, who are more able to save during hard times. Saving may be a great personal virtue, but economic contraction is more likely to be reversed when recipients of new dollars spend those dollars.
Madrick also correctly points out that Federal expenditures for education, child care, and flexible working hours would be especially beneficial during a slump. Such programs would substantially enhance long-term productivity growth, minimizing possible inflationary shocks from new Federal spending.
But if Madrick's concerns about world opinion are to be addressed as well, environmental and energy issues need to be part of a new policy mix. Growing demand for oil worsens our trade deficit and is associated with increased social, environmental, and public health costs. Investment in public transit, energy conservation, and alternative energy would reduce oil imports, boost economic efficiency, create new jobs, and lessen the burdens of poverty. Just as significantly, such investments would enhance US standing among European leaders, many of whom are bothered by our government's disregard of the Kyoto accords. Maine would stand to gain disproportionately from expanded rail transit to and within the state as well as from upgrades to the energy efficiency of its housing stock.
Bipartisanship, at least of the sort currently being discussed in Washington, will not get us there. It will be up to labor, social justice, and environmental organizations to demand more effective and inclusive compromises.
John Buell lives in Southwest Harbor and writes regularly on labor and environmental issues. He is co-author, with Etta Kralovec, of The End of Homework: How Homework Disrupts Families, Overburdens Children, and Limits Learning (Beacon Press). He invites comments at jbuell@acadia.net