Jewish World Review August 23, 2002 / 15 Elul, 5762

Jack Kemp

Jack Kemp
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

Time to get serious about the economy | The White House put on a much ballyhooed Economic Forum in Waco, Texas, last week, involving 250 hand-picked "experts" and "average Americans" with the stated purpose of discussing "where our economy stands, the impact of policies we put in place and the steps we are taking." How disappointing that not a single supply-side economist was there -- not Art Laffer, David Malpass, Richard Rahn, Larry Kudlow, Bruce Bartlett, Gary Robbins, Steve Entin, Brian Wesbury, David Gitlitz, Dr. Robert Mundell or Dr. Judy Shelton. The message that came out of Waco was essentially "be happy, don't worry, the fundamentals are strong, economic policy is right on the money and everything will be just fine -- and oh, by the way, we may allow you to deduct more losses from you income taxes." With all due respect, I beg to differ.

By all accounts the economy is still weak. Unemployment is up, the Nasdaq is down, business investment remains weak, earnings are soft and monetary policy remains precariously close to turning deflationary again. Fed Chairman Alan Greenspan tells us the economy weak but he's not going to do anything about it. In fact, the Fed is incapable of correcting course because it remains fixated on targeting interest rates rather than calibrating monetary policy on the basis of market price signals.

Unemployment has risen from just 4 percent in 2000 to a 10-year high approaching 6 percent today. This may be great news for Keynesians who believe 6 percent is "full employment," but the rest of us know we can do better. The Dow now hovers around 8,800, having lost almost 12 percent of its value during this year alone and nearly $7 trillion dollars since its peak in March of 2000. The telecom sector remains depressed and shows no discernible signs of improvement, and spending on information technology has flat-lined. Meanwhile, corporate profits remain weak.

Economic policy is not right on the money. Tax rates are too high. The administration's own numbers project that tax revenues as a percentage of national output not only will continue at post-World War II highs (over 19 percent of GDP) but actually will increase throughout the decade, even as the 2001 tax cut is phased in.

Another great disappointment was hearing President George W. Bush call our tax code the best in the entire world. I don't know what tax code he is talking about when you consider the pro-growth tax codes in Hong Kong, Singapore, Ireland and even Russia, where President Vladimir Putin has put in a single 13 percent income tax rate. You have to give the president the benefit of the doubt and think he simply got caught up in the rah-rah atmosphere of his own public relations event (a political convention without the balloons, in the words of Washington Post columnist Mary McGrory) that made it very difficult for anyone there to critically assess our true situation.

To his great credit, there was one individual present in Waco who had the courage to speak truth to power: Curtis McGuire, an African-American small businessman, who said, "Mr. President, we need to reduce tax rates and make the tax code simpler."

It was also disheartening that no one in Waco discussed how the government overregulates the economy, especially the technology sector, where a regulatory and anti-trust straitjacket remains firmly in place. A protectionist tide continues to rise as the president's tariff increases drive up the price of steel and lumber, the only commodity prices that are rising. Meanwhile, endless talk about the future benefits of free trade at the culmination of excruciatingly ponderous multilateral trade negotiations (even under the recently enacted fast-track negotiating authority) substitutes for concrete unilateral actions that could open up trade tomorrow.

It staggers the imagination to think that you could have an economic forum and have no serious discussion of monetary policy, but they did in Waco. The Fed's brief relaxation of deflationary monetary policy may have come to an end as it finds itself having to restrain liquidity growth in order to keep the overnight interest rate from falling beneath its target. Any doubt that the market demands more liquidity than the Fed is able to supply under its interest-rate targeting procedure is dispelled by the fact that the cost of overnight money at 1.75 percent is higher than the 1.6 percent cost of six-month paper.

In Waco, no one raised the question of why wholesale prices have been falling over the past several months and what that may imply for the return of deflationary pressures. Producer prices fell 0.2 percent in July and have fallen 1.1 percent during the past 12 months. The consumer price index, even after significant improvements since 1996, still overstates price inflation by about .65 percent, and in July it rose only 0.1 percent, which means prices really declined.

Airlines are cutting prices in a desperate attempt to fill airplanes; meanwhile, some of them go out of business as losses become overwhelming. Clothing manufactures are cutting prices. Automakers continue to offer discounts and zero-interest loans, and since the CPI only captures changes in sticker prices, the true extent of price cutting on autos is considerably understated.

Given the current state of our economy, it is not sufficient to simply "stay the course." We are presently off course and in need of corrective action. We are all looking to the captain to help us get the wind back in our sails, but in order to do so we cannot get defensive about policies already passed; quite the contrary, we must get aggressive about policies that need to be implemented. Amen to Curtis McGuire.

Enjoy this writer's work? Why not sign-up for the daily JWR update. It's free. Just click here.

Jack Kemp is co-director of Empower America and chairman of Foundation for the Defense of Democracies. Comment by clicking here.


08/16/02: The territorial truth
08/01/02: No economic security without economic growth
07/24/02: 'Infectious greed' and other miasmatic diseases
07/12/02: Solving the "Arab Problem"
07/02/02: July 4, 2002
06/26/02: Unsigning an unratified treaty
06/10/02: Establishing 'givens' in Middle East geo-politics
06/10/02: New role models for Africa
05/02/02: What wasn't heard out of Crawford
04/25/02: In search of Arab dignity
04/16/02: Taxes and history lessons
04/09/02: Arabs must take a stand against terrorism
04/02/02: Nuevo dependencia and world government
03/26/02: Bureaucratic buffoonery at the INS
03/19/02: California's newest citizen politician
03/06/02: Peaceful relations or public relations?
02/27/02: American trade policy at war with itself
02/20/02: Three-conjecture strategy on global warming
02/14/02: Nurturing democratic capitalism in Afghanistan
02/06/02: Gephardt embraces tax cuts and tax simplification
01/30/02: Just the facts
01/22/02: 'Been down so long it looks like up to me'
01/15/02: Confronting terror wherever it occurs
01/09/02: Daschle's war on Bush
01/03/02: Prosperity policies, not partisan politics
12/27/01: Governments create calamity, markets get the blame
12/18/01: 'Tis the season for Daschle to compromise
12/12/01: Hard choices made simple
12/05/01: Straight talk on Iraq
11/28/01: Not all tax cuts are created equal
11/20/01: Words have consequences
11/15/01: Deflationary recession
11/07/01: Consider Mideast reality in the war on terrorism
10/30/01: No 'stimulus' required
10/23/01: Good out of evil
10/16/01: Watching Iraq
10/12/01: The putrid stench of evil
10/04/01: Trade, terror and truth
10/01/01: Drive this scourge from the face of the Earth
09/25/01: Bush emerges as leader for his time
09/06/01: Middle East Madness has a chief instigator
08/30/01: It's about economic growth, stupid!
08/22/01: Phlebotomizers at the IMF
08/17/01: The Greenspan Recession
08/08/01: From Kyoto to Bonn, no science equals nonsense
07/25/01: Fiddling while the world economy freezes
07/19/01: Schundler should be New Jersey's next governor
07/12/01: Second wind for the global economy
07/06/01: An interest-rate target with no bull's-eye
06/28/01: Tax harmonization --- American-style
06/21/01: Warming diplomacy --- at what price?
06/13/01: A party that stands for nothing deserves to lose
06/07/01: No peace in the Middle East
05/30/01: Jeffords' palace coup
05/24/01: A supply-side energy plan
05/16/01: Getting Lincoln right
05/10/01: A good reason to borrow
05/01/01: Supreme Court makes racial profiling the law of the land
04/26/01: Campaign finance reform: silencing the lambs
04/17/01: Right wanted might in China case
04/12/01: How minority entrepreneurs can save the tax cut
04/04/01: Whose privacy is it?
03/29/01: A letter from Seoul
03/20/01: Ignore the double talk and double the tax cuts
03/13/01: Don't give up the bully pulpit on Social Security, Mr. President
03/06/01: Another attack on the economy
02/28/01: It's time to end deflation
02/21/01: Building blocks of humanity
02/15/01: Trumping the propaganda
02/06/01: The Gipper at 90
01/30/01: Kicking off a season of economic growth
01/24/01: The Bush tax agenda
01/17/01: Debating the Clinton legacy
01/10/01: No need for another Social Security commission
01/03/01: Truly a Golden Age, if we can keep it
12/27/00: The Grinch who turned off the holiday lights
12/20/00: Forging ahead
12/13/00: A new tax system for the 21st Century
12/07/00: Global government in retreat
11/30/00: An open letter to Fed Chairman Alan Greenspan
11/21/00: Don't forget the guy in charge
11/15/00: Civic virtue, civic vice
11/08/00: Memo to the president-elect
10/31/00: Scare tactics won't work
10/24/00: Prosperity in the balance
10/11/00: Al Gore's economics of fear
10/03/00: Al Gore IS debatable
09/27/00: Government should protect our online privacy
09/13/00: The most important issue
09/05/00: Defeating the Gore blitz
08/29/00: Workers of the world, rejoice
08/22/00: Just the facts, Mr. President
08/08/00: Reclaiming Lincoln's legacy
06/23/00: A renaissance for urban America?
06/16/00: Capital access can bridge 'digital divide'
06/08/00: Some friendly advice for Rick Lazio
05/26/00: Is the economy being saved or destroyed?
05/22/00: Immigration and the promise that is America
05/12/00: Stock market roulette or snobbery?
05/04/00: Is Rule of Law whatever we say it is?
05/01/00: Myths happen

© 2002, Copley News Service