Candidates have similar ideas to fight a recession

Tuesday, October 3rd 2000, 12:00 am
By: News On 6

Both would spur the economy with tax cuts, but Bush's breaks would be bigger than Gore's

By Robert Dodge / The Dallas Morning News

WASHINGTON – With today's abundant jobs, rising incomes and healthy corporate profits, it is hard to imagine a recession. But economic contractions often are a surprise.

The recent surge in oil prices and international bankers' efforts to bolster the troubled euro have reminded Americans how unexpected external events can buffet the U.S. economy.

So, how would George W. Bush or Al Gore react? You might be surprised: Both candidates say they would cut taxes.

Presidents actually have few options for dealing with recessions, especially when they involve events beyond U.S. borders. Cutting taxes is certainly one remedy. Another way to stimulate economic growth is to increase government spending.

"Those are the two levers," said Richard Berner, an economist at Morgan Stanley Dean Witter.

Mr. Bush and Mr. Gore take the stage Tuesday night for their first nationally televised presidential debate with the still-surging economy as a backdrop.

Their handling of a recession is more of a what-if scenario, far removed from even eight years ago when the candidates dueled over how to restore – not preserve – prosperity.

Yet with the current expansion already the longest on record, analysts say, the odds are good that the next president will face one or more challenges to keep the recovery rolling.

Recessions often are caused when someone makes a mistake.

For instance, the Federal Reserve Board might choke the economy by raising interest rates too aggressively to fight inflation. Or, the president and Congress enact tax, spending or regulatory policies that discourage investment.

And many times, mistakes by policy-makers are compounded by unexpected shocks, such as a major labor strike or a foreign policy crisis. In four of the last five recessions, including the 1990-91 downturn, rising oil prices helped deliver the knockdown blow.

For his part, Mr. Bush wants to pull the anti-recession lever before there is even a threat.

The Republican nominee, appearing on CNN's Moneyline, said his $1.3 trillion tax cut plan would be "an insurance policy against an economic downturn," by providing additional stimulus to the economy.

Critics question whether ill-timed tax cuts would overstimulate the economy, forcing the Fed to raise interest rates, increasing the risk of a recession.

If there were a recession, Mr. Bush said, he would continue implementing his 10-year tax-cut plan even if it caused a budget deficit.

Appearing on Fox News, Mr. Bush added: "That may cause us to run a short-term deficit, but the fundamental question is how do you cause the economy to grow?"

Mr. Gore also would continue to implement his more modest $500 billion tax-cut plan.

A spokesman said the Democratic nominee's economic plans save part of today's record budget surplus for a rainy day.

"If there is a recession, he would continue to pursue his tax cuts and have money left over," said Gore campaign spokesman Jano Cabrera.

Laura Tyson, a former Clinton administration economist and an adviser to Mr. Gore, said the best anti-recession strategy is to have sound economic policies during good times. With the mounting budget surplus, she said, the nation now has a reserve for dealing with a downturn.

In a recent speech at the Brookings Institution, Mr. Gore asserted, "If we want to make sure the surpluses are really there, and build prosperity for the future, then we have to set aside money now, and not spend every penny and then some before it's even counted."

Mr. Gore contends that the surplus should be used to pay down the debt, so the government has resources in the future for an emergency, as well as to pay for Social Security and Medicare.

In addition to speeding up federal spending and tax cuts, Ms. Tyson said, she would advise a president to work closely with the Fed.

By lowering interest rates and pumping money into the economy, the Fed has more power than any other single entity to quickly stimulate the economy.

Spokesmen for both candidates were reluctant to say what else they might do to deal with an economic crisis.

Even so, the recent run-up in oil prices may provide a snapshot of how Mr. Gore and Mr. Bush would react to a broader emergency.

Mr. Gore has envisioned a strong role for the government, favoring the use of the nation's strategic oil reserves to ease energy prices. Mr. Bush said using the oil reserves was a political move, and he called for a long-term policy to encourage domestic energy production.

Experts said any president would come under political pressure to develop a stimulus package – including tax cuts and new spending – if there were a serious downturn.

"There is almost always a mixture of the two," said David Wyss, an economist with Standard & Poor's DRI, an economic consulting firm.

Of course, the experts say, voters' traditional desire for presidential leadership in times of economic crisis collides with another hard fact: Tax and spending programs usually have only a limited effect in easing the pain of a downturn.

"Unless you are really in dire straits, I do not think fiscal policy is all that important," said Paul Kasriel, chief economist at Northern Trust of Chicago.

Despite such limited options, voters do expect a president to be sympathetic to the pain of economic hardship and engaged in finding solutions.

Analysts say former President Bush lost the 1992 election in part because he appeared disconnected from the plight of ordinary Americans in the aftermath of the 1990-91 downturn.

"George W. should have learned something from his father: Look busy," said Mr. Wyss.