MAKING CHANGE: For Money, Guns, Governors, and Growth Policy : In Economics, Bush Years to Be Anything but Boring

Boring.

That seems to be the early word on the Bush Administration. Colorless country-club Republicans, respectably moderate conservatives, seasoned insiders, predictable pragmatists.

The world’s central bankers breathed a sigh of relief when George Bush won the election. It was an open secret that the economic policy-makers of most Western countries viewed Bush as preferable to both the unpredictable Great Communicator and the untried Democratic team, with its reliance on men either untested or tainted by ties to the Jimmy Carter regime. At last, thought the world central bankers, a sober and orthodox team has moved into power in Washington. All that talk about no new taxes was so much campaign fluff, they assumed. Once in office the new team will set about what Europe believes to be the urgent task of the U.S. government--cutting domestic consumption and imposing austerity.

They are almost certainly wrong, as are the domestic observers who expect four years of dull news on the economic-policy front. There is something awesome about the capacity of the WASP to masquerade as a wimp. Because they wear predictable clothes, attend predictable schools and say predictable things, people assume WASPS will do predictable things. From Squanto, who greeted the Pilgrims, to Michael S. Dukakis, non-WASPs have learned too late that the velvet glove of politesse conceals a fist of an altogether different material.

Bush, the quintessential WASP, may be the most underestimated man in U.S. politics--with the exception of his predecessor. Hard-nosed Republican conservatives denounced him as an effete country-clubber; those same GOP conservatives found themselves eviscerated this year by this “ineffectual” politician, clutching at the straws of the vice presidency and the Department of Housing and Urban Development. Derided as a wimp at the Democratic convention, Bush looked so much like a pit bull during the campaign that the conventional wisdom decided he had forfeited his chance for the traditional honeymoon. Then came the call for a “kinder and gentler nation,” and a remarkably successful effort to conciliate former opponents in both parties.

Moderate Republicans as a group are no more predictable than their chief. The last elected moderate Republican Administration gave us detente, recognized China and, in the field of economic policy, took the United States off the gold standard, floated the dollar, embargoed agricultural shipments to our closest allies, froze wages and prices and slapped a 10% across-the-board surtax on imports. If the interests of the U.S. economy require drastic action or dramatic reversals of policy, the new Administration will not shrink from the challenge, even if it leads to Nixonian steps that antagonize allies and horrify the orthodox.

Country-clubbers aren’t hot rodders, and the new Administration will not make unnecessary waves. The WASP spirit resists change as long as it prudently can, but once convinced that action is required it is more likely to cut the Gordian knot than wrestle with it.

It is all too likely that drastic steps will be required in the next four years. In economic policy, the United States is on a collision course with the rest of the world; we face major conflicts with Europe, Japan and the developing world. These conflicts take many forms, but at the root of them lies a pervasive belief in the rest of the world that the United States lives much too well--that we do not need so much to become a kinder and gentler nation as a poorer and thriftier one.

There is much to be said for his point of view, but the career of Carter illustrates the fate of Presidents who tell the American people to solve their problems by buying smaller cars and driving them more slowly. Ronald Reagan, on the other hand, the man who taught us that “Don’t Worry, Be Happy” is a sensible response to $150-billion deficits, rides off into the sunset to the hosannas of a grateful nation ringing in his ears.

There are economic arguments against austerity too, and anyone who wants to examine them should look at Texas. This is always an important exercise in understanding the relationship between politics and economics in America, and never more so than now when the President, his secretaries of state, defense and commerce, the Speaker of the House and the chairman of the Senate Finance Committee all hail from the Lone Star State.

Whatever they think in Tokyo, Zurich and Bonn, Texas does not need a dose of taxes and austerity. The last Texas Republican before James A. Baker III to serve as Treasury secretary has been bankrupted by the collapse of the Texas economy; Texas bankers, oil drillers, real-estate developers and ranchers do not need austerity, and the U.S. government is likely to be sympathetic to their needs.

The next four years are therefore likely to see a U.S. Administration seeking to avoid an austerity program its allies seek to impose. We want to keep growing and spending; they want us to stop running up new debts--and start paying the old ones.

It might seem the United States is in a weak position. The United States owes the world around $300 billion, and the debt is growing at a rate of about $10 billion a month. It might seem as if U.S. creditors were rapidly gaining control over our national future, but the United States has found a potent new weapon: debtor power.

As the world discovered when the Third World debt crisis burst on the scene, the old saying still holds: If you owe the bank $10,000 and can’t pay, you are in trouble. If you owe the bank $10 million and can’t pay, the bank is in trouble.

The truth is that a sufficiently determined American government can continue overspending and overconsuming for some time.

Texas still produces good poker players who can spot the opportunity for a bluff when they see one. A collapse of the dollar, the U.S. banking system or the stock market would be as bad for foreign creditors as for us--perhaps worse. Every time the dollar has trembled on the edge of collapse, West Germany and Japan have rushed to the rescue. When their private investors grew wary of U.S. debt, their central bank stepped in to buy Treasury bonds. In effect, we have learned to make European taxpayers and bondholders underwrite our continued consumption.

This arrangement may not be pretty but it kept the United States prosperous during Reagan’s second term. And even if it should fail, even if Europe and Japan call our bluff, the Administration will not lack resources. Import surcharges, exchange controls, withholding taxes on interest paid to foreigners--those seeking blunt instruments for quick fixes have many weapons to choose from and, after poker, hardball is the favorite sport of Texas.

In the last four years, Baker and the rest of the Bush team showed themselves to be master tacticians, able to achieve America’s short-term goals in spite of a weak hand.

In the next four years, they will be tempted to rely on that tactical brilliance and the consequences may be dramatic. Unfortunately, the consequences may also be negative for larger U.S. interests. West Germany and Japan are more than commercial rivals; they are the linchpins, respectively, of our Atlantic and Pacific security systems. The more conflict-ridden our economic relationships, the more difficult it will be to maintain harmony in political relations.

There are also economic costs. The European enthusiasm for 1992 stems in large part from the desire of the Common Market countries to reduce their vulnerability to U.S. policy blackmail. Current U.S. policy is driving both Europe and Japan in directions that are against long-term U.S. interests--away from an integrated global economy based on the dollar and toward regional trading blocks.

The challenge for the Bush Administration is to integrate its superb grasp of the tactics of economic policy with a broader vision--a strategic approach to international policy that integrates economic and other foreign-policy interests. Success will give Bush and his Cabinet an enduring place in U.S., indeed world, history; failure will almost certainly overshadow any other achievements.

Whatever the final result one thing is almost certainly true: U.S. economic policy over the next four years is not going to be either wimpish or dull. The moderates are back; hold on to your hats.