Perilous Roars From Bearish Bush

President-elect George W. Bush is decidedly bearish on the economy, and that worries some economists and raises ire in the Clinton White House. The talk of recession may be part of a carefully choreographed campaign to lay the political grounds for Bush’s $1.3-trillion tax cut, but it may also help plunge the country into recession if jittery investors overreact to the dire predictions and precipitate a stampede of capital out of U.S. markets. It’s a bad strategy from any angle. If the economy is merely slowing down in response to the Federal Reserve’s interest rate increases--a welcome development--a tax cut would only blunt the effect. If the country is on the verge of a recession, the economy would not generate the surplus revenue needed to pay for it.

As careless as Bush’s talk of a recession may be, he is not the first incoming president to so speak. President Clinton himself warned about a weak economy before taking office in 1993 even amid general agreement that the 1990-91 recession was long over. President Ronald Reagan’s camp was famous for its “economic Dunkirk” predictions aimed largely at propping up Reagan’s tax cuts. Bush hopes to use his gloomy predictions for the same purpose and, at the same time, pin the blame for any downturn on his predecessor.

By most indications, the economy is slowing down rapidly and may have even overshot the targets the Fed had intended. Consumer confidence is down, profit warnings are a daily ritual and housing activity is off. The Conference Board’s index of leading indicators--which looks to economic conditions three to six months ahead--has been slipping. But most independent analysts agree that the economy is not headed for a downfall any time soon.

President Clinton’s last budget projections, unveiled Thursday, show a non-Social Security surplus of $1.9 trillion over the next decade, some $200 billion more than forecast in June. A combination of fiscal restraint and monetary ease laid the foundation for the economic boom that generated the extra revenue. There is no reason to change that recipe. Fiscal tinkering through tax cuts is too slow a process to stop a recession, especially in today’s politically charged Washington. Up to this point, Federal Reserve Board Chairman Alan Greenspan has guided monetary policy with a deft hand. If there is a recession, it will be the Fed’s responsibility to take remedial action.

Small changes in economic assumptions result in huge differences in projecting what the situation will be 10 years down the road. Just as quickly as numbers rise, they can fall. It would be far more prudent to use the surplus to pay down the debt and, with what’s left, make long-term investments in America’s education and health care. Those are goals for which Bush need not scare up a recession.