Mr.
President-Elect, are you sure you wanted to win this election? One of
the wisest old sayings warns be careful what you wish — you may just
get it, good and hard.
The growth rate for the quarter ended in September was half the previous
one. New capital goods orders fell for the third month in a row. Even
with the recent rallies, the Nasdaq is off more than one-third from
its high, and even the Dow is down after its best days all year. Non-performing,
"adversely" rated bank loans doubled the past two years. The default
rate on junk bonds tripled from 2 percent in 1997 to 6 percent today.
High yield bonds have their biggest risk spread since the early 1990s.
Venture Economics reported late last week that investments in new companies
were down 30 percent in the last quarter.
Yes, the market rallied somewhat anyway but it is whistling past the
graveyard. Happy days are not here again. It is time to use the R-word
and it looks like the recession will hit just after the election, if
it has not begun already. Remember, no one noticed the recovery in 1992,
when President George Bush got the blame. This election, neither presidential
candidate would dare to use the word, even if he recognized such a decline,
because he could not know how it would affect his chances. Conventional
wisdom says economic bad news would help the challenger but it could
just as easily move risk-adverse voters to the experience represented
by an incumbent vice president. So, mum's the word until today.
What is certain is that now it is in the winner's interest to throw
the blame at Bill Clinton. He will have to move fast. Once the news
media find a villain, they never look back. It has long been clear that
Mr. Clinton needed a President Gore's good will for future legal battles
and would have to take the fall for him. But it also has been clear
that Mr. Clinton would positively enjoy getting two Bushes in a row
to take the blame for bad economic times in a way that would benefit
his Democratic Party. And he was slick and smart enough to pull it off.
Both Bushes were known for making a big distinction between politics
and "governing." Politics is what one does to get elected. After safely
past the election, it was then time to reach out and govern with the
other party. It was not just a campaign slogan. The senior Mr. Bush
got taken to the cleaners by crafty Democrat Senate Leader George Mitchell
because the later understood that politics and governing must go together
and recognized that the president did not understand this. Unlike Austin,
with its conservative Democrats and power vested in the hands of a few
reasonable leaders, if you stretch out your hand in Washington, you
have it cut off. Al Gore has a bit of this good governmentitis too.
If the economy sinks, the president-elect must immediately use his whole
campaign apparatus to put the blame for the recession on Bill Clinton,
and continue in this political mindset throughout his presidency. If
he hesitates, Bill Clinton will place the blame for the recession on
him and he will be known for generations for not being able to sustain
the "Clinton prosperity."
Besides playing an unfamiliar political blame game, the new president
will need a bolder economic plan. It was not devised for a recession.
He must invoke the example of Ronald Reagan — even Bill Clinton did
when he had to. The president-elect must be bold, with a plan big enough
to do the job. Why not propose complete elimination of the capital gains
tax like Belgium, Hong Kong, the Netherlands, Singapore, South Korea
and Taiwan? One can always compromise to cutting it in half. DRI/McGraw
Hill estimated that one-quarter of the growth of the market in 1997-98
was the result of lowering the gains rate from 28 percent to 20 percent.
The Cato Institute's Stephen Moore and John Silva estimate that $7.5
trillion could be unlocked from investments held to escape the tax,
more than enough to duplicate the Reagan recovery.
You were unlucky enough to win the presidency, and now you must pay.
You will be tested to act against your instincts from Day One. If you
feel some reluctance to play political hardball, you should do a bit
of reading about one of your predecessors. Herbert Hoover was also famous
for his engineer's lofty disdain of grubby politics, and he and his
party have paid the price ever since.
Donald
Devine, former director Of the U.S. Office of Personnel Management,
is a columnist and a Washington-based policy consultant and a Vice Chairman
for the American Conservative Union.
