Talking down Jonathan Alter

By W. James Antle III
web posted March 26, 2001

The world of political punditry last week grew bleaker with the tragic passing of Rowland Evans, who along with his longtime sidekick Robert Novak had provided robust commentary and insightful analysis to the daily op-ed pages and television talk programs for more than 30 years. Evans, who died of cancer at the age of 79, was ideological (conservative) but independent. His journalism was relevant because it was actually informative, not merely talking-head blowhardism.

Characteristics such as informative reporting and independence of mind are increasingly missing from mainstream political commentary, as evidenced by Jonathan Alter's trite "Between the Lines" column in Newsweek magazine. Alter is not without talent and his columns have on occasion been well worth reading. But like so much else, the quality of Alter's political analysis suffered during the Clinton years. His essays have increasingly tended towards unrestrained partisanship and an embarrassing addiction to even the most childish conventional wisdom.

This unfortunate proclivity was illustrated with all the subtlety of a sledgehammer when he gave credence to the notion that our coming economic slowdown was somehow the result of President George W. Bush "talking down the economy." The ensuing article, "Thanks Ever So Much, President Poor-Mouth" was a poorly reasoned attempt to dress up the Democrats' party line as something new, innovative and dictated by common sense.

Have we deviated so far from the constitutional republic of our founders that we truly believe our presidents are gods? For it would take god-like powers for one man, even if that man is president of the United States, to adversely affect the long-term health of a $10 trillion economy with mere words. Political leaders are able to impact, say, the performance of the stock market during a single day with an ill-advised (or perhaps even right-on-target) remark, but they cannot verbally cause a recession. Yet this is precisely what Mr. Alter would have us believe.

The type of people Thomas Sowell likes to call the anointed enjoy the idea that people like themselves can control the economy and influence the behavior of the great unwashed masses with their words. That is why this absurd notion that President Bush somehow "talked down" the economy is so popular among the liberal elite. Not only does it fit into their propaganda about a careless president willfully destroying the nation's economy to justify a tax cut for the wealthy, but also it comports nicely with their statist worldview that the economy runs by the grace of government.

Economic illiteracy doesn't hurt proponents of this position either; it is fashionable to view economic growth as the artificial by-product of consumer optimism and recessions as the manifestation of poor consumer confidence. There are no underlying market realities, just emotions practiced en masse.

By this tortured logic, we should elect motivational speakers to the presidency and possibly install Zig Ziglar as secretary of the treasury in order to create a feel-good climate conducive to endless economic growth. Yet a bit more is involved in the creation of wealth than fluctuating feelings. The trends that have brought near-zero economic growth, a manufacturing recession, a stock market free-fall and slipping "consumer confidence" did not emanate from President Bush's lips, Jonathan Alter notwithstanding.

After he gets done scolding President Bush for pointing out the obvious (the economy is slowing down), Alter argues that "the logic of the Bush economic plan has taken an Orwellian turn." How so? Bush both states that we have large enough surpluses to "afford" tax cuts and that a possible economic contraction increases our need for stimulative tax cuts. Far from being unreasonable, Alter himself concedes that a strong economy is what is producing these surpluses. Cutting tax rates will increase the economy's strength and preserve the conditions that make budget surpluses possible. The conventionally accepted $5.6 trillion budget surplus projection over ten years allows for a mild recession. Lowering marginal income tax rates may well keep the recession mild and allow for big enough surpluses to compensate for any forgone federal revenue.

It is Alter's economic position that is Orwellian. Alter argues simultaneously that there is no looming recession (or last least that there is insufficient evidence of one) and that the Bush administration's words threaten to cause one in the future. He says that it was okay for Ronald Reagan to point out the economy's weakness when we had double-digit inflation, interest rates and unemployment but today's economy (with much lower inflation, interest rates and unemployment) can be derailed entirely by expressing concern about future growth. Alter seems to say the economy needs stimulus but from anything but the Bush tax cut.

Alter offers some curious economic analysis. He absolves Washington policymakers of any responsibility for the "bursting" tech-stock bubble. But how did the more questionable dot-coms obtain their funding? From the $100 billion Alan Greenspan's Federal Reserve has pumped into the economy since 1996 in the form of newly created fiat money, with the blessing of Alter's buddies in the Clinton administration. The 1990s were generally credit-happy times, with credit available to companies that were highly likely to fail. Now many of these companies have failed and are liquidating their workforces. The Fed in turn had to tighten the money supply at the beginning of the year in an attempt to put the brakes on what its loose money had done.

This is the market "correction" we are now witnessing. Only through speculative trading and gushing money and credit did some of these prices become so horrendously overvalued in the first place. The binge could not go on forever and it didn't.

Easy credit also partially explains the 1990s boom that Alter implies refutes the case for lowering marginal rates. First, economic growth during the '90s has to be understood in the context of the marginal-rate cuts that took place during the 1980s. Even after the tax increases of 1990 and 1993, the top statutory marginal rate of 39.6 percent was still well below the 70 percent rate of 1981. The Reagan tax cuts were not completely reversed and its beneficial impact on wealth creation was still significantly in effect. Since those marginal rate reductions, the economy had grown 97 percent of the time (compared to two-thirds of the time historically) and the general trend toward progressively lower unemployment was in motion.

Second, raising the top marginal income tax rate twice in the 1990s did have a negative economic effect, even if it was not as bad as some of the more hysterical Republican and supply-side predictions. The 1990 tax increase, which raised the top rate from 28 percent to 31 percent, was a significant contributing factor in the 1990-91 recession. The 1993 Clinton tax increase came at a time when the economy had grown nearly 4 percent in the last quarter of the elder George Bush's administration. During Clinton's first term, the economy averaged just 2.4 percent annual growth. Growth accelerated after the 1997 capital-gains tax cut. Had growth continued at the rate projected at the end of Clinton's first term, the economy would have grown an average of just 2.6 percent annually from 1993 to 1999 - more than a full point below the height of the Reagan expansion, from 1983 to 1989.

Finally, a large part of the boom consisted of people running up their credit card bills and purchasing like mad. This is not a permanently sustainable situation, as consumer debt, personal bankruptcies and credit buying skyrocketing to unprecedented levels. A good deal of the 1990s entrepreneurship that Alter reminds us was undeterred by the Clinton tax increase also grew from lax credit. This madness was fueled in no small part by a central banking system that was growing the money supply, as measured by both M2 and MZ, by double-digit annual rates while the US national savings rate stood at zero. Such policies tend to produce rosy economic statistics in the short term while undermining the fundamentals of the economy over the long run.

That Alter, like most of the cookie-cutter, conventional-wisdom pundits of both the left and right, does not understand this is obvious by his prescription for the ailing economy (I thought things were just fine as long as President Bush shuts up- why do we need any kind of stimulus?). He endorses Sen. Bob Graham (D-Fla.) and the ghastly Sen. Jon Corizine's (D-NJ) proposal to immediately drop the bottom income tax rate from 15 percent to 10 percent. The Bush plan would also cut the bottom rate to 10 percent, but this plan would do it much faster and does not contain any rate relief for those in higher brackets. Presumably, this would increase demand and spur consumer spending (as if a lack of that were really the economy's problem).

It might actually accomplish those goals by giving some families a $1,000 tax cut as early as this summer, but it will achieve little for the long-term growth prospects of the economy. It would worsen incentives to work, save and produce by lowering the bottom rate while leaving higher rates unchanged. This would worsen incentives by effectively raising the marginal tax rate on each dollar earned in excess of $19,000. Whatever it would do to consumption levels, this proposal is actually deleterious to investment, entrepreneurship, wealth formation and enlarging the base of taxable income.

Despite Alter's protests to the contrary, upper-income taxpayers do fuel much of the economy's innovation. They take risks, invest and create jobs at a far greater level than lower-income taxpayers. Their purchase of what is today considered luxury products finances the development of these goods and services into something affordable enough for the average consumer to buy. These taxpayers are responsible for much of the new capital formation. They also are not necessarily that wealthy. Taxpayers in the top rates are actually lifelong workers now in their peak earning years who once were in lower brackets. Why penalize them? And while Alter is right that even many small businesses incorporate, as many of 72 percent of those filing returns on incomes in excess of $250,000 are small business owners claiming their sole proprietorship's income as their own. Creating wealth, not simply consuming it, is what moves economies forward in the long term.

Perhaps these imprudent policy recommendations are Mr. Alter's way of talking down the economy.

Half of the famed Evans and Novak team is no longer with us, depleting the ranks of serious political journalists. Reading Jonathan Alter is but one way to remind us of this loss and to observe a void likely to grow more apparent with time.

W. James Antle III is a former researcher for the Rhema Group, an Ohio-based political consulting firm. You can e-mail comments to wjantle@enterstageright.com.




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