Glenn Hubbard, chairman of
the President's Council of Economic Advisers, thinks the
economy will recover on its own without a stimulus package and
that President Bush will choose that remedy if Congress sends
him a bad bill.
Mr. Hubbard, a free-market
economist who usually steers clear of political rhetoric, laid
down some markers last week that were aimed at Democratic
Leader Tom Daschle. The political leader has done everything
he can to kill or at least delay the president's tax-cutting
His line-in-the-sand warnings
were part of a stepped-up White House offensive in the
political battle over the president's economic agenda. That
offensive began when White House economic adviser Larry
Lindsey called Mr. Daschle's foot-dragging on the most
pressing domestic priority in the country a shameful
"abdication of responsibility" in a time of war and
Thousands of workers lost jobs,
mortgage foreclosures were high, factory plants closed,
personal incomes were flat, and the economy was contracting
— "and Daschle's top priorities are the farm bill and a
railroad-retirement bill that have zero priority right
now," Mr. Lindsey told me.
Mr. Lindsey's surprisingly
political attack, delivered under orders from the White House
high command, was Phase One in the administration's drive to
get a stimulus package passed that can quickly energize the
A week later, Mr. Hubbard fired
the second shot in the president's offensive. His blunt
message: Send Mr. Bush an anemic stimulus bill without
accelerated tax-rate cuts, and he will veto it and take his
chances that an already resurgent economy will bounce back
early next year, beginning in the first quarter.
"If what the president were
presented here was a whole set of proposals that on net had
very little stimulus, he may be well advised simply to let the
economy recover on its own," Mr. Hubbard told me as
congressional leaders began negotiations on the bill late last
"We think accelerating the
tax cuts is a really important part of the package. My concern
would be that if you got a package that contained that, but
added a great deal of new spending, on balance it would be
difficult to ask the president to consider it seriously,"
In fact, under those
circumstances, Mr. Hubbard said he "would urge the
president not to sign it."
As for Mr. Daschle's so-called
stimulus plan, which contains no tax cuts for people who pay
taxes, "it would have very little stimulus effect and
arguably a negative effect" on the economy, he said.
Mr. Hubbard said "a real
stimulus bill" that accelerates the Bush tax-rate cuts is
needed to fuel faster growth, although he believes the economy
can come back on its own over a longer period.
He now thinks the recession will
be "shallow and short," and that the economy will
rebound in the first three months of 2002, leading to
"robust growth in the last half of the year."
The consensus-growth forecast
among blue-chip business economists for the first quarter is
about half a percent, an estimate Mr. Hubbard considers
Indeed, he says there are
recovery signs that the worst is over, except for the
unemployment rate, which is a lagging statistic that won't
turn around for some months.
"The financial markets are
relatively optimistic. I think there is reason to believe that
the capital overhang, on balance, is unwinding, so that
investments should pick up next year. Consumer spending
remains robust. So, on balance, there is a reason for
optimism," he said.
Senior White House officials say
that the real motivation behind Mr. Daschle's bitter
opposition to the Bush stimulus bill is purely political. He
wants the recessionary economy to last well into next year to
give the Democrats a major issue in the midterm elections. But
it looks like the nation's $10 trillion economy has plans of
its own that will foil his gambit.
Last month's big jump in the
National Association of Purchasing Managers' index, which
tracks manufacturing, was twice what analysts expected and one
of the largest one-month increases in NAPM's history. Factory
orders are way up. So is residential and nonresidential
construction, fueled by low borrowing costs, which saw a
nearly 2 percent increase in October.
With the country still hurting
from the economic collapse triggered by the September 11
terrorist attacks, it is hard to see Congress adjourning
without passing a stimulus bill. And, clearly, a faster
economic recovery will be critical to the GOP's drive to hold
on to the House, retake the Senate and keep gubernatorial
losses to a minimum next year.
But the strong signal from a
newly emboldened White House last week is that the bill has to
have real tax-cutting incentives for growth. Otherwise, it's