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Bush Bids to Regain Economic Initiative

By: Jonathan Weisman and Dan Balz
Washington Post, July 24, 2002

Under mounting pressure from Wall Street and the Republican rank and file, President Bush's economic policy team is starting a heightened public relations campaign to highlight the economy's bright spots and a push to grab the legislative initiative.

Bush and his economic advisers will use Congress's August recess to press their agenda, encouraging lawmakers to give the president more authority to negotiate free-trade pacts and to adopt his pension protection proposals. More dramatic ideas to use tax cuts to entice investors back into the stock market have been rejected so far as politically risky.

Administration officials hope the pension issue could answer criticism that the White House has been trailing Congress on economic issues rather than leading the charge. "You're going to be hearing a lot about pensions," said Michele Davis, a Treasury Department spokeswoman.

The plunging stock market touched off a dispute yesterday between the White House and a leading GOP polling firm over how the turmoil on Wall Street might be affecting the political climate before the November elections, showing what could be a growing disconnect between Republicans running for reelection this year and a president who won't face the voters until 2004.

A recent poll conducted by Public Opinion Strategies and distributed on Capitol Hill warns that what once was an incumbent-friendly environment could turn against Republicans in the fall. The poll showed that a majority of those surveyed said the country has gone off track and that a plurality now say the country is heading into a deeper recession.

But the Republican National Committee, in a view consistent with the thinking of White House strategists, countered yesterday by e-mailing a memo from Bush polling director Matthew Dowd to reporters and party activists debunking that warning. "Recently, there has been increasing attention and much commentary, some misguided, on the right direction/wrong track numbers," Dowd's memo said.

Dowd said perceptions of whether the country is heading in the right direction are roughly the same as they were just before Sept. 11, though down sharply from post-Sept. 11 highs. But he said that offsetting the recent decline are other signs that show Bush and the GOP are in stronger shape than they were a year ago. "The return of this one number does not reflect the overall political landscape as many pundits might suggest," Dowd wrote.

The Bush economic team huddled on Monday to discuss the market slide and its potential impact on the economy. Treasury Secretary Paul H. O'Neill, under heavy criticism for his near invisibility during the stock market swoon, shuttled to New York yesterday for closed-door meetings with investment fund managers, financial services executives and Wall Street economists. His only public comment came after leaving a meeting at the New York Federal Reserve Bank: "We had a wonderful lunch."

A White House response to what former Federal Reserve vice chairman Alan Blinder called possibly the greatest crisis of economic confidence since the crash of 1929 is greatly constrained by administration philosophy and economic fundamentals.

The administration does not believe in dramatic intervention, either in the markets or the economy. At the same time, the administration remains confident that steady economic growth, bolstered by low interest rates and low inflation, will not be dragged down by the sliding markets.

"Very significant policy changes are in the works already: corporate governance, the staging of the tax cut, terrorism insurance," said Glenn Hubbard, chairman of the president's Council of Economic Advisers. "What's important is to continue to have the kind of economic stewardship that the president has had, and making sure our policies are consistent with the fundamentals of the economy."

In large part, that means emphasizing what administration officials think is the economy's fundamental strength. Bush, O'Neill and other officials will fan out around the country in August to visit manufacturers or other employers, large and small, that are thriving in a tricky economy. They hope this effort will be more successful than the speeches and informal remarks Bush has made in the past two weeks in an effort to buoy economic confidence.

One plan is to have Bush appear more frequently with workers, as he did earlier this year when the administration first became concerned that the then-budding recovery might not immediately increase employment. Several of Bush's events will allow him to hear comments from invited citizens, perhaps laying the groundwork for future proposals.

O'Neill also plans to visit businesses dependent on exports, an attempt to prod Congress into granting Bush the power to negotiate "fast-track" free-trade treaties that would not be subject to congressional amendment.

And the team will continue to blame congressional spending for a budget deficit now projected to be the highest since 1995. One official said Bush would be happy to see Congress send him an appropriations bill that he could veto. Had Congress done that already, the official said, "It would have been a good thing; it would have shown consumers he's solid on spending."

Much of the new spending, however, has come at the administration's request -- for the war on terrorism and homeland security. Democrats say Bush's tax cuts have contributed to the return of deficit spending, but administration officials say those cuts helped to prevent a more serious recession.

The economic team also hopes to pick up an initiative that appears dormant in Congress: pension protection. After Enron's collapse, when thousands of employees' retirement funds disappeared, Bush proposed legislation mandating that employees be allowed to diversify their 401(k) and pension investments, many of which are tied up in their employer's stock. A Democratic bill similar to the president's proposal is set for Senate action in the fall, but the delay offers Bush an opportunity to regain the lead, officials say.

More dramatic economic proposals have so far been squelched. According to one economist close to the administration, White House economic adviser Lawrence Lindsey has suggested a narrowly tailored cut in the tax rate paid on stock profits for investors buying new stocks. That could lure buyers into the market. But the proposal was roundly shot down because it could be interpreted as a gift to affluent taxpayers at a time of economic uncertainty.

Other administration economists have studied a tax cut on corporate dividends as a way to entice companies to inject their cash holdings into the economy and prevent more stock selling. But the idea has gained little traction.

That is, in part, because White House officials still show little of the concern expressed by congressional Republicans and Wall Street that the sharp stock slide could crush the economic recovery and destroy the GOP's fortunes.

The market continued its decline yesterday for the fourth day straight. Yet White House communications director Dan Bartlett said, "I think it hasn't reached a point of being a political issue. I think you see the concern and, quite frankly, the anger of the American people correctly pointed at corporate America and CEOs who are violating the public trust."

Critics also fault the administration for sitting on the sidelines as Congress moves to address concerns over corporate accounting chicanery and budget surpluses turned into deficits. "Somebody has to explain to the American people what the game plan is here," said Felix G. Rohatyn, ambassador to France during the Clinton administration and former managing director of Lazard Freres & Co. LLC, echoing the sentiment of many Wall Street executives.

But White House officials said yesterday they don't see public attitudes shifting against Republicans, arguing that surveys on the direction of the country can be misleading indicators in election years.

"We are 100-odd days from the election," said a senior White House official. "The fundamentals of the economy are strong. . . . There's a remarkable stability in public opinion about this."

Staff writer Mike Allen contributed to this report.

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