Re: [Futurework] Camouflage -- again! ( was: Remaking America)

[Ed Weick]

You may have a point, Keith.  Tariffs are no longer in, so other means have to be used to reduce imports, boost exports, and get Americans to buy American.  One of my long-ago economics profs called the competitive tariff raising games of the 1930s "beggar my neighbour policies".  Increasingly making it more difficult for foreign producers to access the US market may be that kind of thing.   As an aside, humerous but potentially dangerous, the prof had a habit of pounding the desk when he was making a point.  One day, as he was pounding away at his most furious, a large section of the plaster on the ceiling came loose (because or workers on the roof) and rained down on the class.  After that, he stopped pounding and started waving his arms in the air with equal ferocity. Ed Weick   ----- Original Message ----- From: Keith Hudson To: Ed Weick Cc: [EMAIL PROTECTED] Sent: Tuesday, May 27, 2003 3:48 PM Subject: [Futurework] Camouflage -- again! ( was: Remaking America) At 08:44 27/05/2003 -0400, you wrote: No comment needed! Ed Weick I think there is! My comment is that this is yet another piece of subterfuge by Bush's administration and that Paul Krugman, and most other commentators, including the leader writer of the FT, have missed the point. Just as the Bush team camouflaged their true reason for going to war in Iraq by talking about WMDs, regime change, international terrorism and the like, so this piece of tax legislation is camouflage for something more insidious and powerful. The tax cut, though it sounds huge, will really have quite trivial effects on consumer demand -- less than 1% according to some economic commentators I've read. As critics have noted, the rich will gain much more than the middle class (though note that the latter will gain something!) but they're hardly going to stimulate the economy all by themselves. Also, as the critics have noted, the squeezing of state spending on medical and social services will not be very helpful to Bush's election campaign -- which at the moment is the highest item on his agenda. So it's more than passing strange that Bush might possibly alienate some of the electorate? Unless he had something else up his sleeve. What is being camouflaged is an unstated, but quite definite, weak-dollar policy. Paul O'Neill, the previous Treasury Secretary with a penchant for making (apparent) gaffes about the dollar, was sacked for not talking it down skilfully enough. The American administration didn't want to be seen to be *officially* wanting a weaker dollar. (Note that no-one in a senior position actually contradicted O'Neill's gaffes.) But the administration certainly *does* want a weak dollar -- only this time it must not be seen to be a deliberate policy of the government because it would be interpreted as being aggressive and thus antagonise the EU and Japan. So what has been happening in recent weeks is that the new Treasury Secretary has been much cleverer in hinting -- but very mildly, you understand -- that a weaker dollar would not necessary come amiss. The point is that he's hinted this not once or twice, but several times. These are most certainly not gaffes. And, lo and behold, even though the dollar had already come down 20% against the euro in the past year, it has now been sliding further to 30% below. But even this is not enough. It needs to be talked down a little further yet. The danger is, of course, that a gentle slide in the value of the dollar might turn into a rout and the dollar could easily overshoot any sensible exchange rate that the EC and Japan could tolerate. That this might greatly damage the French and German economies (as well as hurt Japan even more) doesn't seem to worry the Bush team overmuch. (The country that is now becoming America's biggest trading partner, China, wouldn't be affected at all because its renminbi is officially tied to the dollar.) At least, the damage to Europe and Japan is worth risking because there's a prize in the offing that will be enormous by the time the next presidential election comes along. A further 20 or 30% slide in the dollar ought to stimulate the American economy sufficiently to kickstart American exports, dramatically reverse unemployment and restore consumer demand far more powerfully than any tax cuts could ever do. (Tax cuts in an economy which is feared to be deflationary are saved rather than spent.) This consumer boom is precisely the sort of effect that Bush will need in the months before the 2004 election. It has been the *apparent* lack of such an economic policy by Bush that has puzzled me greatly in the past several months. In my view, a very subtle piece of camouflage is actually going on. (Of course, even though the tax cuts don't do much for the economy,  and might even antagonise some voters, they're a wonderful encouragement to rich Republicans who will be expected to contribute even more to Bush's election fund than they did last time.) However, the main thing is the re-energising of American exporting industry. If Snow can pull this off, then Bush will walk the next election. Keith Hudson   May 27, 2003 Stating the Obvious By PAUL KRUGMAN But then maybe that's the point. The Financial Times suggests that "more extreme Republicans" actually want a fiscal train wreck: "Proposing to slash federal spending, particularly on social programs, is a tricky electoral proposition, but a fiscal crisis offers the tantalizing prospect of forcing such cuts through the back door." Good for The Financial Times. It seems that stating the obvious has now, finally, become respectable. It's no secret that right-wing ideologues want to abolish programs Americans take for granted. But not long ago, to suggest that the Bush administration's policies might actually be driven by those ideologues that the administration was deliberately setting the country up for a fiscal crisis in which popular social programs could be sharply cut was to be accused of spouting conspiracy theories. Yet by pushing through another huge tax cut in the face of record deficits, the administration clearly demonstrates either that it is completely feckless, or that it actually wants a fiscal crisis. (Or maybe both.) Here's one way to look at the situation: Although you wouldn't know it from the rhetoric, federal taxes are already historically low as a share of G.D.P. Once the new round of cuts takes effect, federal taxes will be lower than their average during the Eisenhower administration. How, then, can the government pay for Medicare and Medicaid -- which didn't exist in the 1950's -- and Social Security, which will become far more expensive as the population ages? (Defense spending has fallen compared with the economy, but not that much, and it's on the rise again.) The answer is that it can't. The government can borrow to make up the difference as long as investors remain in denial, unable to believe that the world's only superpower is turning into a banana republic. But at some point bond markets will balk they won't lend money to a government, even that of the United States, if that government's debt is growing faster than its revenues and there is no plausible story about how the budget will eventually come under control. At that point, either taxes will go up again, or programs that have become fundamental to the American way of life will be gutted. We can be sure that the right will do whatever it takes to preserve the Bush tax cuts right now the administration is even skimping on homeland security to save a few dollars here and there. But balancing the books without tax increases will require deep cuts where the money is: that is, in Medicaid, Medicare and Social Security. The pain of these benefit cuts will fall on the middle class and the poor, while the tax cuts overwhelmingly favor the rich. For example, the tax cut passed last week will raise the after-tax income of most people by less than 1 percent not nearly enough to compensate them for the loss of benefits. But people with incomes over $1 million per year will, on average, see their after-tax income rise 4.4 percent. The Financial Times suggests this is deliberate (and I agree): "For them," it says of those extreme Republicans, "undermining the multilateral international order is not enough; long-held views on income distribution also require radical revision." How can this be happening? Most people, even most liberals, are complacent. They don't realize how dire the fiscal outlook really is, and they don't read what the ideologues write. They imagine that the Bush administration, like the Reagan administration, will modify our system only at the edges, that it won't destroy the social safety net built up over the past 70 years. But the people now running America aren't conservatives: they're radicals who want to do away with the social and economic system we have, and the fiscal crisis they are concocting may give them the excuse they need. The Financial Times, it seems, now understands what's going on, but when will the public wake up?  Copyright 2003 The New York Times Company | Home | Privacy Policy | Search | Corrections | Help | Back to Top Keith Hudson, 6 Upper Camden Place, Bath, England