Wednesday, September 18

Speculation circles Bush’s economic impact


Despite rumors of impending 2005 bust, some economists see otherwise

The shortest recession since the United States began keeping
records in the early 20th century appears to be over.

After a peak in March 2001, the U.S. economy went into
recession. But with a rising GDP, rising stock market prices and
other indicators of an expanding economy, an economic boom seems
impending ““ just in time for the 2004 presidential
election.

For some, it seems like too much of a coincidence that the
economy would recover just before the election. Instead, some
people think George W. Bush has engineered an economic boom to help
him win in November.

“There is a theory that in presidential election years
both fiscal and monetary policy are expanding, so people are happy
and vote for the incumbent,” said economics Professor Aaron
Tornell.

For example, democratic multimillionaire and investor George
Soros has publicly stated he believes Bush’s current economic
policies will cause an election-time boom in 2004, to be followed
by a bust in 2005.

But most people do not seem to anticipate a bust after the
election.

“The post-election recession was a habit, but that was the
old world,” said economics Professor Earl Thompson.

Thompson said it is very difficult under today’s
circumstances for presidents to engineer an economic election-time
boom because doing so would require the help of the Federal
Reserve.

In the past, the Federal Reserve was much more politically
affiliated than it is today, so past presidents were able to lean
on their chairman for a little help.

The election years of 1948 and 1956 both experienced booms,
followed by busts in the following years. Similarly, 1972
experienced a boom that was followed by a long period of
inflation.

But since the Federal Reserve is now supposed to be nonpartisan,
Thompson said he does not expect current chairman Alan Greenspan to
show any sort of party affiliation.

“I think Greenspan wants to avoid even the appearance of
supporting Bush’s re-election,” Thompson said.

Tornell also noted investors are closely watching every move the
Federal Reserve makes, so he expects the institution to be sure its
primary objective is for GDP to rise and inflation to decrease,
regardless of the political climate.

But even if Bush is unable to enlist the help of the Federal
Reserve, he still has the potential to impact the economy.

“Is Bush going to do everything that he can to be sure
we’re in the recovery phase of the economic cycle? Of course
he is; it is his responsibility as our president,” said
economics Professor Jack Hou.

In a 60 Minutes interview, journalist Bob Woodward claimed Bush
struck a deal with the Saudi royal family to lower oil prices in
the months prior to the election.

Lower oil prices would allow consumers to spend more money on
other products, therefore stimulating the economy.

Aside from such alleged activities, Bush’s presidential
policies such as tax cuts and government spending have impacted the
economy. Tax cuts are widely believed to stimulate economic growth,
as does high government spending.

Bush has pushed for tax cuts since entering office. Largely as a
result of the wars in Iraq and Afghanistan, he has also presided
over the largest percentage increases in government spending since
the early 1980s.

The question becomes whether these policies were implemented
primarily to improve the pre-election economy, and if they will
later complete the political business cycle theory by resulting in
a bust.

“The concept of Bush engineering a political business
cycle has a lot of smoke, but I don’t see any fire behind the
smoke,” Hou said.

Most people seem to think the tax cuts were designed to affect
the election overall, not just the months before the election, and
will continue to have a positive effect. As for increased spending,
the deficit has the potential to hurt the economy, but many expect
it to shrink as tax revenues increase.

Therefore, instead of expecting a boom in 2004 followed by a
bust in 2005, many economists expect a steady expansion throughout
both years.

“If this year is good, next year is also going to be
good,” Tornell said.

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