Economic Principals

Two interesting developments in the news about Washington surfaced last week. Taken together, they offer an intriguing clue as to what to expect from American politics in the next few years.

Dick Cheney told a Texas newspaper that he had agreed to serve again as President Bush's running mate in next year's re-election campaign.

And the Council of Economic Advisers began moving from its long-time home in the Executive Office Building next to the White House to an office two blocks away.

What that adds up to is, Start getting ready now for the election in 2008.

By now, the thirty-year history of the little band of brothers who constitute the Bush team should require little rehearsal here. Its senior figures first came together in 1974, in the administration of President Gerald R. Ford. They have been together ever since, alternately quarreling and making common cause, in and out of the White House.

Donald Rumsfeld was Gerry Ford's chief of staff -- until he gave the job to an aide, young Dick Cheney, and moved himself to the Pentagon to serve as Secretary of Defense. Alan Greenspan was chairman of the President's Council of Economic Advisers. George Bush, a comparative outsider, became director of Central Intelligence -- his proud son George W., a first-year student at Harvard Business School.

Despite their plentiful rivalries, these men have at least two things in common. First, they share a sense of high purpose. It's not that they went to dancing school together. They met at the White House in the wake of Richard Nixon's divisive resignation, with a mandate from the Congress to rebuild the nation's confidence and trust.

Moreover, they have succeeded in the task of repairing the damage done by Vietnam, and Watergate, at least by many measures, though of course the work was done by many hands, especially those of Ronald Reagan. The United States today is a very different place from what it was in 1974. And in any event, thirty years is a long time to work at or around the pinnacle of government.

The other thing the men and women around Bush share is political realism. Their nightmare is a one-term presidency. It happened to them in 1976. It happened again in 1992. In 2004, they are determined to prevent it happening again.

Its sense of mission has served the Bush team well in foreign policy. There is something Trumanesque in the way the president, apparently mostly on his own, sized up the increased threat from terrorism in the wake of the 9/11 bombings and declared war on it at its source, actual and potential. The doctrine of pre-emption where possible and pressure when not is likely to remain American foreign policy for many years to come. The odds favor a Bush landslide in the presidential election in 2004, no matter who gets the Democratic Party nomination.

If that happens, though, the Republican Party may be setting itself up for a fall in 2008. For it is much less clear that the Bush administration understands the economic situation facing the country. And by 2008, that situation may be coming to a boil.

Just as Lyndon Johnson dominated the domestic agenda and won an overwhelming victory in 1964, only to get in trouble in Vietnam, so Bush may have foreign policy well in hand, yet be on the verge of getting into really serious trouble on the domestic front.

Certainly for those same 30 years, the various members of the Bush team have been buffeted by a momentous sea-change in attitudes toward government -- a sea-change of which they were themselves among the first victims. Ford lost the 1976 election to Jimmy Carter.

Carter campaigned on a platform of "zero-base budgeting" and smaller government; Ford was painted as being an apostle of the status quo. (In an awkward moment later used to embarrass him, Ford defended the communist government of Poland as having been freely-chosen.)

The Bush team was victim of this turn away from government a second time in 1980, when Ronald Reagan bested George H.W. Bush in the primaries, and spurned a last-minute bid at the convention to install Gerald Ford as vice presidential ballast. Reagan finally settled on Bush for a running mate, despite the latter's famous dig at "voodoo economics."

In 1992, anti-Beltway populism did in Bush for a third time. Republican political strategist Lee Atwater had died from a brain tumor the year before, primaries split the GOP ranks, and H. Ross Perot siphoned off enough voters that Bill Clinton beat George H.W. Bush out of the presidency after a single term.

Thrice-burnt, way shy. No wonder then that Dubya -- the Bush they now call 43, as opposed to his father, who was the 41st president -- decided there would be no point in running to the middle.

The trouble is that the administration now is without any economic story except tax cuts. The White House spent its first year successfully persuading Congress to repudiate the increases that had been engineered by Bill Clinton in 1993. They've spent the last several months unsuccessfully pursuing a multi-year $750 billion tax cut in the name of "stimulus."

Is there anyone left who remembers the president's elaborate plans for Social Security reform? Instead of undertaking the combination of later retirement dates, benefit cuts and "revenue enhancements" that would have kept the plan in actuarial balance, he appointed a commission that sketched gauzy plans to let individuals manage their own accounts in the stock market. Then he abruptly retreated in favor of foreign wars. And instead of making a meaningful attempt to come to grips with soaring medical costs, he proposed only an expensive expansion of the prescription drug benefit.

It is here that the Council of Economic Advisers comes in. Already the president has fired his two top economic counselors, Treasury Secretary Paul O'Neill and National Economic Adviser Lawrence Lindsay. Last week his Council began moving out of its offices on the White House grounds.

(The National Economic Council -- a Clinton invention meant to resemble the National Security Council -- remains in the White House. It is now headed by Steve Friedman, former co-chair of Goldman Sachs.)

The CEA's move -- from great stone pile inside the White House complex that is the Executive Office Building to a building at the corner of 18th and G Streets, a couple of blocks away -- is highly symbolic, "the political equivalent of being sent to Elba," wrote Dana Priest last week in The Washington Post.

Since being established by Congress in 1946, the Council has come to be seen as the seat of professional authority of policy economists -- stewards of the president's policies in the best of times, nay-sayers to a constant stream of half-baked spending plans, the voice of conscience when required.

Its chairmen occasionally have differed with the president himself, as in1973 when Paul McCracken quietly resigned after Richard Nixon's decision to impose price controls, or when Martin Feldstein fenced publicly with the White House in 1983 over the economic significance of large deficits.

For a time under Bush, Columbia University economist Glenn Hubbard played a lively role as chairman, preparing tax cut legislation. But since the 9/11 attacks, the Council's significance has dwindled, until all three of its seats are unfilled going forward. The University of Chicago Business School's Randall Kroszner has remained to hold the fort.

When the new council members finally show up -- Harvard economist N. Gregory Mankiw has been nominated chairman and Princeton's Harvey Rosen and MIT Sloan School's Kristin Forbes are thought to be on the way -- they will face a difficult challenge.

All three are stars, each in their own way. But first they must pass the gantlet of confirmation hearings. Then they must achieve the other, more important hearings -- periodic audiences with the president, and the license to publicly articulate his views.

Remember, for all their cavalier attitude towards the professoriate, there is a strong economic underpinning to the thought of the second Bush administration. They want to make the government smaller. They may not, however, have thought very deeply about whether that can possibly work in the face of the baby boom's impending retirement. No matter what, some very unattractive choices loom.

Thus the second Bush term, assuming it occurs, will be set up as a referendum on what now is called "Rubinomics," after former Treasury Secretary Robert Rubin. The Clinton administration raised taxes and got a boom that eliminated the deficit. The Bush administration cut taxes and increased the deficit. We'll see what kind of an economy they get. It is always possible that that growth will be better than expected.

It is possible, too, that the country will reach a fiscal crisis and the reaction of the public will be in effect, Yes, they were right, there was nothing much they could have done. Then a stoic Congress will make the necessary cuts in entitlement programs

But it is at least as likely that the reaction of a majority of voters will be rage.

In any event, the fact that Dick Cheney will be staying on means that no potential presidential Republican successor will be anointed by the Bush administration. Some familiar figures already have left -- former Treasury Secretary Paul O'Neill, for example. Others veterans may leave in due course. A new Fed chairman eventually will be appointed, a new Chief Justice too, and many other judges.

With those exceptions, the long patrol that started with the Ford administration finally will come to an end one day in January 2009, disappearing all at once, 35 years after it began, a little like the Wonderful One-Hoss Shay of the famous story. Behind it in Washington, the Bush administration will leave behind plenty of talented seconds -- but perhaps otherwise a fiscal Vietnam. That would be an invitation to a very different kind of politician to walk in and take the reins of power.

But the Democrats who hope to take control cannot expect to govern credibly unless they find a way to bond themselves against the charge that they automatically favor higher taxes. That would mean embracing some new kind of fiscal framework designed to tie the hands of budget-makers, much as the relatively simple and transparent rule that now governs monetary policy and constrains the governors and bankers of the Federal Reserve System.

For 20 years US politics has been a kind of Punch-and-Judy show, in which the Republicans have tried to limit spending on government to around 16 percent of GDP and the Democrats have tried to raise it to 20 percent. Each side has availed itself of every conceivable stratagem, fair and foul, to achieve its goal -- short of actually seeking to tell the truth in a manner on which both sides can agree.

Those enormous aggregate numbers cannot meaningfully be discussed, however, until there is some rough agreement about the bourgeoning share of spending that will be devoted to health care in the coming years -- much of it channeled through government insurance.

Clearly there is plenty of work for the members and staffers of the Council of Economic Advisers to do -- before they return from their exile to the White House grounds.