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August 24, 2003
David Warsh, Proprietor


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The Sea-Puss

Ocean swimmers know the mechanics of a sea-puss. A submerged sandbar is formed by breaking waves. Closed at one end, it becomes an underwater dam — then, without warning, suddenly gives way. The penned-in water flows out to sea, a rip-tide carrying unwary swimmers with it. A situation that one moment seems monotonously predictable is fraught with danger the next.

Something of the sort occurred in U.S. presidential politics in 1992, when H. Ross Perot’s entry into the presidential primaries cost George H. W. Bush his presidency. It is happening again in California today, where a recall provision has given rise to a wild special election campaign.

Ordinarily, a Clinton-style defense based on a widely-shared distaste for extreme methods might be enough to save Gov. Gray Davis from defeat. But revulsion against politics-as-usual has set in at the bottom of the business cycle.

The result is an experiment that may be very dangerous to the economic health of California — but which may bring substantial gains in understanding for the rest of us.

Arnold Schwarzenegger has vaulted to the top of the polls on the strength of a hastily-organized “Economic Recovery Council” consisting chiefly of investor Warren Buffet and veteran political counselor George Schultz.

In the early maneuvering, his advisers seem to be as much as odds with one another as the Republican Party itself, divided between rigid anti-tax politics and that combination of spending trims and tax increases that ordinarily marches under the banner of “responsible stewardship.”

Nobody yet knows what the candidate himself believes about the long-term fiscal position of California, including, in all likelihood, the recently-declared candidate himself. It is all rather like Perot in 1992.

The submerged sand-bar in U.S. politics is the fear of permanent government deficits. The strategy of cutting taxes in the expectation that spending cuts inevitably must follow simply has not worked. It cannot work in a republic that values its civic realm. Some sort of budgetary compact tying spending to tax increases in the only reasonable alternative.

Don’t expect the underwater dam to give way in the presidential election next year. Foreign policy — plus a wait-and-see attitude toward George Bush’s economic policies — probably will dominate that campaign.

But the California recall/election is a clear indication of how treacherous the waters remain.

* * *

Jay W. Wiley is no Paul Samuelson, and Purdue University is not Massachusetts Institute of Technology. But for a crucial decade in the 1950s and 1960s, Purdue’s Krannert School of Management served as a haven for some of the most talented mathematical economists of the post-World War II generations, and its economics department attracted some of the professions most successful teachers and students.

Wiley, who began as an instructor in history, economics and government in 1938, was part of that, and served as an adviser to several developing countries as well. He retired from active teaching in 1984.Among his students was the theorist Hugo Sonnenschein. Today, Wiley is 90 years old, and West Lafayette is the scene of a considerable celebration. .

Economic Principals remains on the beach in Michigan, with swimming on its mind.

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