So is it farewell to Treasury Secretary Nicholas Brady and budget director Richard Darman, Federal Reserve Board chairman Alan Greenspan and chief economic adviser Michael Boskin? Don’t bet on it. After two years in power, Bush’s economic team is looking stronger than ever.
The gulf war, of course, is the key reason Bush’s economic policies are being spared the withering criticism normally aimed at any administration presiding over a recession. Only now, six months after the economy slid into recession, is the pressure mounting for Bush to prove that he has as much interest in fighting unemployment as he does in fighting Saddam Hussein.
Bush’s advisers have had much to do with creating an aura of good feeling after last fall’s acrimonious budget negotiations. When Bush finally retreated from his campaign pledge of “no new taxes” in return for a far tighter lid on spending, many Republicans in Congress rejected the deal as a sellout of their commitment to hold down taxes. It’s the majority Democrats, however, who have reason to grouse: they surrendered their ability to mount their customary attack against cutbacks, and they cannot make major changes because the agreement locks in outlays on entitlements and discretionary programs through 1995. “It was widely touted as a victory for the Democrats in Congress,” recalls Isabel Sawhill, a budget expert at the Urban Institute. “But if the Democrats won the battle, it now appears the Republicans won the war.”
That has turned the annual budget slugfest into a shadow match: for the first time in a decade, a spending package from the White House was not declared dead on arrival on Capitol Hill. In hearings last week, legislators from both parties went out of their way to praise the very budget director they lambasted last fall. The budget “has pieces of tactical brilliance in it,” admits Robert Reischauer, director of the Congressional Budget Office. Says Darman: “Not only am I happy with the budget, but increasingly so is everyone else.”
The administration is following up that initial victory with other moves on the economic front. Last Tuesday, Brady presented a sweeping plan to restructure the banking industry, winning a surprisingly warm reception. This week the administration will announce its long-delayed energy strategy, and Boskin’s Council of Economic Advisers will release its annual report - which, unlike the 1990 version, is expected to stress the government’s obligation to aid the disadvantaged, taking dead aim at the Democrats’ claim that Republican policies are unfair to the poor and the middle class.
Boskin, Brady, Darman and Greenspan have worked out a paradoxically testy but cordial relationship that permits their talents (and egos) to flourish even as Washington gossips about who’s in and who’s out. All have direct personal relationships with George Bush and all are pragmatists - two factors that have helped keep their frequent intellectual disagreements from degenerating into personal grudges.
Darman is undoubtedly the most controversial of the bunch. Many complain of his arrogance, but almost everyone in Washington admires his political savvy, his detailed knowledge of budget procedures and his skill at laying out the facts to his best advantage. “There’s less information in this budget than in any budget I’ve seen in years,” marvels Stanley Collender, a former congressional budget expert. “It’s brilliantly done, absolutely brilliantly done.” Until recently, the days before the budget release saw a flood of news stories leaked by agencies unhappy about their allocations. This year, not even Brady got a look at the final version of the seven-pound document until it was made public.
That slight hardly ruffled the Treasury secretary, despite his position as the administration’s chief economic spokesman. Brady, a fellow Yale alumnus who has known Bush since 1975, shrugs off criticism from Washington insiders, mostly on the Republican right, that his department is ineffectual. “I’m not running for anything but the city limits,” he quips. Most recently, Brady incurred conservatives’ wrath by counseling Bush against a renewed attempt to reduce tax rates on capital gains, arguing that the benefits were not worth the political cost. Brady may deserve part of the blame for the precipitous regulatory changes that suddenly left many banks on the brink of insolvency, and his new proposal to give Treasury an even stronger role in bank regulation worries some who fear political intrusion. But he has shown an eagerness to tackle complex issues - Third World debt, futures-market regulation, the savings and loan crisis - that hold no political attraction.
Boskin, a political novice, has proved a surprisingly influential force in the administration - due, at least in part, to his status as Bush’s frequent tennis partner. He had a major role in holding down the cost of last year’s Clean Air Act, and energy strategists dropped the idea of tough efficiency standards for new cars after the Council of Economic Advisers calculated that one plan would cost up to $80 for each barrel of oil saved. “Boskin has provided a lot of credibility to the council, where the council in the Reagan administration was headed into oblivion,” says a Democratic admirer.
Greenspan, a Reagan holdover, is the odd man out on the economic policy team. Brady, in particular, has taken the Fed chairman to task for keeping too tight a lid on the money supply, driving the economy into recession. Although the two men talk almost daily, the public relationship between the Treasury and the Fed “is appalling,” says a former Fed official. The latest row: Bush’s appointment of Greenspan to head a committee to study capital-gains taxes. Many fear that job will politicize the Fed chairman’s role, but Greenspan, whose term as chairman expires in August, was in no position to decline.
Some of the intramural strife is rooted in philosophical differences. Darman, Brady and Boskin believe that the economy can grow about 3 percent a year over the long term, while Greenspan thinks inflation will rise if growth gets beyond 2.25 percent for long. Greenspan flatly blames the recession on the drop in consumer confidence due to the gulf war, implying that it may be hard for the Fed to restore growth simply by pushing interest rates down. Brady disagrees. And while Greenspan frets about a postwar boom that could rekindle inflation if the money supply isn’t held down, Brady counters: “Most of inflation is in the services area, where you can’t drive it out by monetary tools.”
Monetary-policy decisions are not Greenspan’s alone. Even if he were willing to ease more quickly, the presidents of the 12 regional Federal Reserve banks, several of them anti-inflation hawks, might well block the way.
Is the team up to the task of taming the recession? All believe the government should not use its spending and taxing powers for that purpose, leaving recession-fighting to the Fed. “They are hoping that there are forces in the economy that’ll cure the recession by itself,” complains House Budget Committee Chairman Leon Panetta. “I would fault them in not doing more to propose unemployment relief,” adds Robert Greenstein of the Center on Budget and Policy Priorities. “Even if the recession is over in five or six months, there’s still going to be substantial unemployment for a couple of years.”
Congressional Democrats want to channel additional help to workers who have used up their 26 weeks of unemployment benefits, and some are lining up behind a proposal by New York Sen. Daniel Moynihan to cut the social-security payroll tax rate while extending the tax to earnings above the current $53,400 limit. Yet many liberals share the administration’s view, along with its expectation that the recession will be short. “I don’t think there’s serious discussion about antirecession spending policies, nor should there be,” says Alice Rivlin of the Brookings Institution. At the moment, the administration’s optimism seems justified. If the downturn deepens, however, the Bush team’s hands-off policy will leave the initiative once again to the Democrats on Capitol Hill.
