Can Bush Repeat Nixon's Trick and Manipulate the Economy to Win?

Roundup: Media's Take

Charles R. Morris, author of Money, Greed and Risk, in the NYT (Feb. 7, 2004):

If President Bush can maintain the recovery through his re-election campaign, he will be in rarefied company. Richard M. Nixon, in fact, may be the only recent president to accomplish this feat, timing a recovery from a midterm recession to coincide with his 1972 race. The reason this is so hard is that, despite all the bragging about creating jobs or speeding growth, presidents really have few economic tools at their disposal. Most federal spending is outside a president's direct control — locked up in things like retirement programs that chug along pretty much by themselves. The same is true of taxes and interest rates. A president can set the agenda, but taxes are ultimately controlled by Congress. Interest rates fall under the domain of the independent Federal Reserve.

Yet Nixon proved that if a president plays his weak hand ruthlessly — without restraint or regard for long-term consequences — he can make the economy sit up and roll over at his command. In the end, of course, the Nixon "recovery" was short-lived and America soon paid a steep price for it. Unfortunately, Mr. Bush's economic performance so far is eerily similar.

Back in the early 1970's, with both high inflation and slow growth, Nixon's economic challenge may have been even more intractable than Mr. Bush's. So, with his re-election in jeopardy, Nixon and his Treasury secretary, John B. Connally, bludgeoned both the Congress and Federal Reserve into a truly radical experiment. Congress passed wage and price controls and the Federal Reserve simultaneously increased the money supply.

The gamble was that a big jolt of money would rev up the economy while the price controls would suppress inflation. It worked, allowing Nixon to win in 1972. But success came at a huge cost. Once the price controls were removed through 1973 and 1974, all the suppressed inflation came roaring out, hitting the double digits and plaguing the second half of the 1970's. Worse, the resulting collapse of the dollar led to the 1973 OPEC "oil price shock." Altogether, it was one of history's most expensive election campaigns.

Many analysts worry that a Bush-style recovery could be similarly catastrophic. Taking a page from the Nixon playbook, Mr. Bush has wielded his fiscal tools aggressively. Over the last two years, there has been a half-trillion dollar swing in the federal books, from a $100 billion surplus in 2001 to a deficit of about $400 billion in 2003, and an expected $521 trillion in red ink for 2004.


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