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Talking Down the Economy

Mises Daily: Friday, March 16, 2001 by

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As the stock markets continue to fall and economic indicators point toward a recession, Democratic politicians are reviving charges that President George W. Bush has been "talking down" the economy. My first reaction to such charges, other than to dismiss them as nonsense, is to wonder whether or not politicians ought to be accusing their rivals of having superhuman powers. Perhaps the next charge will be an accusation that Bush is using witchcraft to bring down the Dow.

However, with the "talking down" charges certain to be leveled again and again as the economy tanks, perhaps it is time to explain why politicians—not to mention Federal Reserve chairmen—cannot cause a recession with mere words.  I do not fear what politicians say, but I greatly fear what they can do.  

In order to debunk the "talking down" charges, one must explain why they are bunk, not just say they are ridiculous and leave it at that. The first obvious refutation is that politicians generally feel safer during good economic times than bad ones. If the economy suffers even during the earliest days of the Bush Administration, it reflects badly on his regime no matter how short a time it has been in office. After all, voters blamed President Ronald Reagan for the 1982 recession that began less than a year after he moved into the White House. Therefore, even if Bush could bring down the entire economy with just a few words, it is doubtful that he would do it since, in the long run, there is no real political advantage to him.

Democrats, of course, are trying to say that Bush is talking the economy into a recession in order to discredit the presidency of Bill Clinton and his political party. Clinton, they say, might have been dishonest and a cad, but he was a brilliant president who brought prosperity to this nation by pushing through an increase in marginal income tax rates. The new taxes raised so much revenue that it enabled the national government to run a budget surplus, which, in turn, created conditions for economic growth.

Again, we are in the twilight zone of common sense.  If Clinton’s tax increases created prosperity, then why not raise taxes even more and have even more prosperity?  If a top marginal tax rate of 39.6 percent made the American economy better off, then what economic miracles would a top rate of 50 percent, or perhaps even 100 percent, create? Given that frame of mind, Clinton obviously was guilty of dereliction of duty, since he did not bring us as much prosperity as he could have created.

Moreover, if sad talk from the President of the United States can bring down an economy, then it stands to reason that happy talk would have the opposite—and much more desirable—effect. Thus, if Clinton brought America prosperity, then Bush could bring even better times by "talking up" the economy. That he would not be doing so is a mystery—unless this whole "talking down" business is simply nonsense.

The first thing to remember here is that the economy is more than one day on the stock market. There is no doubt that mere words can trigger a one-day crash; just witness the effects of Alan Greenspan’s "irrational exuberance" comments a few years ago. Furthermore, the infamous October 1987 crash came while a congressional committee debated a bill that was aimed at stopping large-scale leveraged buyouts of publicly-held corporations.

That being said, Bush has done nothing more than to repeat statistical findings that are already in the public domain. He has not threatened producers of wealth, as did Clinton during the disastrous "Hillary-Care" episode of 1993 and 1994, nor have there been repeats of Dan Rostenkowski’s "If you’re middle-class, you’re getting a tax cut, and if you’re rich, you’re having your taxes increased" line when he headed the House Ways and Means Committee in 1993. (This was before Rostenkowski was given a new address in federal prison for committing various crimes while in office.)

As for Rostenkowski, he ultimately joined forces with Clinton to raise taxes on nearly everyone, although the most wealthy did, indeed, see their taxes go up substantially. One only wonders how much better the U.S. economy would have done had Clinton and Congress not raised taxes on anyone. As one might expect, economic indicators did not immediately rise when the Clinton Administration announced tax increases. It was only after a number of things took place over time that the economy finally began to show real improvement from the recession that had gripped the country in the early 1990s. Talk, incidentally, did not happen to be one of those things.

Certainly, talk that accompanies action can have a devastating effect upon a society. Take Zimbabwe and its Marxist dictator, Robert Mugabe, for example. In the last three years, Mugabe has unleashed mobs upon farms owned by whites, resulting in death, rape, and, ultimately, devastation upon the economy of that nation. It is not just Mugabe’s antiwhite, antienterprise rhetoric that is dangerous; it is his destruction of the legal and social apparatus upon which exchange and production depend and his incendiary words that have accompanied that action. Therefore, one might be able to say that Mugabe has "talked down" the Zimbabwean economy, but only if one acknowledges that deeds must occur simultaneously with talk.

The real issue, then, is not the talk but rather the action that causes participants in an economy to lose their confidence to invest and make long-range plans. That is hardly a mystery. Government policies that confiscate the property of productive individuals or threaten the legitimate livelihoods of people are going to discourage those folks from carrying on such activities in the future—at least, activity that is "on the books."  Furthermore, if the government brings physical violence against productive individuals, or murders them or sanctions their murder, then one can expect productive activity to cease altogether.

If one examines what Bush has been saying, however, one finds none of the incendiary rhetoric, nor does one see him demanding that Congress engage in the kind of antibusiness behavior that was part and parcel to the early proposals of the Clinton Administration. While Austrian economists and fellow travelers would like to see Bush engage in much more radical reductions of the burden of government than he has proposed, Bush has not demanded anything on the level of Hillary Clinton’s health plan, which would have made voluntary transactions between doctors and patients a criminal offense.

The president of the United States, simply by citing economic indicators that demonstrate that the economic boom is turning into a bust, is not "talking down the economy."  The economy today needs no assistance from Bush to go into the doldrums. As any competent Austrian economist can point out—as has been done on the Mises page on several occasions—the inflationary policies of the Federal Reserve, the same ones that created the boom, have given us the inescapable bust.  

Bush was not in the White House when the Fed foolishly was pumping new reserves into the economy. Unfortunately for him, he inherits the inevitable bust that is not of his making. Perhaps if the president had an Austrian or two among his economic advisors, he might have some intellectual ammunition in order to counter the ridiculous charges made by his political opponents.

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William Anderson (send him mail) teaches economics at North Greenville College. See Anderson's Daily Article Archive .