Beyond the Beltway, the state of the nation’s economy is issue No. 1. But from the White House to Capitol Hill, Washington seems paralyzed on matters vital to the nation’s economic health. On taxes and banking, energy and even unemployment benefits, the combination of a fractious Congress, a disengaged administration and the intractable demands of interest groups has brought action to a halt. Things have gotten so bad that senators are hiring lobbyists to move legislation, while the House conducted much of last week’s business by voice vote to avert controversy. Sen. William Roth of Delaware summed up the mood in verse: “Twas the night before recess and all through the land/the economy was stagnate, employees were canned.
Were it not so serious, it would almost be fun to watch the nation’s political leaders acting like 5-yearolds squabbling in a sandbox. But these high-volume feuds have serious economic consequences. The $151 billion highway and transit bill was held up for months, slowing construction at a time when the economy could have used a boost. Although the economy is far from a basket case, politicians’ dire forecasts are discouraging the family and business spending that could speed recovery (page 47). “People are getting genuinely frightened,” worries New York economist H. Erich Heinemann. One indication: the widely watched consumer-confidence index of the Conference Board, a business research organization, is lower now than during the 1982 recession-a time when mortgage rates were 14 percent and unemployment was in double digits.
Of course, economic policy has rarely been the strong suit of politicians. But the combination of a Republican president and an overwhelmingly Democratic Congress makes every vote into a partisan melee. The public now blames Bush more than the Democrats for the nation’s economic problems–but Democrats who think that the shouting war will help them capture the White House next November may be in for a surprise. According to a recent NEWSWEEK Poll, only 31 percent of U.S. adults approve of Bush’s economic management, but a scant 28 percent believe a Democrat could do better. The unambiguous message: incumbents beware. “When I go home, what I hear from folks is, “Why can’t you jerks agree on anything?”’ says Rep. Fred Grandy, an Iowa Republican. “It has all the appeal of the Iraqi Legislature.”
The tax debate exemplifies Washington’s problems. Politicians of every stripe know that no spending or tax program is likely to reduce the unemployment rate in 1992. But who has the courage to say so? Instead, Congress and the administration are setting the stage for a pre-election orgy of tax cutting. Bush is still wedded to a lower tax rate on capital gains, although even Wall Street can’t get excited about the idea. “If that’s the centerpiece, it’s not going to do much,” says economist Robert Giordano of the investment bank Goldman Sachs. House Republicans, led by Newt Gingrich of Georgia, are pushing for tax incentives for real estate–as if the nation weren’t drowning in surplus office buildings-and lower taxes on yachts. Many Democrats want higher rates for top earners; that plays nicely to middle-class resentment of the wealthy, but it’s hard to see that it would make anyone better off. Both parties urge more liberal rules for Individual Retirement Accounts, ostensibly to encourage saving-at the same time they lament the lack of consumer spending.
Predictably, party leaders insist that principles are at issue: Republicans unfailingly promise “economic growth,” while the Democrats hammer away on “fairness.” “This is not political bickering,” says Senate Majority Leader George Mitchell. “There is a fundamental difference in approach. " Perhaps. But the principles can be hard to spot.
Take banking, whose weak condition has held back the lending the economy will require to grow. In February, Treasury Secretary Nicholas Brady offered a sweeping plan to reverse the long-run drop in profitability that threatens the Federal Deposit Insurance Corp. But the administration was no match for financial-industry lobbyists, whose clients have given sitting legislators $32.2 million over the past decade. Congress did help Sen. Alfonse D’Amato take care of the folks back home by agreeing to pay off some depositors who lost money in two failed New York banks, but securities and insurance interests killed off proposals to let healthy banks expand into new lines of business. At the behest of Rep. John Dingell of Michigan, lawmakers even refused to allow banks to spread risks by branching across state lines-which almost everyone agrees would curb failures. In the end, the bill let the Treasury “lend” $70 billion to the nearly insolvent FDIC; banks are supposed to repay the loan, but the standoff over ways to boost the industry’s slim profits leaves taxpayers on the line. “It makes no sense to put more money into the insurance fund and then not give the banks a fighting chance to pay it back,” says Treasury Under Secretary Robert Glauber.
Or take unemployment. Twice this year, the Democrats pushed through bills to keep unemployment checks going to workers whose benefits had run out. Bush vetoed both measures because they included no way to finance the $5.3 billion cost, and a timely chance to stimulate the economy was lost. Last month this battle of principle ended in a truce of expediency: Congress and the White House extended an unemployment tax that was set to drop in 1996; under the bizarre rules of federal budgeting, that funny money could be used to pay jobless benefits in 1992.
And then there’s energy. After two years of hearings, Energy Secretary James Watkins reported last year that the public favors alternative energy sources and increased efficiency. But Bush’s energy strategy emphasized nuclear power and domestic oil exploration. Gathering provisions as it went, the plan was universally panned by the time it reached the Senate. The conservative National Taxpayers Union opposed subsidies for the nuclear industry. Home builders protested energyconservation rules. Environmentalists objected to oil drilling in an Alaskan wildlife refuge, and automakers howled at fuel-efficiency requirements included to placate environmentalists. The Democratic sponsor, Sen. J. Bennett Johnston of Louisiana, grew so desperate he engaged lobbyist Anne Wexler, a former aide to President Jimmy Carter, to mobilize support. A senator hiring a lobbyist? As President Gerald Ford once observed, “If our Founding Fathers were alive today, they’d be spinning in their graves.” But even Wexler couldn’t make opposites attract: the bill never made it to the floor.
In the presidential election year ahead, the prospects are for much more of the same. The administration is in disarray. Bush’s White House advisory process “is very loosely organized and extremely ad hoc,” says Princeton University’s Fred Greenstein, a scholar of the presidency. Although key aides like budget chief Richard Darman and economic adviser Michael Boskin are fiscal conservatives, supply-siders such as Housing and Urban Development Secretary Jack Kemp keep up a drumbeat for tax cuts. Those ideological differences are mirrored in Congress, where many mainstream Republicans, including Dole, openly disdain supply-sider Gingrich-and vice versa. Meanwhile, Bush’s failure to address economic concerns head-on has business leaders fuming. “He says the recession’s over,” says the head of a Fortune 100 company. “I don’t know anyone in business who believes that.”
Things aren’t much better among Democrats, who have proven far more adept at countering Bush’s ideas than at enacting programs of their own. Despite their tactical victory last week, the Democrats will be hard pressed to keep their troops in line if a tax war breaks out in January. Many hope House Ways and Means Committee chairman Dan Rostenkowski, who worries about the $269 billion federal deficit, will contain the pressure-but Rostenkowski is ready with a plan of his own. After watching the tax cutters run out of control in 1981 and again in 1986, the Democrats’ senior economic policymaker has a pretty good idea of where to place his bets-and the economy may not be the winner.
