Uncertain Economy Awaits Next President
Mar 30 01:51 PM US/EasternBy TOM RAUMAssociated Press Writer
WASHINGTON (AP) - Hillary Rodham Clinton, Barack Obama and John McCain have diagnosed the swooning U.S. economy and have come up with rival plans to revive it. If the downturn lasts as long as some economists predict, one of the three will get a chance to try to sell his or her proposal to Congress as president.
Or if the economy hits bottom before Inauguration Day and then turns up, the victor may be handed a rare gift: the chance to begin a presidency presiding over the early stages of a rebound.
Take your pick. Who knows where the economy will be in nine and a half months?
As economic clouds darkened last week, all three candidates delivered major speeches on the economy while the Bush administration prepared a plan to give the Federal Reserve new regulatory powers over the financial system.
Democrats Clinton and Obama outlined competing $30 billion stimulus packages to help homeowners facing foreclosure and other victims of the financial crisis. This would be on top of the $168 billion stimulus package of rebates and temporary tax cuts passed by Congress last month and signed by President Bush. Both Clinton and Obama also called for broader financial regulation.
Republican John McCain advocated voluntary action by lenders, more transparency in the lending process and the convening of a national conference of accountants and mortgage lenders to review how real estate is valued. He opposed large, taxpayer-financed bailouts but backed cuts in corporate tax rates and making permanent expiring Bush tax cuts.
The two Democrats are calling for a more activist role for the U.S. government to protect individuals. McCain is echoing standard GOP dogma of protecting markets and opposing bailouts.
All three praised recent intervention by the Fed and the Treasury Department to calm the financial storm, including sharp Fed interest rate cuts and a $29 billion rescue plan for investment giant Bear Stearns.
Since all three are members of the U.S. Senate, they can influence congressional action now. But political reality being what it is, their time for impact—at least for one of them—probably lies in the future, not the present.
And there already is a welter of antirecessionary proposals pending in Congress—including major bills by Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., to let the government step in and back up to $400 billion in troubled loans. Both Clinton and Obama have endorsed this legislation.
Economic statistics last week painted a bleak picture, reflecting continuing housing, credit and financial woes.
The Commerce Department reported the gross domestic product increased at an anemic 0.6 percent annual rate from October through December, and that consumer spending slowed to a crawl last month, edging up just 0.1 percent for the poorest showing in 17 months.
Consumers—whose spending traditionally accounts for about two-thirds of the overall economy—have been reeling under the credit crisis, job cuts and soaring energy costs. Many—if not most—economists say the country already is in a recession.
"It's clear the economy is in a slowdown," said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. He said the slowdown "has been sharper than I had expected" and that "the recovery in growth I had expected in the second half of this year may be delayed."
Polls show an interesting disconnect, however.
A recent survey by the Pew Research Center showed that only 11 percent of those questioned said the U.S. economy was in "good or excellent" shape. But when asked about their own finances, 47 percent said they were "good to excellent."
An AP-Ipsos poll in February produced similar results—with only 14 percent saying their personal finances were in poor shape but 61 percent agreeing the U.S. was in a recession.
"People don't see doom and gloom in their own world yet. They see higher prices. There is overwhelming concern about prices and all the megaproblems the economy faces," said Pew president Andrew Kohut. And since polls show "most people think we're already in a recession—or a depression—that could become a self-fulfilling prophecy."
Kohut said it isn't surprising that the three presidential candidates have turned their attention to the economy, which has surpassed the war in Iraq as the public's No. 1 concern. "People read stories about Bear Stearns being bailed out. They're well aware that things aren't right on the national scene. It's hard to imagine the candidates not recognizing the intense concern that the public is now expressing about the economy."
Clinton, Obama and McCain all described a darker economy than the generally bright picture painted by Bush, who said last week the economy would "come out stronger than ever before" with the help of stimulus tax-rebate checks that will start arriving in mailboxes in May.
Bush portrayed the current slowdown as just a rough patch.
Not all economists think it's a given that the downturn will extend into the next presidential term, despite many forecasts that it could be long and deep.
David Wyss, chief economist at Standard & Poors, said the present downturn "looks a lot like the recession of 1990-91." If so, he said, it should end sometime in the October-December quarter of this year," when the Fed rate cuts will probably take effect and when the financial markets will have calmed down."
In which case, the presidential candidates' antirecessionary plans "are really sort of irrelevant," Wyss said. "They're not going to be able to get them through when they are needed. And by next year, it's going to be too late."