As the stock market continues its free-fall toward a bottom that seems ever more distant, while an endless progression of mighty corporations seize the headlines with their confessions of fudged numbers and faked profits, an increasingly jittery nation is looking to the CEO in chief for reassurance.
So far, neither the markets nor individual Americans are hearing what they want. President Bush's poll numbers are softening, and his stern remonstrations against corporate criminals do not appear to have instilled any backbone in investors. With each day, the bear market becomes more fully entrenched, the retirement nest eggs of millions of Americans wither away a little further and the sense that corporate America is a playground for corrupt delinquents strengthens.
It is true that the stock market is not the economy. It is also obvious that much of the corporate malfeasance that is currently being laid bare before a disgusted public began occurring long before Bush became president. But such caveats are becoming less and less helpful to the current administration, as each new revelation of accounting fraud and each new slump in the Dow slam into their predecessors like so many freight cars piling up against a suddenly stalled locomotive. At some point, one has to stop blaming the train wreck on the previous conductor.
But what can President Bush do? Should he make examples of some of his Cabinet members and agency heads, such as the bizarrely ineffectual treasury secretary, Paul O'Neill, or the woefully compromised SEC chief, Harvey Pitt? Should he try to seize the moral high ground back from Congress, and demand tougher regulations and accounting rules? Does he dare address the nation publicly again, when his last outing provoked renewed outbursts of despair on Wall Street?
There are no easy answers -- but then again, no one ever said being the CEO was supposed to be kid's play. Salon rounded up a gaggle of experts on economics and politics and asked them the pertinent question: If you were George W. Bush, what would you do to stop the bleeding?
Paul Tiffany, professor of business and public policy at the University of California at Berkeley
Bush needs to take dramatic and symbolic steps to let the nation know that he is aware of the depth of the problem and is taking action to rectify the situation. So far, all of his speeches, responses to media questions, radio addresses, etc., have been nonstarters. This is because he has essentially said nothing, other than that executives should behave ethically, etc. -- no news there. His call for a tougher accounting standards board is, I believe, being perceived as a weak bureaucratic response to a problem that requires national leadership.
There is an interesting analogy here to the fear gripping the nation after the 1929 market crash. The sitting president, Herbert Hoover, effectively said there was nothing to do but sit tight, wait it out, and in the long run better times would return. This prompted John Maynard Keynes' famous retort that "in the long run we are all dead."
Also note that when Hoover was replaced by Franklin Roosevelt in the 1932 election, one of the first actions the new president took was to go to the airwaves and start his so-called fireside chats, radio addresses to the nation that were meant to reassure the public that their president was aware of the issues and was fighting them hard.
Bush, so far, has been utterly incapable of taking this leadership role.
Potential actions include: 1) replace Pitt at the SEC, install a new chair who is above reproach -- a Warren Buffett kind of individual; 2) order the SEC to open all the records on his prior Harken Energy transactions and show the public that there is nothing to hide, he is clean as a whistle; 3) replace either or both Larry Lindsey at the Council of Economic Advisers and Paul O'Neill at Treasury, then install known figures of indisputable integrity and knowledge of markets and financial policy/economic policy.
These actions are, as noted, symbolic. However, with emotions running rampant I believe that such a dramatic and symbolic step is necessary to grab the attention of the public.
While I hold out little hope that Bush would actually do this, it nevertheless does strike me that the true heart of this matter is the continuing problem with political campaign financing and how politicians are essentially beholden to special interests (primarily -- but not only -- business) in order to generate the funds necessary to mount a serious political campaign today. As such, Congress (and state-level governments as well) has seriously weakened the regulatory and bureaucratic controls that have in the past tended to minimize the potential for problems, such as the current ones we are witnessing with the accounting profession. Were Bush to call for serious campaign finance reform, similar to what McCain has advocated for several years, it could do wonders to restore credibility to Bush's promises to crack down on financial market behavior by business and executives.
Allen Sanderson, associate chairman of the University of Chicago economics department
Whoever is in office, Republican or Democrat, tends to get the credit when things go well, and is on the receiving end of blame when they don't. That's natural, part of the job description. But it's important to keep in mind that a $10 trillion economy takes on a life of its own. One cannot influence it very much with fiscal policy. There are even limits to what the Fed can do. The psychological impact and emotional appeals are short-lived: Giuliani did well in the weeks after Sept. 11, but it wore off. Church attendance was up in October, a month after the attacks, but by November it had gone back to where it was. Similarly, anything the administration might do will have a very short-term impact.
So if you ask what should the president do -- Should he buy stocks? Does he go on TV and assure people? -- the answer isn't clear. I think in terms of stability, he should give the air of confidence, but not arrogance, not panic. I've often thought that we should have a constitutional amendment saying that the president and Congress can't push legislation in times of crisis because there's such a tendency to overreact and do things that have long-term consequences. Cooler heads need to prevail.
Now, should Bush go on a month vacation to the Caribbean, and be seen swimming every day? No. But should he be seen doing shuttle diplomacy between Washington, D.C., and New York in some kind of hands-on attempt to manage the economy? He shouldn't be doing that either.
If one could average Bush and Clinton, that wouldn't be bad. Clinton looked like he was engaged all the time -- with the economy, the Middle East. He was a workaholic. And Bush is very different. So some average of the two would be best. But it's the proverbial rock and a hard place -- you need to be engaged and concerned, but not panicked. My own sense is that [Bush] should be going to Crawford for a couple of weeks, not for a month. Postpone the other two weeks off to show concern.
Jeff Madrick, economist and author of "The End of Affluence"
After the Enron scandal, Bush's advisors literally implied that this was how the economy should work, that when a company gets out of hand the market should punish it. That's utter nonsense, in retrospect.
Because it was clear that the rules had to change. It was clear that the market did not adjust for Enron, because Enron fooled the market for many years, and a lot of wasted capital went in that direction. And many other companies are participating in the same deceit and possible fraud.
Without accurate information markets don't work. But markets alone do not provide the incentives for corporations to provide the most accurate information needed for decisions. I would propose serious regulations to make sure that information was accurate and correct, including serious oversight of accounting issues, demands that audit committees report to the board of directors, not to the CEO, and new rules about conflict of interest in investment banks and brokerage firms.
Second, I would rescind future tax cuts. This nation has a public agenda and it must be met. The U.S. is dangerously heading toward federal deficits it cannot control. Some deficit is required at this time, but these deficits can easily get out of control, and are currently contributing to lack of confidence about economic leadership. It is extraordinary that after the time of the greatest accrual of private wealth in our nation's history, we're going to give rich people the biggest tax cut of the last 100 years.
Third, we should reinvestigate Social Security to see whether privatization really makes sense. And we will be sure to be as sincere and honest about our new proposals for Social Security as this environment warrants.
It's bad enough that the president has offered no reforms on how to account for stock options. But Congress seems to be refusing, in the light of extraordinary lobbying, to propose meaningful reforms as well. We need some version of expensing stock options against profits.
Martin Anderson, Ronald Reagan's domestic and economic policy advisor from 1980 to 1982
I think there's one thing that trumps everything else. Although Congress is frantic to pass new laws, I think it's real simple. Do you know what would happen if you or I stole something? We'd be arrested, indicted and put in prison. The simplest thing to do with these economic problems is to find the people who have committed crimes, indict them and put them in prison.
It's mass theft, it's fraud. When you take the books of a corporation and you inflate the profits and you induce people to invest their life savings in your company and then you cash in on it -- and then if you get caught, you just hire a bunch of smart lawyers who get you off -- people lose confidence. It's about accountability. They need to enforce the existing laws; they need to indict people, and if someone is found guilty, they need to go to Pelican Bay [one of the nation's toughest prisons]. This would have a salutary effect on the entire system.
It would seem to me that the Justice Department goes after big crooks in the Mafia. Well, these executives are even bigger crooks. So where's the Justice Department? They need to go after these guys. There are all kinds of laws against fraud; this is not rocket science. The one thing the government should spend some money on is personnel -- police, district attorneys and investigators who actually know a little about finance. Pay them a little extra money. It's like when we went to Afghanistan, we found people who speak the language. It's the same situation here. We need to find people who can do the job. But if someone walked into Reagan's office when he was president and said there are these executives who are lying about profits, cashing out and hurting people who wanted to save money for their retirement, I know what he'd say: Find out who's doing it and indict them.
Doug Dowd, author of "Understanding Capitalism"
What the Bush administration should do is get an entirely different group of economic advisors, including Alan Greenspan, because the ones they have now are out of the 1920s in their attitudes toward economic policy.
There's been a real lurch backward, which began in the late '70s. I think it's hopeless to expect the Bush administration any more than the Hoover administration to do the things that are wise and desirable and necessary.
What should be done as a first step is begin to think in terms of stimulating the economy by running a budget deficit.
James K. Galbraith, professor of economics, public affairs and government at the University of Texas, Austin. (His July 21 editorial in the Washington Post outlined a series of potential reforms; we asked for his top three)
1) Revenue sharing -- a block grant to prevent spending cuts by states and localities. At least $100 billion is needed urgently.
2) A temporary (say, three-year) cut in payroll tax rates, offset by repeal of out-year 2001 tax cuts and crediting of corporate and estate-tax revenues to the trust funds. The idea here is to get money into the hands of working people and at the same time to make sure that the size of budget deficits over the longer term is kept under control. You do that by getting rid of the nonsense of estate-tax repeal and by closing loopholes and whatever else you can do.
3) Very wide-ranging monetary and financial reforms, domestic and international. The gist is to lock in low interest rates and stable but not excessive growth of credit, as well as relief of past debts, before the entire U.S. household sector joins the corporate sector in running to the bankruptcy laws. Presently people are being held up by their willingness to borrow against their home equity. That's not going to last; there's a limit to what people can borrow.
There is no way that Bush can pursue this agenda, from which I conclude that things will get worse until the American voter takes a hand in this matter, first in 2002 and then in 2004. We're at a moment when all of this talk about the fundamentals being good is predicated on a positive financial condition. That's the thing that scares me most down the road. It's clearly a historical pattern going back to the 1920s: When politicians have nothing constructive to propose, they put a positive spin on the situation. Then a new group comes in with actual ideas and the old group is swept out of office. That's likely what will happen here.
Alan Reynolds, senior fellow with the Cato Institute
I'm somewhat sympathetic to Sen. Biden's remark. "If every time you give a speech the stock market goes down, why don't you stop giving speeches?"
If you're going off in one direction and the market responds badly, maybe you should think about going in the other direction.
The government should be going in the direction of enforcing existing laws, instead of making symbolic gestures, demonizing business in general and creating new agencies when they haven't even staffed up the SEC yet. The SEC has the authority to do everything they're talking about doing. So, they're really talking about creating a competing agency. Technically it would report to the SEC, but it has the same responsibilities.
Investors don't like regulation, but they don't mind criminal enforcement. I say this with some private interest. I used to be a large investor, but nobody is a large investor anymore. I lost about $7 million on paper, but I'm still bullish. One of the things that's caused the bear market is that folks forgot to rebalance their portfolios, and they didn't have enough cash. I think the market is cheap. The best times to have bought stock were times like 1933, 1982, 1987. It looked terrible out there.
I don't think that we're in a recession or going to go back into a recession, but the recovery has yet to reach the troubled sectors, which are related to computers, Internet and telecom. So, I would say if people don't want to buy stock, they should go out and buy a computer. It's their patriotic duty.
Dean Baker, co-director of the Center for Economic and Policy Research
This administration should do nothing to try to keep the stock market up. There is no reason to. The stock market is approaching a reasonable level at the moment. I think it's at reasonable levels.
We'll be better off running deficits in the near-term future. The fact was we were stimulating the economy by massive overconsumption. People were not saving. When we go back to people saving at a normal rate, we have to find a new source of demand to make up for the loss of consumption.
Part of that has to come from the government in the next few years. I'm not in favor of tax cuts for rich people. I'd rather see them focus on spending that's going to help the population at large, and build up an infrastructure for the future.
Ellen Frank, professor of economics at Emmanuel College in Boston and author of the forthcoming book "Money Illusions"
I think what the government has done in this country for the last decade has been completely wrong. The role of the government in financial markets is primarily to protect the public. The stock market is a casino-like market, where speculation is rampant. By running surpluses and reducing the federal deficit, the federal government has been depriving the small investor of the safest investment around -- bonds.
Tax breaks for 401K's and IRA have been encouraging people to invest in the stock market with money that they will need. But the stock market was never a place to put money that they needed. The stock market was a game for rich people when they have money to play with. And it is not a place where people should put their life savings.
What the U.S. government should be doing is developing retirement programs that are safe, secure, stable and not dependent on stock returns. The decline is of course a compelling argument against Social Security privatization. The real issue here is not that Bush and Cheney are dirty on this, or that they have engaged in practices that are suspicious. The real problem is that they have not backed down from their support for Social Security privatization.
William Greider, author of "Secrets of the Temple: How the Federal Reserve Runs the Country"
There's not much of anything they can do about the stock market. [The stock market is not moving because of] presidential statements, it's moving like it is because of fundamental fears that are coming true.
For the longer focus, the Bush administration has to be very adroit in its timing. It shouldn't do this in response to this week or next month's public mood but rather to the real economy and where it's going. But in order to reverse the slide, they have to reverse some of their own ideological assumptions. I don't know if they're capable of doing that. But at a certain point, they have to say that we're going to err on the side of growth, employment, stimulus so that we don't slide into this swamp that Japan has fallen into with 10 years of stagnation.
If they're going to do that, they need to start at the other end of the economy -- instead of cutting taxes for rich people, they need to pump money into the bottom rung of the economy, either with tax cuts for the working classes or with public spending.
Then, the thing they have to do, which is more difficult, is deal with the debt of the private sector. Their predilection would be to deal with the top end, bailouts for the top hogs. But while businesses can't start investing until they get this debt off their shoulders, to go for a stimulus it would be better to offer relief for the masses of households near the bottom. That's trickier to do, but the first thing they should do is announce that they will not pass the bankruptcy bill because we need to go in the opposite direction. I could write the speech for him: "You all know my conservative view on things, but this is a special case that deserves special remedies."
What we need to do is run much bigger fiscal deficits than those that are in place; and you can do that in ways that offer stimulants. We could bail out state governments, for example, to keep states from cutting back their budgets. Or, think big and start some railroads. I would just declare that we'll build it from Pittsburgh to Philadelphia, or wherever. I'm suspicious of broadband expansion because it bails out the same guys who got us into this mess, but there are other options.
And it's not just Bush. The Democrats still have their heads up their asses, with a [Calvin] Coolidge-like obsession with balancing the budget. That's over, just over. The sooner they come to realize that, the better we'll be. Most of the Democrats have forgotten the tools of management of the economy; they don't have a clue. The greatest burden facing us is that the political system has so few people in it at the top levels who understand the mechanics of how government can act in an emergency. Even if you put these ideas on the table, you're looking at six months of debate.
My friends at the Fed are part of the problem -- they need to err on the side of excess too, that is, on the side of stimulus. They're in a dangerous place of their own making right now because interest rates are so low. It's gong to dawn on people soon that the Fed is impotent because of this policy. The big point is that the Fed should attack deflation anywhere it pops up. That's the danger now. It should be pro-inflation for however long that takes -- to make sure we don't slide into a slump like Japan.
Bush should get rid of Pitt, too. I feel confident that he'll go eventually, but as long as he's there, he's a liability. Bush should also dump the Enron guy [Thomas White] at the Army. There are a lot things he can do. But at this point, it's not a matter of sentiment; a lot of people know at this point that the government doesn't have control of what's going on. So I wouldn't say to make the big policy speech right now. I hope that the markets are near a bottom, but maybe the Dow should be at 6,000 not 10,000. Until he knows that and things have stabilized, Bush is just wasting his breath trying to make pronouncements. But when the time comes, he needs to say the economy is growing but it's slowing down. He needs to be bold. If you do little dribs and drabs that don't provide enough stimulus, then you risk running up to a deflationary seize-up.