The principal obstacle to the government providing significant relief to the hardpressed banking system, to frightened mortgagees, and to the overall economy is, of course, George W. Bush. Mr. Bush -- who we believe has done a very fine job in certain areas of national policy -- is at a bit of a loss when it comes to the economy. The President seems to be uninterested in this admittedly tedious topic. He has made it clear repeatedly that the "Great Things" he aspires to accomplish lie primarily in the foreign policy/national security realm. There is, of course, absolutely nothing wrong in this. Indeed, after the wretched fumbling and endless hesitations and pussyfooting around by the preceding Administration, he has, in our view, provided a much-needed antidote.
A president, however, must also act in the realm of economic policy, even if his knowledge of and interest in same is de minimus. It will hardly suffice to advocate additional tax cuts and reliance on the enterprise of the private sector during a period of acute financial crisis. We sense in the President a residual fondness for the "liquidationist" attitude of the Hoover Administration. Ideological predilections and the IMMEDIATE self-interest of financially powerful interest groups need to be set aside during periods of heightened economic risk, when the latter is produced by a liquidity crisis.
We have formed the impression that our Treasury Secretary is a very pragmatic individual, ideology and self-interest narrowly defined to the contrary notwithstanding. This is entirely natural, given Mr. Paulson's hands-on experience on Wall Street. In his prior incarnation, the Secretary had of necessity to act decisely when the occasion warranted it. He had to set aside previous perceptions and views and behave pragmatically in response to unexpected developments. From a number of press accounts which we cannot verify but presume to be largely accurate, it would appear that Mr. Paulson has already demonstrated an impressive willingness to respond to the danger implciit in the current credit contraction. That he he has not thus far presented to Congress and the public a comprehensive and RAPID plan to contain the liquidity crisis and then roll it back is attributable, we would infer, from markers laid down by the President. Clearly, the president is a man given not only to decisive action and to a bulldog-like tenacity in the face of adversity, but is also a man happy to cosset himself in a cocoon of wishful thinking when the only alternative would be hard decisions which run contrary to his ideological, emotional, and political dogmas.
There are, however, straws in the wind that the President's opposition to a significant, government-financed, or at least government-guaranteed, rescue program is waning. Most noteworthy among the sundry tea leaves, we think, are accounts today that the Administration's top economic policymakers have been in very close touch with Dr. Martin Feldstein. Dr. Feldstein, the very prominent former Chairman of the Council of Economic Advisers, is a man with great prestige among economists, Federal Reserve officials, and certain Republican politicians. He has made his view of the current credit contraction crystal clear since the eruption of the crisis this past summer. Indeed, we noted at the time that it was probably Dr. Feldstein's Cassandra-like warnings in his speech to FED policymakers and other economic and financial movers and shakers at the FED's annual Jackson Hole clambake which provided the decisive jolt to the FED, which subsequently abandoned its do-nothing policy and "all is well" rhetoric and took minimal -- but still indispensable -- initial steps to limit the contractionary impact of the credit shortage.
Dr. Feldstein has taken the public position that fiscal measures are necessary, and promptly, in order to prevent a serious recession. Such a public position by this figure exerts considerable pressure, in and of itself, on the Administration. Morevover, it strengthens the hands of those within the Administration who are in favor of providing significant fiscal stimulus to contain the depressive economic implications of the credit contraction. We also view Dr. Feldstein's view and apparent involvement in high-level consensus formation as impactive upon the FED, where the inflation-phobes maintain their last Redoubt. Add to this pressure from Republican office-holders running for re-election in a bad economy and the party's desire to retain the White House, and it constitutes, in toto, a powerful force.
Of course, it is still possible that Bulldog Bush will drag his feet, present unpalatable proposals to the Democratic Congress, or otherwise make impossible the enactment of fiscal relief during the final months of his term. Alternatively, Democratic politicians may prefer to make political hay rather than sound policy.
