Hello, Larry?
President Bush needs a growth agenda--fast.

by PETE DU PONT
Wednesday, August 14, 2002 12:01 A.M. EDT

"Putting theory aside for a moment, were the Reagan tax cuts a good idea? More specifically, could the country afford them? By 1985, at a revenue cost in that year of $33 billion, economic output was between 2 and 3 percent higher than it would have been without the tax cut. That extra growth stands for millions of new jobs and a higher standard of living . . . [and] had salutary effects on inflation, investment, and savings and contributed only marginally to the deficit."--Lawrence Lindsey, 1990

The president's response to the Sept. 11 attack--the definition of the axis of evil and the Bush doctrine of pre-emptive action against known terrorist threats--has earned him the respect and support of the American people. Moreover, he took the United States out of flawed treaties that would have endangered our ability to defend ourselves (the Anti-Ballistic Missile treaty), and our constitutional liberties and ability to act in self-defense abroad (the International Criminal Court).

But on the economic front, other than the tax cut he signed into law last year, there are neither clearly articulated policies nor any consistent set of actions promoting economic growth.

Instead a confusing mixture of contradictory acts have scared investors and depressed the markets. Mr. Bush's tariffs have sent steel prices soaring 30% to 50%, killing jobs in manufacturing and undermining the essential concept of international trade. The enormous, unnecessary increase in farm subsidies added $83 billion to the budget over the next 10 years. And the administration's policy of conciliation towards Congress whatever spending decisions it makes has been expensive and will only become more so, its cost compounded over time, since congressmen understand it as a signal to go for future spending increases. And Congress needs to be checked on more things than spending. Neither the unconstitutional campaign-finance "reform" bill nor the bloated farm bill drew a presidential veto. In fact, with all the bad legislation coming out of Congress, the president has yet to veto a single bill. Mr. Bush, it seems, simply signs on the dotted line whatever Congress puts on his desk.

This kind of presidential leadership has a big price tag. The Congressional Budget Office reports that for the first 10 months of the fiscal year, nonmilitary discretionary spending has already increased $80 billion over last year. For the fiscal year ending Sept. 30, overall spending will likely be up more than 15%, on top of 11% the previous year. That is big-time spending.

Still, by most measures the economy is performing poorly. The stock market is a yo-yo, bouncing up one week and down the next. The Dow Jones Industrial Average was down 840 points the week of July 17, then up 1,034 the next week, down 693, and up more than 600 again last week. However frustrating short-term fluctuations are, it's a longer-term trend that is disturbing. Since 2000 stock declines have wiped out retirement funds for too many Americans. Meanwhile, business is holding its breath. Many companies have put investment on hold as managers wait to see what new taxes and regulations Congress has in store for them. Job growth is nothing to crow about either. The whole nation created just 6,000 new jobs in July. And those who have jobs may find dwindling paychecks as companies cut back on work hours. Labor productivity is down and so is consumer confidence.

Liberals, of course, on principle oppose any reduction in any taxes at any time, because someone might actually benefit. But American companies pay among the highest corporate taxes in the world. The United States is one of the few countries that taxes world-wide income, not just domestically earned income, so that U.S. corporations pay twice on income earned abroad. Then there is double taxation of corporate profits at home--once when earned and again when distributed to shareholders as dividends.

The phased-in personal income tax rate reduction that was the hallmark of Mr. Bush's tax cut is not helping revive the markets. And the administration is doing little other than reassuring us that all will be well in the end.

The truth is that if we want companies to hire more people, invest in new factories and earn more money so that their shares are worth more in the 401(k)s of their employees, there will need to be an increased incentive to do so. To do these things companies need to get additional money from somewhere, and other than borrowing the only way to get it during an economic downturn is to allow them to keep more of what they earn. The same thinking applies to individuals--if we want them to invest or spend more, we need to increase their incomes by reducing their taxes.

Second is a serious spending restraint. A presidential veto of one or two overbudget spending bills would be a good start, but publicly setting forth a policy of domestic spending restraint is equally important.

Finally must come a strengthened economic team; the current one is not doing the job. An aggressive pro-growth advocate must appear on the evening news and the rubber-chicken circuit to talk night after night about the importance of economic growth, explaining how to achieve it, why it's urgent, and what the result will be for working people and the overall economy. Ronald Reagan did it; Jack Kemp and Martin Feldstein did it. The Wall Street Journal's Bob Bartley did it on the editorial pages week after week.

And Larry Lindsey helped do it as a part of the Reagan economic team. He wrote a powerful book, "The Growth Experiment," from which I took the quotation atop this column. Mr. Lindsey is now the assistant to the president for economic policy in the Bush administration. He's in a good position to again make the case for growth.

So where are Larry and the policies of economic growth when we need them the most?

Mr. du Pont, a former governor of Delaware, is policy chairman of the Dallas-based National Center for Policy Analysis. His column appears Wednesdays.