At Arm's Length: 08.17.04
There are very few places left to hide. But when hiding places are few, both the President and Fed Chairman Alan Greenspan chose to hide in plain sight. Given the belief that these two men were charged with stewarding this economy back to health, you would think they would be admitting defeat and heading for the hills.

Doubts about the President's tax cuts, mainly aimed at the high end wage earner were expressed here when they were announced. Proof of the lackluster creation of jobs unfortunately has proved me right. Even though the President continues to say that recovery is strong and his job creation has been robust, neither of those are true. Over the last 10 months, 1.5 million jobs were indeed created. Without citing, once again, the quality of those jobs, the number has barely kept pace with the amount of new job hunters that enter into the marketplace each month.

Without missing a predictable beat, Greenspan announced another quarter point increase in the short term interest rate. Monetary policy, a smoke and mirrors fix to an economy that was destine to sting from the burst bubble for many years afterwards, continues to accommodate those willing to drive themselves deeper in debt. Raising rates is designed to rein in rising inflation while allowing the overflow of dollars to keep prices stable. Now inflation is poised to undercut this effort even as the economy slows down - a time when interest rates should drop.

Several stark statistics surfaced last week that need to be shared. The swing from surplus to deficit so skillfully manipulated by the President's tax cuts have shaved off 2% of growth a year. By cutting taxes when he did (and how he did), independent research done at Economy.com has shown that his economic policies have negatively impacted the economy rather than help it. In fact, for each dollar lost in tax revenue, the only return generated was less than 60 cents in economic growth. Those kinds of numbers, had they been generated by your mutual fund manager would have sent you investments elsewhere

Economic policies are based on basic principles. When recession is likely, spending will create some salve for the wounded economy. Monetary accommodation, as provided by Greenspan should have helped. Globally though, this recovery is being dragged along (or is that down) by circumstances that were not predicted nor welcome. Rising oil prices, international terrorism, and increasing debt levels across the planet have undercut the plan.

With deficits as far as the eye can see, there is little likelihood that the current policies will be hailed as the right medicine in the year's to come. Because there was no direct focus on the kinds of jobs that were created or how much debt was too much, American citizens have been left feeling nonplussed by the political maneuverings that will have little or no effect on fixing the problem short of a policy shift. And both men have dug their heels in.

The previous week's articles.

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