America's economy, listless and still mired in recession, seems to have caught a bad case of the flu. Republicans and Democrats alike are scampering about to concoct various elixirs, potions and other nostrums; but it is mostly talk. Effective federal remedies for today's anemic economy are just not in the cards.
Even if Washington knew what it was doing (which daily grows less and less likely), it would have real trouble fixing the sluggish U.S. economy. One reason is that the weaknesses are deep and systemic, a heritage of the profligate, debt-laden 1980s.The budget deficit, about which few dare to breathe a word these days, is now sailing along in the stratosphere at a projected $350 billion. A decade of heady borrowing has sent bankruptcies, both corporate and personal, to record levels. Tight credit is discouraging new investment; the mounting cost of paying the damage in the savings-and-loan disaster is stoking up the costs of federal borrowing. Debt defaults are running at their highest level in 20 years. As a nation, we have continued, in the most fundamental way, to live beyond our means and to keep postponing the time of reckoning.
This structural overload on the economy - the collective carrying costs, as it were - might be sustainable if Washington permitted itself more realism and flexibility. But, for institutional and political reasons, it does not. Both the White House and Congress, in enacting last year's frail budget agreement, froze themselves effectively out of the action and crippled their ability to respond. They reached a standoff on spending and taxing levels that gives them almost no latitude for making adjustments. Worse, their budget pact put off (until after the 1992 election) any chance for serious action to trim the deficit.
Finally, even if President Bush and Congress had all the running room in the world to help revive the economy, they would be limited because, in both parties, they refuse to touch the costly expansion of popular entitlement and transfer payment programs such as health care, federal pensions and Social Security. Entitlements now constitute 11.5 percent of our gross national product.
Republicans and Democrats alike are now clamoring for economic stimulus by cutting taxes, but this is largely a pre-election ploy that could end up doing far more harm than good. Even after they are enacted, tax cuts typically take months to work their way through the economy. By the time any tax cut was felt in paychecks and at the supermarket, the recession might well have healed itself, and in such a case the added stimulus could feed a damaging new round of inflation.
Adjusting interest rates offers a more controllable (as well as faster-acting) means of giving a stagnant economy a jolt. The sagging industrial output (up only 0.1 percent in September) argues for Federal Reserve action to ease rates, which would encourage business investment, help revive the enfeebled housing market and start putting people back to work.
Such tinkering, whether with tax rates or interest rates, may jolt the system out of its present torpor; but it will have little long-term impact on the systemic weaknesses in the economy. Those weaknesses, as noted above, are principally the product of reckless spending and feckless politics. We got too greedy; we smiled on junk bonds; we borrowed too much - and we refuse even to think of paying it back.
As a nation, we cannot continue to overconsume, underinvest and underproduce without courting real, gut-wrenching disaster at some point down the road.