- The Washington Times - Friday, August 17, 2001

The good economy is over for now, and it might not be back in time for next year's congressional elections.
A number of indicators suggest that the high-tech and manufacturing recession is spreading into other areas of the economy, with a second leg of the downturn still to unfold. Normally, when the economy bottoms, the stock market leaps ahead anticipating the recovery.
The lackluster stock market has left money managers scratching their heads. Yet, optimism persists. Recent reports of lower business inventories were favorably interpreted to mean that new orders were on the way. A more correct interpretation seems to be that business sales are falling faster than inventories. According to Bridgewater Associates, "total business sales are falling faster than at any time in the past 30 years, and are falling much faster than inventories." If this assessment is correct, it means cutbacks in business investment and output are on the way.
There are other problems. The consumer is strung out on debt. His shrunken stock portfolio makes his home equity loan less comfortable. He is likely to raise his saving rate, not his consumption rate. The adverse wealth effect of the crash in high tech stocks could mean much slower growth for a number of years.
The dollar might also be ready for a decline. U.S. market share appears to be falling overseas. The poor stock market and the U.S. government's inclination to report to overseas governments on U.S. accounts held by their citizens imply a reduced demand for dollars by foreigners.
A falling dollar will raise import prices and send signs of inflation that could send interest rates up and make the Fed cautious about easing.
The crash of the telecom sector has left the economy without a driving force. Federal regulators — the Federal Communications Commission and the Federal Trade Commission — ruined the business plans of thousands of firms by causing the losses that stopped investment.
In the dynamic technology that was unfolding, temporary monopolies are inevitable and necessary. High returns, though they may be fleeting as new competitors come along, are needed to justify the risk and to pay off debt. FCC regulators took steps to prevent the necessary profits by imposing price caps, access and unbundling rules that, as telecom expert George Gilder puts it, privatized the risk and socialized the rewards.
The telecom sector was engaged in a capital-intensive development of a new and more cost-effective communications infrastructure that would make interactive video as pervasive as voice telephony is today. A steady increase in the speed and capacity of connections was the required ingredient of the Internet economy. Stock values and thousands of business plans relied on it, and federal regulators threw in the monkey wrench.
AT&T;'s business plan was wrecked by the FCC. WorldCom's plan to purchase MCI and Sprint and to transform the Internet into a broadband system was blocked by the FTC. Not content with this devastation, the FTC next turned its ingrained stupidity on JDS Uniphase, causing the destruction of what George Gilder calls "the most promising communications technology in the history of the planet" and a $44.8 billion writeoff.
The increases in the speed and capacity of connections anticipated in thousands of business plans were blocked by federal regulators. Unable to complete their plans, firms were overwhelmed by their debts. Acting to prevent "monopoly profits," federal regulators stupidly killed the telecom economy.
These Clinton-era policies have damaged the Bush economy, but President Bush appears to be oblivious. His tax cut is pointless. It accommodates Republican deficit fears, not people's rights to their incomes and estates. It does nothing to boost business confidence and flows of venture capital.
President Bush's amnesty for illegal aliens is ill-timed. It will swell the ranks of the unemployed and drive down lower-income wages. A larger share of government budgets will be claimed by income support programs.
Republicans are skating on the edge of disaster. Waiting in the wings is Senate Majority Leader Tom Daschle, South Dakota Democrat, who recently promised Jesse Jackson's Rainbow Coalition that he will use his Senate power to deny white people equal protection of law in order to produce equal economic outcomes.
A leftward move comparable to the New Deal is staring us in the face. Do Republicans have the competence to avoid it?

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