- The Washington Times - Wednesday, June 6, 2001

Lawrence Lindsey, President Bushs chief economic adviser, said yesterday he believes the decline in the U.S. economy "is largely over" and that a recovery will begin later this year or early next year as the administrations tax cuts kick in.
Mr. Lindsey also said that in addition to the passage of a $1.35 trillion tax cut that the president will sign into law tomorrow, Mr. Bush intends to propose further tax-rate cuts and tax-code reforms in the future.
"I dont think the presidents tax-cut agenda is finished at all, nor the tax-reform agenda," he said in an interview with The Washington Times.
"Further tax reform is certainly needed. The best tax code is one that is flatter and simpler, and Im sure that the president will be proposing changes in that direction. But Im not going to scoop the president on that," he said.
Mr. Lindsey, one of the presidents closest policy advisers, who is known for being cautious in his forecasts, said that the economys performance was "mixed" right now, and that he expected it to grow by no more than 1 percent to 1.5 percent for the year.
"Were still having trouble in high-tech and manufacturing generally. All of the available statistical measures suggest that there are still problems in those sectors," he said.
Mr. Lindsey said that despite those weaknesses, a number of other signs showed that the economy was holding up better than expected.
"But the consumer seems to be holding up very well, and that, plus the service sector, is keeping the economy in positive territory," he said. "Overall the economy is doing well. The employment situation is still quite good. Real wages are rising.
"Historically, a 4.4 percent unemployment rate is a relatively good level. People have lost their jobs, and thats a tragedy, but on the other hand the overall picture for the economy right now, on the wage side and on the employment side, is reasonably good," he said.
Mr. Lindsey said the combination of five interest-rate cuts by the Federal Reserve Board this year and the presidents tax-rate reductions, which will begin showing up in lower withholding in worker paychecks by July 1, were "very well-timed to give assistance to the consumer" and will give the economy a big boost.
Asked whether there was any chance the economy could topple into a recession during the remainder of the year, Mr. Lindsey said, "The odds are that we will not have one. The reason we are not going to have one has been policy; the combined effects of monetary and fiscal policy will prove to be very positive as they kick in."
He said he now believes the economys decline has already hit bottom and is poised to turn upward.
"The decline in growth, which started in the third quarter of 2000, is largely over. By the fourth quarter well see that the tax cuts and the Feds interest rate cuts have put a floor under the economy. The chances of further deterioration have been dramatically reduced," he said.
"I would expect the turnaround late this year or early next year. I think the combined effects of the tax cuts and the Feds monetary easing will combine to effect that," he said.
Part of the tax cuts will be given to taxpayers retroactively in the form of rebate checks that will be sent out between August and September and will total $40 billion. Mr. Lindsey said that will represent about 1 percent of the nations gross domestic product this year.
"When the economy is only growing at about 1 percent, a 1 percent stimulus is quite a bit," he said.


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