- The Washington Times - Thursday, February 7, 2002

The death of President Bush's economic-stimulus bill yesterday leaves the administration hoping that the economy will strongly recover on its own, well before the November elections that will decide who runs Congress the next two years.
The White House believed that the tax-cutting stimulus bill would quickly lift the country out of its recession and help Republicans beat back Democratic charges that the president's fiscal policies are responsible for the nation's continuing economic slump.
But when Senate Democrats killed the stimulus bill yesterday, White House advisers were forced to re-evaluate the administration's political and economic strategy for the year, in which the Democrats are only six seats away from regaining the House and could strengthen their tenuous hold on the Senate.
"We're all very disappointed that the Senate leadership is unable to pass legislation to provide an insurance policy for America's workers and for the economy," White House economic adviser Lawrence Lindsey said yesterday in an interview.
Still, administration officials and Republican strategists took solace in the fact that, despite the legislative setback, the economy seems to be recovering with the help of Mr. Bush's income-tax rate cuts, 11 straight interest-rate cuts by the Federal Reserve Board, a burst of new government spending in response to the terrorist attacks and stronger-than-expected consumer demand.
"I've long said that we'll have a recovery starting early this year, and I still believe that. What I'm concerned about is its strength," Mr. Lindsey said.
"The economy will recover on its own, but the important point is we will need an insurance policy to accelerate it, and if you are an unemployed worker, sooner is better than later," he said.
A number of new reports from the Commerce and Labor departments have led administration officials in the past month to believe that the recession, perhaps one of the shortest on record, is over. The U.S. economy grew at an annual rate of .2 percent in the last three months of 2001, and the White House thinks that it will continue to grow in the months ahead. Economic advisers are predicting that the economy will grow by less than 1 percent this year but by 3.8 percent next year.
Manufacturing, which has been in a deep slump, rose by 1.2 percent in December. The pace of layoffs has slowed, and the unemployment rate unexpectedly fell last month from 5.8 percent to 5.6 percent. Home sales, fueled by lower interest rates, have been strong. Inflation is low; energy prices are down, and worker productivity continues to rise.
The President's Council of Economic Advisers, in its first economic report to the president, predicted Tuesday that the economic recovery would begin to take firmer hold by midyear and that the unemployment rate would peak at 6 percent in June.
But Dirk Van Dongen, president of the National Association of Wholesaler-Distributors and co-chairman of the business coalition backing the stimulus bill, still questions whether the economy is in a recovery. "Though some recent indicators are positive, we're not out of the economic woods yet. The key elements of a recovery package recommended by the president are critical to ensuring our nation's economic security," he said.
Ironically, the stimulus bill's demise will have the effect of significantly lowering the deficits that the White House Office of Management and Budget is forecasting for this year and next, robbing the Democrats of one of their biggest issues. The House-passed stimulus bill would have cost $90 billion this year and more than $200 billion over five years.
If the economy continues to recover, it will deny the Democrats what is clearly their strongest and perhaps only issue in the fall elections. And that will help Republican candidates hold the House and, perhaps, retake the Senate, Republican officials say. Congressional Republican polls show that the Republicans lead the Democrats in generic voter preferences by 2 percent to 3 percent.
But the big question that administration and business strategists were asking themselves after yesterday's defeat in the Senate was whether the recovery will come in time to shape voter perceptions before the post-Labor Day election season begins.
"That's the $64,000 question," said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce. "This bill would have put 300,000 people back to work and increased economic growth by half a point."
"The question that will be raised [by the Democrats in the midterm elections] will be, 'Are you better off today,'" he said.
Thus far, however, the Democrats have not fared well against Mr. Bush and the Republicans in the debate over economic policies. Most polls show that voters trust the president and Republicans more than the Democrats to handle the economy.


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