- The Washington Times - Wednesday, November 13, 2002

Treasury Secretary Paul H. O'Neill said yesterday that the economy did not need a broad stimulus and suggested any tax cuts or increased aid be targeted on troubled sectors.
"When I get beyond the headlines and the emotional stuff and begin looking at the facts, I don't find the basis for pessimism in the sense that people are thinking our economy is going to fall off the cliff and go back to zero real growth," the administration's chief economic spokesman said at a Fortune magazine forum.
"If you think about a broad-based intervention, implicit in that is that all sectors of our economy need assistance," Mr. O'Neill said. "Do you really think that's true of housing or autos or light trucks?"
Big cuts in interest rates by the Federal Reserve in the last two years including another half-point last week have stoked record sales of cars, sport utility vehicles and homes.
But Mr. O'Neill noted that other sectors, such as airlines and technology, had "tremendous problems" despite the economy's overall return to growth in the last year.
The pronounced "disparity among the sectors" makes this recovery "different from ones we've seen in the past," he said.
Many business groups and conservatives are calling for broad tax cuts aimed at stimulating consumer and business spending, citing the increased Republican control of Congress after last week's midterm elections.
But Mr. O'Neill's statement indicated that the Bush administration would attempt to avoid major new spending or tax programs that could drive up the budget deficit, although it was sticking by its program.
President Bush last week urged Congress to enact his current set of proposals to accelerate and extend the tax cuts that Congress passed last year and put in place growth-inducing terrorism insurance and energy legislation.
The Treasury Department also is working on a package of tax reforms that are likely to address problems such as disparities in international tax treatment that induce U.S. corporations to locate their headquarters in overseas tax havens.
Mr. O'Neill said the president and his economic advisers constantly review the need for more legislation.
He did not offer any new proposals yesterday and suggested that tax cuts might not help some sectors, such as telecommunications, that continued to be plagued by "an enormous amount of excess capacity."
Sen. John Edwards, North Carolina Democrat and a potential opponent of Mr. Bush in the 2004 presidential election, called the administration's economic policies "deficits and deja vu all over again" at the Fortune forum.
"The White House has an economic policy that is based on past mistakes instead of past successes," he said.
Mr. O'Neill has been an inveterate optimist even in the most bleak of times. His assessment yesterday came as a survey of chief executives of 150 large corporations found deepening pessimism about the economy in the executive suites.
The first-time survey of Business Roundtable members found that 60 percent planned to cut jobs next year, while 57 percent said they would not increase spending on equipment and plants. Those are ominous signs: Weak hiring and investment have been the biggest threats to the recovery.
"Our nation's economic recovery has not been strong or sustained, and the survey shows that CEOs do not expect the situation will improve significantly in 2003," said John T. Dillon, chairman of the Business Roundtable and chief executive of International Paper.
"Our nation will have a new Congress next year, and we want to be sure they have enough information to help guide their economic-policy agenda to restore consumer confidence and spur business spending."
But Mr. O'Neill said this latest in a string of surveys showing gloom among executives is more a measure of mood than economic fact.
"I wonder what it is that causes this mood at the moment that we're going down? The objective data don't seem to support the idea that we're going down," he said, noting that the economy has been growing at a 3 percent annual rate this year.
"A year ago at this time, everyone was certain the fourth quarter of 2001 was going to be negative 0.7 [percent]. It turned out to be a substantial positive," he said. "So, frankly, when people tell me what next year is going to be, I have a certain amount of skepticism."
Some Federal Reserve officials supported Mr. O'Neill's views.
"The pieces are in place to engender a gradual strengthening in economic activity in coming quarters," Fed Vice Chairman Roger Ferguson said in a speech yesterday at Carnegie Mellon University in Pittsburgh.
Mr. Ferguson, whose remarks helped stoke a stock market rally, noted that business investment in equipment and software which drove the high economic growth rates of the late 1990s before leading to recession in the last two years "appears to have bottomed out and may be increasing."
Anthony Santomero, president of the Philadelphia Federal Reserve Bank, echoed that optimism in a speech in Delaware. "We can expect the economy to grow at a 3 [percent] to 4 percent annual rate" in 2003 partly as a result of the Fed's rate cut last week, he said.

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