- The Washington Times - Thursday, September 19, 2002

White House economist Larry Lindsey, a bull about the U.S. economy, makes a convincing case for its continued growth provided we don't go to war in Iraq.

If the United States takes military action to topple Saddam Hussein's war regime, Mr. Lindsey concedes it will pose "great uncertainties" for the United States. However, a quick war may help our economy, but more on that shortly.

During a lengthy interview in his West Wing office, President Bush's trusted economic adviser, says reporting on the economy has been unduly pessimistic. Despite its remaining weaknesses, Mr. Lindsey sees a lot of good news about its overall direction.

This is an administration that, for all its strengths, has been weak in communicating its case on the economy, one that is both realistic and sensibly optimistic. Treasury Secretary Paul O'Neill suffers from a tin political ear, bad press and a staff that keeps him too tightly under wraps. Commerce Secretary Don Evans is virtually invisible in the economic debates.

Mr. Lindsey, however, knows how to present the administration's case and does so with skill, energy and a kitchen-table presentation people can understand. He ticked off a number of economic statistics that bear repeating and that Mr. Bush would do well to use in some of his campaign speeches.

For example, even though the surveys show that consumer confidence has been falling, "consumer spending is way up. We had 1.4 percent growth in June, 1.1 percent growth in July and 0.8 percent in August. We have total consumption growth in the third quarter of over 4 percent. Consumers are spending a lot of money, no question about it," he says.

"We have very, very low interest rates, which is good for people refinancing mortgages, housing sales are doing well, [durable] goods orders are doing well, inventories are rising, inflation is low. There's a lot of good news out there," he said.

"I don't mean to say everything is rosy. We have challenges as well, but given those challenges, I think the economy is doing very, very well," he said.

The unemployment rate, always a lagging economic indicator and now at 5.7 percent, "is going to wiggle on a month-to-month basis, but fundamentally I think where we've been is very close to where the [jobless] peak will be," he says.

Economic growth for the third quarter, which ends Sept. 30 will come in around 3 percent or better, he forecasts. The economy will expand by about 3 percent for the year.

Barring any new blows to the economy between now and Election Day, Mr. Lindsey said when voters go to the polls to decide which party will control Congress, "we will be having the fifth straight quarter of economic growth after a recession that started before the president came into office, which was ended by his tax cuts, and after the first attack on America since the 1940s."

He acknowledges that investors, who make up two-thirds of all likely voters, may not be happy campers when they get their third-quarter 401(k) and IRA statements next month, but says they should blame the Democratic-run Senate which has blocked much of Mr. Bush's economic agenda.

"What I would say to them is, 'Is this the right time for gridlock?' Lots of things have been proposed. The House has passed them all. The Senate hasn't. Who is responsible? Do you want continued gridlock? Will gridlock help your portfolio?"

Mr. Lindsey has devised a tax-cutting plan that would help investors, boost stock prices and unlock badly needed investment capital to accelerate the economic recovery. It would cut taxes on dividends and capital gains and raise tax write-offs to offset stock losses. But the plan ran into a wall of political opposition in the administration and on Capitol Hill, including Ways and Means Committee Chairman Bill Thomas of California.

Even so, Mr. Lindsey suggests the plan is still a live one and will be part of the president's future tax-cutting agenda.

"We want a plan that is consistent with good, long-run tax policy and those are the things the president has talked about," but there is too much on Congress' plate in the remaining weeks before the election recess to pass anything else beyond appropriations, Homeland Defense and some nominations, he said.

"The president is very sincere about this. The question is how to craft the right package and one that Congress will enact. That's the challenge. We're working on it," he says.

As for the impact of a war with Iraq, "It depends how the war goes." But he quickly adds that that "Under every plausible scenario, the negative effect will be quite small relative to the economic benefits that would come from a successful prosecution of the war."

"The key issue is oil, and a regime change in Iraq would facilitate an increase in world oil," which would drive down oil prices, giving the U.S. economy an added boost.

The financial markets hate uncertainty, and the removal of Saddam Hussein from power would eliminate a very large uncertainty indeed from the global economy. In that scenario, stock prices would soar.

Donald Lambro, chief political correspondent for The Washington Times, is a nationally syndicated columnist.

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