Bush's plan assailed Speech leaves economists cold


Maybe George Bush is a Republican, maybe he did run his own business, and maybe he does want to treat Wall Street to a cut in the capital gains tax. But among many of the economists who shape the strategies of the nation's banks and investment houses, patience with the president ended with his speech last week.

The very highlight of his plan -- offsetting cuts in taxes and spending -- was widely denounced as poison for an economy in a joyless, jobless recovery.

"Almost every economist would agree that equal cuts in taxes and spending actually depress the economy," said Allen Sinai, chief economist of Boston Co. "It is not a growth program."

The financial community's economists do not exactly feel betrayed by President Bush; it is not as if he called for a tax on securities trading to help finance food stamps. They are just deeply disappointed.

The disappointment with a president seemingly made to Wall Street's measure runs so deep that not even the brightening of his political prospects now brings the financial community much cheer.

Edward A. Yardeni, chief economist at C.J. Lawrence, said that some are wondering just how much worse a Clinton presidency could be.

"The conventional wisdom is that Wall Street prefers Bush to Clinton," he said. "But the deficit expanded to all-time records under Bush. You could argue that a Democrat couldn't have done any worse.

"If you look at the vote today in the financial markets, it was a vote of no confidence," he said Friday. The Dow Jones industrial average sank 50.79 points, to a four-month low of 3,254.10.

Neal M. Soss, chief economist at First Boston, is among those who worry that the president is simply grasping for political gains. "These proposals don't have much content, but to the extent they do, they are impractical or unlikely of adoption," he said.

Not that Wall Street is rushing to embrace Bill Clinton. Mr. Soss fears that the candidates will merely compete in offering blandishments.

Some features of the Bush plan did find favor -- caps on spending for entitlement programs especially. But controlling government spending depends on limiting payments for Medicare, Medicaid, food stamps, farm subsidies and veterans' benefits, Mr. Sinai said. "It's courageous and politically difficult," he said.

Mr. Bush's proposal for letting voters earmark as much as 10 percent of their tax payments for deficit reduction met with skepticism, however, as economists questioned whether federal bookkeepers would reduce spending accordingly.

"It does not change whatsoever the flow of revenues to the government's coffers," said Stephen S. Roach, senior economist at Morgan Stanley. "Does that reduce the deficit? It's an open question."

Paul Krugman, an economist at Massachusetts Institute of Technology who has consulted for the Clinton campaign, began his review of the Bush speech with a dismissive chuckle. "He's for cutting wasteful government spending, but not any particular spending," he said. "If it's going to be real tax cuts and fictitious spending cuts, then we could be well on our way to banana republic status."

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