With economy in idle, the heat is on Bush

The economic slowdown may have started under Bill Clinton, but the challenge of reviving it falls to George W. Bush, and at the moment, he can do precious little about it.

His greatest weapon, this year's tax cut, has already been deployed. The Federal Reserve, meanwhile, has already cut interest rates seven times this year. A third option, freer trade, would take at least five years to kick in - and currently, it faces a steep uphill battle in Congress.

Yet layoff announcements continue to roll in like waves at the beach, consumer confidence is dropping, and economic growth is yet again slipping. Yesterday, the Commerce Department announced a second-quarter growth rate of 0.2 percent - the weakest increase since 1993.

"He's got two months to offer up some solutions and to do what he can to get the economy to turn around," says Frank Luntz, a GOP pollster.

Around that time, explains Mr. Luntz, Americans will have started the great Christmas trek to the mall, and a pinching economy hits home in the most personal way. "When the first day of the Christmas shopping season is a bust, that's when all these economic indicators start to matter."

For the president, they matter in a politically critical way. Midterm elections, which will determine who controls Congress, are next year. If the economy does not rebound in time, he could lose both chambers to the Democrats.

The one silver lining in all of this for Mr. Bush - and it is a considerable one - is that this economic fizzle is taking place early in his administration. Many a president has been sidelined by weak economies at the end of his term, including Bush's father.

As Robert Reich, Bill Clinton's former Labor secretary, puts it: "Every president wants to have recession at the start of his presidency. The Clinton administration started with a recession.... We had nowhere to go but up."

It takes two quarters of consecutive decline to make a recession, and neither the White House nor the Congressional Budget Office is predicting one. In fact, both see growth for next year, with the president's team forecasting 3.2 percent annual growth and the congressional team a more modest 2.6 percent.

But Mr. Reich and others describe the economy as teetering on a precipice. It could skirt the edge of the cliff, and then move safely away when the effect of tax rebates and lower interest rates finally kicks in.

But it could also plunge over. Economies are stalling worldwide, leaving no spark but America's own to rekindle growth. Of most concern is the level of consumer confidence in this country. Consumer spending makes up two-thirds of the economy, and has been a main tether holding the nation back from the brink.

This week, the Conference Board reported that the consumer confidence index slipped for the second straight month. Still, its outlook for the next six to nine months improved.

Historically, every Republican president as far back as Abraham Lincoln has had a recession within the first 24 months of his administration, says James Smith, professor of finance at Kenan-Flagler Business School at the University of North Carolina in Chapel Hill.

The reason, he says, is that the public votes in Democrats to "get the country moving again." But they tend to overheat the economy, driving up inflation. Republicans then try to restore fiscal probity and encourage the Federal Reserve to raise interest rates - causing a recession.

While this model may not apply to Clinton and Bush, says Mr. Smith, it's useful in considering what previous presidents have done to get out of hot water. While Republican Dwight Eisenhower trudged through three recessions, quick economic comebacks and his own popularity spared his political life. Ronald Reagan's first tax cut, meanwhile, was a key to recovery and, according to Smith, was the reason he did not repeat a recession in his second term.

Ari Fleischer, Bush's spokesman, says his boss has already put in place a plan - tax cuts - and doubts the economy will become a major issue this fall. Indeed, as the president laid out his agenda in a speech in San Antonio yesterday, he emphasized his core items: education, defense, a patients' bill of rights, Medicare reform, and faith-based services.

But while Bush may be talking up these issues, it will be hard for him to ignore the elephant in the room, say others. "Without question, the big story for the fall is the economy," says presidential historian Robert Dallek.

Although hardly a substantive measure, one thing the president should do, say several Washington observers, is to present himself at the helm of the economy. That was something Bush's father failed to do. For all of 1992, when Pew Research polls asked Americans whether the president was doing all he could to improve the economy, never once did he get beyond 25 percent.

"The biggest danger he might face is the appearance of not being in control," says former Congressional Budget Office director Robert Reischauer. The younger Bush seems to have learned this lesson, mentioning his concern for the weak economy - and his tax-cut remedy - both in his San Antonio speech and in a talk before steelworkers in Pittsburgh last Sunday.

The other thing Bush could do, according to former Labor Secretary Reich, is spend. Companies aren't spending, and consumers are skeptical. That leaves government, and if it means dipping into the so-called Social Security surplus to revive the economy in the short term, that's fine, he says. Interestingly, the administration seems to be setting the stage for such a move, calling the Social Security surplus "symbolic" and announcing it could be touched in an emergency such as war - or recession.

But mostly, says Andrew Kohut, director of the Pew Research Center in Washington, Bush can wait and see, and hope that this hurricane moves offshore by next year.

"I don't think presidents can do much these days. You've got the global economy, and [Federal Reserve Chairman] Alan Greenspan is the most effective player in this, not the president," says Mr. Kohut. "Presidents weather these storms. They don't necessarily control them."