Bush Needs 'Psychonomics'

Posted: Jan 02, 2006 9:20 AM

WASHINGTON -- President Bush has finally begun promoting one of his highest domestic achievements and the fiscal policies that have produced four years of uninterrupted economic growth. He delivered a self-promotional economic speech Monday that was long overdue, reminding Americans that the economy was enjoying the highest growth rate among the world's industrial powers because of his tax cuts on incomes, capital gains and dividends, which have fueled one of the longest expansions ever. After months of seeming confusion over the president's declining polls, the White House has finally acknowledged what many outside advisers have been saying for months: You're not going to get any credit for this economy (especially from the Washington news media) unless you begin tooting your own horn. Not just once or twice, but often and in as many different venues as possible.

Bush's speech in North Carolina played to the two most fundamental lessons of Presidential Politics 101:

First, play to your strengths. Here's an economy that's growing by more than 4 percent a year, producing 200,000 plus new jobs a month, and the White House was virtually ignoring it. Even Bush's chief economic adviser, Allan B. Hubbard, director of the National Economic Council, admitted that he has "not been doing a good job" of talking up the economy, especially when the monthly data has been consistently positive for quite some time. The second rule: repetition, repetition, repetition.

One speech on the economy's expansion isn't going to cut it. Bush has to keep coming back to this issue again and again, with confidence-building, optimistic messages aimed at convincing Americans that despite our other problems, the U.S. economy is one of the bright spots on the national and global landscape. To see how this works, Bush's advisers need look no further than to President Reagan's economic playbook. Reagan's job-approval numbers sank during the long two-year recession of '81 and '82, but through it all he delivered a steady stream of speeches that promised the economy would turn around in response to his tax cuts, speeches that restored the confidence of a dispirited nation.

The New York Times' editorial page, which opposed Reagan's tax cuts, seemed mystified by these feel-good speeches. To them, it all sounded like "psychonomics." Indeed, he seemed to be administering "group therapy" to the nation at large, the Times said.

In fact, Reagan said that was exactly what he was doing. "I remember saying back when things looked worst that too much pessimism could be deadly," he said in a radio address on March 10, 1984.

"Well, some people criticized me for trying to sugarcoat the news. I merely wanted us to remember that there's a psychological factor in recession, and too much hammering at it makes recession worse," he said.

"What pulled us through that ordeal, I'm convinced, was our determination to stick to our program, belief in ourselves, and trust in the values of faith, freedom and hard work -- values that have never failed us when we've lived up to them."

Reagan did not abandon his confidence-building rhetoric once the economy recovered, but returned to his economic opportunity and growth themes repeatedly throughout his second term. Bush has to do the same thing. Especially at a time of widespread cynicism, pessimism and doubt.

And while he's at it, Bush needs to keep talking up the importance of making the tax cuts permanent to keep the economic recovery alive and well. They are due to expire in a couple of years, and if that happens the growth and prosperity that these tax cuts have nourished will disappear and the economy will likely weaken and shrink.

There is no more important economic proposal before the nation today than extending the Bush tax cuts into the next decade and beyond, and the sooner Congress votes on it, the better off our country will be.

Tax-cut critics not only refuse to acknowledge that lower tax rates on incomes and capital investment have worked. Instead, they insist that lower tax rates have reduced federal revenues, which in turn have produced the budget deficits.

The truth is that excessive spending, beyond the government's income, is responsible for the deficits, while faster economic growth fueled by the tax cuts has reduced them.

And that's something else Bush needs to talk more about. This year the U.S. Treasury took in nearly $100 billion more in federal tax revenues than it had expected because of stronger economic growth. The result: a $400 billion deficit was slashed by one-fourth in the course of a single year.

Push the economic growth rate to 5 percent in the coming year, and it is very likely that the higher revenue -- with some constraints on spending -- will cut the deficit even more.

Making the tax cuts permanent would boost economic growth to that level, because it would give employers confidence to make long-term investment decisions without fearing that the rug will be pulled out from under them, diminishing their bottom line. So three cheers for Bush's bullish speech on the American economy. Let's hope there are many more to come.