Though it was shocking news, there was less gabble about it than you might have thought. Nonetheless, starting about a month ago, reports began circulating that Manhattan rents have begun to drop. There are so many downward-pointing stories these days, this one may not count for much in the welter of items about layoffs, softening consumer confidence, melting stock prices, shrinking profits, companies missing their whisper numbers, and the confused conversations about whether or not these bits of news are omens, portents or signs of things to come.
Turn a page in the newspaper or switch a channel on the TV and chances are you’ll be looking at an argument over whether or not we’re having a soft landing, a bumpy landing or no landing at all. In the seminars, they’re shouting about if we’re going to have a recession, if we’re already in one and, if we are, how long will it last.
You would think that in a country overrun with economists, analysts, corporate strategists and brokerage-house swamis-every one of them armed with computers constructing models and graphs and pie charts and belching forth data-they could tell us if it’s good for the country or not.
The people who are paid to strap themselves up on the crow’s nest and keep an eye peeled for what’s going to happen next can’t call the big ones. The think-tank seers get it right about as often as a Roman soothsayer. Most assuredly, our economic fortune tellers didn’t foresee that the government would not only balance its budget, but-out of the blue-be buried in surplus dollars. Although there’s been nothing like it since Warren Harding appointed Andy Mellon to be Secretary of the Treasury 80 years ago, not a word of warning was uttered that this huge surplus was coming until it hit. Now they can’t tell us if we’re in a recession or have been in one and are coming out of it or what is going on.
So here we are, lost in a fog bank of conflicting opinions, caught in a series of situations whose likes we have not seen before. Since when did Presidents make morose statements about business conditions and contribute to the milling uncertainty business hates? They talked things up, but W.’s been going around saying, “The red light is flashing on the dashboard of the economy.” That’s a helluva way to inspire confidence. It used to be Presidents took a puff on their Uppmans and pronounced, “Business is fundamentally sound,”; “Prosperity is right around the corner.” Not this bozo: W. is playing the part of the cautious non-optimist because he’s making sure the blame will fall on Marc Rich’s friend for the bad news he must believe is about to belt us in the chops. Yowsa-yowsa, it’s the economy, but I ain’t stupid. That other fella, that Clinton fella, he did it . If anybody’s going to play Herbert Hoover here, Mr. Bush will damn well make sure it isn’t he. That’s fine politically, but every day the crowd of milling people, worried, insecure and jumpy, grows. Every day, the number of people who are vulnerable to stampeding grows. This is not the right moment for people in high places to start giving their honest opinions to the public-unless they want to see a rush for the exits.
Mr. Bush is exploiting the bad numbers streaming in to sell his tax bill. The tax cut, he promises, will help get things expanding again. Give the rich people more money and they will automatically rev up the old economy by investing this new money and creating jobs. Well, nothing in human life is automatic, least of all in matters of this kind. History may repeat itself, but not often, and the number of times that rebating tax money to the rich has kick-started an American economy is small indeed. This is a consumer-driven economy, and most of the consumers are decidedly non-rich. It’s bucks in the non-rich people’s pockets that might set off another boom, although who knows?
Certainly this tax bill won’t get us back to the high prosperity of a year ago. As the Democrats had been saying before they were intimidated into backing it or something like it, people making $70,000 or less-which is most everybody-don’t pay enough income taxes for an income-tax cut to matter.
Far from getting people out shopping again, it’s doubtful that the Bush plan will help people pay the bills they already owe. American households owe $6.5 trillion . Equity in the family home is the lowest on record. The situation for families making under $70,000 a year-the families with credit-card debt up the yin-yang, the ones who bought their homes with those 5 percent down payments-is precarious. Even cutbacks in overtime can push them over the edge.
Tom Daschle, the Democratic Senate minority leader, is correct in his opposition to W.’s plan. But the Democratic approach won’t do much for them, either. Mr. Daschle wants to enlarge the income-tax cut for these middle-incomers. That’s fine, but-let it be repeated-those making under $70,000 aren’t paying that much income tax now. What kills them is the payroll taxes.
They are getting clobbered by the payroll taxes, the dread FICA and the rest of that stuff on the stub that explains why the middle-class paycheck looks like a set of Mormon underwear. These taxes do not apply to incomes over $80,400, thus exempting those $5-million-, $10-million- and $20-million-a-year executives from the 6.2 percent FICA tax that low- and middle-income people must pay on every cent they earn.
Cutting the payroll tax would shift part of the burden for Social Security, Medicare, unemployment compensation, etc., from the payroll revenues to general tax revenues and would necessitate taxing upper-income people for real and not for fun, as is done now. Nevertheless, if the idea is to cut the amount of “money which the people send to Washington” and get some cash in purse and pocket fast, cut the payroll tax.
Incidentally, nothing would be more welcome to small business. If the Republicans and the Democrats are serious about helping small business-which the bloviators of both parties never fail to tell us is the chief source of new jobs-the best thing that can be done for these businesses (with, say, 50 or 30 or even fewer employees) is to cut the payroll tax, federal and state. It is the single greatest drag on deciding on a new hire.
If we are in a recession, will this tax cut pop us out of it? Who knows? We are swimming in debt as never before. Corporate debt is over $4.5 trillion. What a weird situation! You could almost say that the federal government is the only institution in the country which is solvent. They’re paying off the debt in Washington, and everybody else is choking on it.
The economists are in a daze, and nobody else can tell where we are tending. If people lose a little more income-let alone get laid off or let go permanently-what do those thousands and thousands with the 10 percent, 5 percent and 0 percent down-payment mortgages on their houses do? Do they struggle to keep them, as people with real equity in their homes do? Or do they walk away, thereby collapsing real estate and shaking financial institutions everywhere? What is the real situation with the banks? Have they hidden their billions of high-risk, possibly bad loans behind exquisitely complicated derivative deals that won’t show on the books until the whole debt structure gives way and comes tumbling down?
Maybe yes; but then again, maybe no. We are an energetic people, and we have built an energetic economy in the past 20 years. Even if it doesn’t go on forever, maybe it will zoom along for the foreseeable future. Yes, well, there’s the rub: We use that phrase-”foreseeable future”-but our powers of foresight are problematic at best. Twenty-five years ago, books on the Japanese economy and how and why it was so incalculably better than ours were hot sellers with American business execs. Everything Japanese was to be aped and copied. The Japanese would conquer the world, it was said. Then the roof fell in: Japan dropped into a deep, deep recession and, after 10 years, they have yet to find a way to pull themselves out.
So where are we now? Without a diagnosis and without a plan, we are reduced to faith in our great economic shaman, Alan Greenspan. We don’t understand a word he utters; we have little idea about what he does or whether he should be doing it; but we believe in him, and wait in hope that he will make it all come out right. If that ain’t much, right now, it’s all we’ve got.