Posted on 06/24/2002 8:01:39 AM PDT by xsysmgr
The sagging stock market is diverging significantly from the rising economy in a very unusual way. Much of this disconnect can be traced to a loss of investor trust due to corporate corruption and the breakdown of accounting standards. Worries about domestic terrorist bombings are also weighing down Wall Street.
But there's more to it than that. Anti-growth policy mistakes by the Bush administration could be curbing investor appetites for longer-run stock-market commitments.
The administration's economic message has increasingly shifted away from the Reaganesque, free-market, supply-side policy direction that George W. Bush touted during the 2000 campaign and the first half of 2001 — when his broad-based tax-cut package was enacted into law. This Bush shift is handcuffing investors.
The end of the post-September 11 stock-market rally can be traced to March of this year. Since then, stock averages have slumped badly. It is no coincidence that a 30% steel tariff administered by the White House occurred that very same month, marking the end of the stock market's war recovery.
Of course, the administration assured us that the tariff measure would have no palpable economic effect. But the exact reverse has occurred. Steel-price increases have ranged between 20% and 70%, covering a wide variety of steel-using industries, including old-economy manufacturers that would be responsible for a good amount of investment in the recovery. Sure, new Bush laws to lower tax rates on businesses are in effect. But the hike in the cost to make steel may be offsetting the positive results of any business tax cuts.
More, a new tax war between the U.S. and Europe may be coming on the heels of a threatened trade war over the steel issue. The Treasury Department and Republican Ways and Means chair Bill Thomas are pushing to raise taxes on foreign-owned companies operating in the U.S. This of course would repel foreign companies from operating here, and that's a significant negative for the growth of our economy.
Tax-policy officials are also moving to prevent American companies from reincorporating in low-tax havens such as Bermuda or Barbados. No one likes to see American firms relocate. But several companies are trying to reduce their overall tax costs in order to pass on higher after-tax profits to shareholders. That's not a lack of patriotism. It's a complaint against burdensome American business taxes. And there's a lot to complain about.
Of the thirty industrial-country members of the Organization for Economic Cooperation and Development (OECD), the U.S. ranks [ITAL] twenty-fourth [UNITAL] from the top, with one of the world's heaviest corporate tax burdens. Even more, as conservatives sweep to victory in European elections — in places like France, the Netherlands, Italy, Denmark, Norway, and probably Germany — every center-right leader is talking about across-the-board tax cuts. If these cuts are implemented, the U.S. will fall even further behind in the highly competitive global race for capital.
Misguided U.S. policies on taxes and trade — which have also produced a slumping dollar — are two reasons why foreign investment-flows into the U.S. have nearly come to a halt. But there are even more anti-growth policies coming from Washington.
Consumers overwhelmingly support Microsoft in its long-running anti-trust case. But the government — via the Justice Department — may desert America's leading software maker, and approve stifling sanctions desired by a handful of aggressive states. The DOJ is also launching a criminal inquiry into semi-conductor makers for alleged collusion to prop up prices, even though the temporary rise in chip prices earlier this year has already been erased. Chip prices have dropped roughly 25% yearly for a half-dozen years. And the DOJ is taking on this deflating yet vital sector? That's economic illiteracy.
The only good economic news coming from Washington these days is an unexpectedly bold action by Harvey Pitt's SEC to propose a public accounting board to enforce standards of honesty and improved corporate governance. Following strong reform measures by the New York Stock Exchange, and prodded by the White House, the previously slow-footed Mr. Pitt is moving in the right direction.
But with so many other anti-growth trade, tax, and regulatory threats in the air, stock markets are stuck in a funk. To some observers President Bush's economic policies have moved away from free-market principles and toward short-run political expedience. Rather than resembling Ronald Reagan's, the Bush policies are looking more and more like Richard Nixon's.
Remember, Reagan told the Soviets to tear down the Berlin Wall, which blocked freedom in Europe, but he also tore down numerous economic barriers that blocked prosperity at home. President Bush has only half of the tough-and-proven Reagan plan right. His strong prosecution of the war against terrorism is on target. But he's lost his economic compass, and would do well to return to the Gipper's sound plan for domestic growth.
— Mr. Kudlow is CEO of Kudlow & Co.
And much of this breakdown can be laid at the feet of one Messr. William Jefferson Blythe Clinton, who demonstrated to the world that you may lie under oath with impunity.
Immediately, CEO's and CFO's realized there was no risk in lying in Prospectus' and year-end reports.
Why? Then he would be unable to talk about the economic mistakes the administration makes.
Plus, on a personal level, he'd have to take a huge cut in pay.
And before you say ". . as Treasury Secretary," I will ask if you recall who was the last cabinet appointee to have been through drug rehab?
No, but do you need to encourage them with Clinton's performance?
Do you put fresh-baked cookies on the table then punish your child for sneaking one?
Also because of Clinton. Im not sure how yet but it must be so.
There have been dishonest business leaders for as long as there have been businesses. One good thing about American business is we clean house when the crooks are caught.
Blaming our current mess on the Clintons isn't going to help. Kudlow is right, Bush's policies need to change.
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