President shakes up his team to re-energize weak economy

Posted: Sunday, December 08, 2002

WASHINGTON-- Faced with an economy going nowhere, President Bush acted like the owner of a losing baseball team -- he fired the manager and shook up the team. The replacements will be asked to re-energize a weak economy, restore confidence on Wall Street and persuade Congress to accept a big new stimulus package.

It's almost as if Bush, an oil businessman and then managing partner of the Texas Rangers before entering politics, is taking a page from that experience as well as learning hard lessons from his father's term in the White House.

The senior George Bush, the last previous president to have a recession on his watch, stuck with his Yale college pal Nicholas Brady as treasury secretary throughout his one term, ignoring warnings from prominent Republicans that Brady was a disaster in the job and needed to be replaced.

''Young George is not going to make the same mistakes that his daddy did,'' said David Jones, chief economist at Aubrey G. Lanston & Co. in New York. ''He doesn't want to get credit for running the war but lose the White House because he didn't pay enough attention to the economy and jobs.''

The announcement Friday of the impending departures of Treasury Secretary Paul O'Neill and chief White House economic adviser Larry Lindsey came shortly after the government reported that the nation's unemployment rate had shot up to 6 percent in November, raising new fears that the fitful recovery from last year's recession was again in danger of stalling.

Bush's aides let it be known that the president will move quickly not only to name a successor to O'Neill but also to present to the new Republican-controlled Congress a major economic stimulus package aimed at getting the economy moving again before the 2004 election rolls around.

''President Bush is getting ready to push some significant economic proposals through Congress and to do that he needed people with more credibility on Capitol Hill,'' said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.

There was no shortage of names being put forward for the two jobs.

But some analysts said the administration would face many of the same problems it has encountered in coming up with replacements for Securities and Exchange Commission Chair Harvey Pitt and William Webster, the former FBI director who was named to head a new accounting industry oversight board and then forced to resign because of a furor over his actions on a corporate accounting board.

Many of the usual prospects that a Republican administration would consider -- Fortune 500 chief executives and the heads of big Wall Street investment houses -- have taken a tumble in the public's estimation in the wake of the stock market meltdown and corporate accounting scandals.

The candidate screening will take place as the administrations puts the finishing touches on what will be its third economic stimulus program, which Bush will unveil when Congress returns in January.

Many analysts said the tax package could well include major elements of a recent proposal for $160 billion in tax cuts next year put forward by the Business Roundtable, a group composed of the top executives of America's biggest companies.

The business group called for a payroll tax holiday that would exempt the first $10,000 of a worker's wages next year from the Social Security tax, something that potential Democratic presidential rival John Kerry also has endorsed, as well as accelerating income tax rate reductions scheduled to go into effect in 2004 and 2006 and eliminating the taxation of investors' stock dividends, long a Republican goal.

''Expect some bold new economic initiatives in the new year,'' predicted Sherry Cooper, chief economist at BMO Financial Group, who said that in addition to the stimulus package the administration is likely to roll out proposals for a major overhaul of the tax code, something O'Neill has had Treasury tax experts working on for months.

The big question is whether all the personnel changes and a third economic stimulus package will get Wall Street out of its funk and get the stop-and-go economy growing again.

On that issue, analysts were split. Many believed that the replacement of O'Neill should go a long way to clarify what has been at times a muddled message from the administration as well as soothing feelings O'Neill had often bruised with his blunt speaking style.

But the administration's proposals for further tax cuts are certain to run into opposition from Democrats in Congress who blame Bush's $1.35 trillion, 10-year tax cut for ushering in a new era of huge budget deficits.

Wrangling over the stimulus proposal is likely to delay any further tax relief for months while the economy faces continued uncertainty generated by a possible war with Iraq and a rising jobless rate. That could mean either stalemate or the prospect that anything that Congress does pass will be so watered down that it won't provide much of an economic boost.

''When you change managers on a baseball team, you can still be stuck with the same players. In this case, Bush may be stuck with the same economy,'' said David Wyss, chief economist at Standard & Poor's in New York.

Martin Crutsinger has covered economics for The Associated Press since 1984.

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