Voodoo Economics

by Robert Herold
As a semi-retired person, I'm pleased that the stock market seems to have turned around lately. Things, though, aren't all bright.


Some six months after I received notification, I'm still reeling from the latest round of health insurance gouging. Married with two dependents, I will spend $12,000 this year on what amounts to a group rate. Actually, because I will pay this amount out of my IRA, I have to factor in taxes, which when added to the base price increases my health insurance costs to some $4,000 more.


And then there is the continuing climb in the cost of city services, gas and electricity. This doesn't do much for my morale. But the market is now back over 9,000, and that's the best news that we retirees have had in almost three years.


So why is it that when I phoned my financial advisor, it was with considerable trepidation? Like so many other Americans dependent on the performance of the market, I've got an inordinate amount of money sitting in money market funds. My brother -- another recent retiree -- uses a different financial advisor, who told him to invest last spring, at the exact time the market took its most serious dive. So things could be worse. Now my IRA is going up, and I'm once again within striking distance of financial security. Still, I'm worried.


More troubling, however, is the fact that my financial advisor is worried. If he's worried, what must those really in the know be feeling? You know, people who have 10 or 100 times what I have. And what are the implications?


Why is it that one friend, a retired accountant no less, still has all his money in guaranteed securities? He says that he has no faith at all in stocks. Not before the Bush tax cut; certainly not afterwards. Even Warren Buffett, the Oracle of Omaha, came out against the tax cuts, saying his secretary deserves as much of a break as he's getting.


Joe Klein, in his book The Misunderstood Presidency of Bill Clinton, argues that the boom years of the '90s didn't "just happen." Clinton took on all the so-called "big spenders," most of whom resided in his own party. While he watched revenues rise, he was cutting expenditures. The result was a largely unburdened market, which led to so much growth over so many years. That Clinton served during a time of relative peace helped him, no doubt.





Now Bush, as all "wartime presidents" before him have done, will ask for as much money as his national security agencies want. The most obvious ones -- the Department of Defense, the Department of Justice, the Department of Homeland Security -- all will line up at the trough. But we know that the bureaucratic dynamics are such that other agencies -- indeed, all other agencies -- will find very inventive ways of identifying their respective missions with the national security priority. Some will be more effective than others.


We can predict that the Army Corps of Engineers, for example, will find ways of turning what yesterday was so much "pork barrel" into what is necessary to our national security today. Or consider the Department of Transportation. The last time our highway guys had such an opportunity was during the Eisenhower Administration, when they were able to seize on the Soviet threat to navigate the Highway Trust Fund through Congress. Ike liked those highways, a predisposition that the auto lobby turned into a matter of national security, which eventually led to our interstate system -- which wouldn't be so bad had it not at the same time robbed money from other forms of public transpiration, such as rapid rail. Expect the DOT to be at the national security trough like the rest of them.


If, because of our so-called "wartime conditions" -- and those of us old enough to remember the sacrifices at home required by World War II have a hard time with this one -- the president seeks to fund any and all programs that contribute to bolstering our threatened national security. After he has cut about all he can from the not-so-lucky domestic programs and because of his tax cuts, he will create huge deficits. This scenario is already being predicted by all the economists who follow such trends. So what then?


I'd be less worried if my various experts could provide me some answers. When I inquire about the prospects of continued growth in the stock market, they respond with "it all depends." All depends on what? It all depends on whether the Bush tax cuts manage to produce real growth at a rate high enough to compensate for all the lost revenue.


Well, what are our chances of that happening, I ask? Hmm, they respond. If government expenditures don't drop -- and, given the President's attitude on national security, they likely won't -- and if our rising expenditures lead to ever-increasing deficits, and if these deficits lead to inflation, and if this new round of inflation leads to higher interest rates . . . if all this happens, then, likely, the market won't head in the preferred direction any time soon.


So what do I do now? My guess is that millions of other Americans, of all political persuasions, are asking this same question. And with all this to worry about, the one thing that seems to be lost in the shuffle is the Social Security system, which is held hostage to all these same vagaries.


The more I learn about these tax cuts and the administration's economic policies, the more clear it becomes how big a gamble we are taking now by spending more and taking in less. In the old days, the last thing self-described "conservatives" would do is gamble on money matters. Deficits used to be a battle cry for these same people -- the ones who tell us now that they don't really matter that much.


And if you think the stakes are high now -- as the 2.7 million Americans who have lost their jobs since Bush took office can attest -- wait until the baby boomers start retiring in 2008. Then the bills from Social Security will really start piling up.





Publication date: 06/19/03