Economists question White House summit's assessment

Chicago Tribune
Thursday, December 16, 2004

Economists question White House summit's assessment

By Mark Silva

WASHINGTON — Economists assembled by the White House for a high-profile summit yesterday maintained forcefully that the U.S. economy is robust and growing. But many experts outside the Bush administration's circle of advisers and allies insist the president is overlooking warning signs that could affect the economy's long-term health.

President Bush called the two-day White House Conference on the Economy to promote his second-term agenda: Simplifying the tax code, limiting the cost of lawsuits and meeting long-term costs of Social Security.

But some outside economists worry that the summit is glossing over more ominous challenges, including a record federal-budget deficit, a record trade imbalance with other nations and the declining value of the dollar abroad.

"The economy now is in very good shape," said Martin Feldstein, a Harvard professor of economics and former adviser to President Reagan. Feldstein opened the White House conference yesterday with a drumbeat of positive news: more than 2 million jobs created since last year, business investment growing and personal income rising.

The meeting yesterday and today is Bush's second major economic summit, reminiscent of events that President Clinton held. This one has been fashioned as a unanimous chorus of support for the president's programs.

Yet experts outside the parley at the Ronald Reagan Building warn that the administration is not focusing on such problems as the $55.5 billion trade deficit the government reported this week for October, the nearly $2 billion a day the nation is borrowing abroad or the dollar's declining value.

"To me, this is not only an economic issue but also a moral issue, with very long-term implications," said Sung Won Sohn, chief economist at Wells Fargo. "The dollar is already depreciating, and there is a possibility of a plunge in the value of the dollar, which will benefit no one. We are playing with fire to some extent."

The dollar has lost 30 percent of its value in comparison with the euro in the past three years. While that helps U.S. manufacturers sell products abroad, further decline could drive foreign investors away from the Treasury bills issued to finance the nation's debt.

The White House says it is confronting long-term economic trouble not only at this conference, but also in the legislative agenda it will advance in 2005.

"The president has put particular attention on the plight of the small-business person," said White House Communications Director Dan Bartlett, pointing to simplification of the tax code as a move that would spur business growth.

Foremost among Bush's goals is overhauling Social Security, which the White House will ask Congress to address next year.

Making Social Security financially solvent and cutting the federal deficit will strengthen the economy, Bush said in a meeting yesterday with Italian Prime Minister Silvio Berlusconi, who expressed concern about the American economy and the dollar.

"The policy of my government is a strong-dollar policy," Bush said. But the president, who has refrained from taking action to prop up the dollar, added, "We believe the markets should make the decisions [about] the relationship between the dollar and the euro."

While protecting the benefits of Americans at or near retirement, the White House hopes to offer younger workers private retirement investments as a partial alternative to the current Social Security. That would be part of a plan to try to offset some of the nearly $11 trillion in long-term debt in the Social Security system — a system the administration calls financially "unsustainable" in its current form.

"The math is undeniable," Bartlett said in a breakfast with reporters. "We cannot meet our obligations for future generations."

The president insists that Social Security can be made financially sound without raising payroll taxes. But some in Congress warn that this will lead to more borrowing, even as the president pledges to cut the record $412 billion budget deficit in half by 2009.

The government has promised baby boomers and their children more than it can deliver in Social Security, Medicare and other benefits critical for an aging nation, experts say. While the White House is working on this problem, and already has expanded Medicare to include prescription drugs, the agenda of its economic conference seems to demonstrate a more immediate concern for cutting taxes, curtailing business regulation and controlling the cost of lawsuits.

Some experts say Social Security cannot be made solvent without curtailing benefits, such as increasing the age for retirement benefits to 75 over time.

"We have to face seniors and future seniors and let them know we can't keep these commitments," Art Rolnick, research director at the Federal Reserve Bank of Minneapolis, said in an interview. "The difficult part is, once you promise something, it's difficult to take it away."

The president briefly attended the conference yesterday to tout his goal of limiting the money people can win from lawsuits.

"The cost of frivolous lawsuits in some cases make it prohibitively expensive for a small business to stay in business or for a doctor to practice medicine," said Bush.