Time - Man of the Year/Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso/moy/011392/0113204.000

Text File | 1992-08-28 | 5KB | 114 lines

                                                                                BUSINESS, Page 44

MONEY ANGLES

It's All a Confidence Game


By Andrew Tobias


    A little more than a year ago, with the economy gloomy,
I suggested in these pages that we spike the water with Prozac.
The Administration chose to invade Iraq instead, which served
much the same purpose -- lifting the national mood -- and was
probably also a very good thing for the world. (The toll on the
Iraqis was horrible, but so was the prospect of Saddam with the
Bomb.)

    And there we were again last month, with the economy every
bit as gloomy -- except that rather than having to invade
anyone to lift our spirits (top choice: Louisiana), we may have
accomplished much the same thing through the efforts of the
Federal Reserve. When the Fed cut the discount rate a full
point, to 3 1/2%, it was like pounding an economy in cardiac
arrest. Suddenly, its little eyelids began to flutter, its stock
market leaped out of bed, and people began to realize this might
be one darn good time to go buy a house, at least in some parts
of the country.

    You get a couple of first-time home buyers to make their
move, which allows the folks they've bought from to trade up,
which lets those folks trade up -- and before you know it
Century 21 and U-Haul are having banner years, furniture is
being ordered, new alarm systems installed, tax revenues pick
up . . . oh, happy day. Armageddon postponed.

    Not that we're conclusively out of the woods, by any
means, or that I was in there with the Smart Money last week
paying all-time record-high prices to buy stocks myself -- "Buy
low, sell high, ommmmm," I kept chanting whenever I felt the
urge -- but things have definitely improved. Confidence is the
name of the game; it has taken a decided turn for the better;
and it's self-fulfilling. Lower interest rates make real estate
and bonds more valuable, which shores up banks and insurance
companies; a record-high Dow makes people feel richer and more
optimistic -- and all this has a way of feeding on itself.

    A few tiny problems do remain, however -- unemployment,
widespread suffering and a nearly $400 billion deficit, for
example -- so there is still a search on to see what other steps
might be taken to assure recovery.

    The first and most obvious would be to change things such
that we elected a Chairman -- George Bush, say -- who would
handle the foreign stuff (mergers and acquisitions, as it were)
and, separately, a President -- Bill Clinton, say -- who would
run domestic operations (the factory). It's not as crazy as it
sounds. (Well, of course, it is as crazy as it sounds, but never
mind that.) In the first place, the job is obviously too big
for any one human being, and in the second place, our current
CEO doesn't really have much interest in the local stuff
anyway, other than cutting the capital-gains tax and dropping
the luxury tax on yachts -- so why would he mind?

    You may say this is unnecessary, because Mr. Bush already
has the power to appoint a domestic czar. But inasmuch as he
chose Dan Quayle as the best possible candidate to lead America
in his absence and Clarence Thomas as the most qualified man in
America to sit on the Supreme Court, maybe it would be best if
we left the choice to the voters.

    Given the unlikelihood of changing the Constitution by
November and given that none of the Democratic candidates can
match the President's foreign policy experience, one of them
could announce -- right now -- that if elected, his first move
would be to offer George Bush the job of Secretary of State.
What's Mr. Bush, who has made patriotism and public service such
an issue, gonna say? No? Is he gonna say, "If I don't win, I'm
not going to help"? Fine. Then you get Nixon or Carter or, my
own personal favorite, Margaret Thatcher. Retired world leaders
are not that hard to find.

    Anyway, that's my first proposal. Other, possibly more
realistic, ways to help the Fed:

    -- Don't enact a one-time tax break.

    -- Don't suspend the penalty on IRA withdrawals.

    The idea with both these proposals has been to give the
consumer a shot of cash to ignite the economy. But that wouldn't
work -- people would sense we were just getting ourselves
deeper in hock, spending yet more money we don't have, invading
our already too paltry savings. What's needed is confidence,
not cash; investment, not spending. So:

    -- Cut the capital-gains tax to zero (but only on new
investments and only on newly issued stocks and bonds, not
trading profits or real estate).

    -- Substitute "competitiveness" for "containment of
communism" as our fundamental national policy, and announce a
bold investment in infrastructure toward that end. Americans are
nothing if not enthusiastic competitors, as ex-Virginia Governor
Jerry Baliles and others with this vision have noted; a massive
investment in infrastructure -- and in education, research and
drug rehabilitation -- would build confidence in our long-term
competitiveness. That confidence, in turn, would keep us from
having to haul out the Prozac or bomb Baton Rouge.