Volume CXXXII, Number 4 October 4, 2002 f

Pin the tail on W.
TIMOTHY J. RIEMER
COLUMNIST

This week one of my friends whom I have a bet with over the future of stock market took out his frustration on President Bush. This seems to me to be a common occurrence lately. The decline in the president's approval rating seems to be directly correlated with worries over the economy and over a potential war with Iraq. Although his rating as of September 19 was in 60s to low 70s, depending on the poll, I am sure it has dropped since then due to further troubles with the stock market. The point that interests me here is whether the president actually has the power to move the economy. In other words, is President Bush really responsible for our economic woes?

Of course the easiest thing to do is to blame current economic difficulties on the president, but actions taken by the president, at least President Bush, aren't to blame here. There is a serious time lag between any sort of economic reform and its actual impact on the economy. Therefore it is hard to say that President Bush really is the cause of any current economic difficulties that we are facing, but only of any future problems. In fact it is hard to blame any one person for the troubles we are having. As a matter of fact, many experts, during the heavy stock market decline in July, were noting the president's lack of power in turning investor confidence around. Furthermore, Alan Greenspan, a man in the position thought to have the most power of the status of at least the financial markets if not the entire market, is losing the power to control the economy as record low interest rates are running out of room and power. The marginal effects of lowering interest rates at this stage are greatly diminished.

The economic troubles that we are currently facing are most likely the result of misallocation of capital (a.k.a. cash) during the late 1990s. When investors were mistakenly pouring hundreds of millions of dollars into areas like telecommunications during the late 1990s, they were not investing their money where they should have been. Hindsight is always 20-20, to use a cheesy cliché, but now it is very clear that many companies received too much capital and that many companies did not receive enough. Now that many companies with great potential for future profits are trying to raise capital, they are having a very difficult time because investors simply do not have the money to invest like they did before.

This misallocation of funds was also the result of some less than ethical accounting practices, and other deeds of corporate wrongdoing. These acts made investors think that companies were stronger and better than they actually were, and hence the money invested in companies like Enron and WorldCom is now not in the hands of investors when they need it.
As much as I, and many other people would like to pin the blame for this rather lackluster economy on President Bush, we simply cannot. However, President Bush's current actions will contribute to the length of these hard times and/or future recessions. Economic reform, such as the $300 dollar tax rebate that every American was supposed receive, in light of current times, might have been better spent in cutting this year's deficit. It is the decisions that President Bush makes now that we must be critical of in order to secure our economic future.