The Stock Market as U.S. Dictator

A short while after the Clinton Administration had taken office in 1992, the then-President’s key aides discovered something bewildering. Being Democrats, they had thought that — once elected — they would be able to use public resources to help less fortunate Americans.

In reality, however, they quickly found themselves rejecting many of their presumed spending priorities — and opting for fiscal consolidation instead.

As it turned out, public policy in the gung-ho 1990s effectively operated under the diktat of the bond markets. Simply put, as soon as Wall Street smelled as much as a whiff of a spending increase taking shape in Washington, it vetoed the move preemptively — by pushing interest rates higher.

Then-Treasury Secretary Robert Rubin — the former head of Goldman Sachs, the investment bank — deserves great credit for launching the United States on its path to fiscal rectitude.

However, under President George W. Bush, due to his economic advisors’ supply-side leanings, the situation has changed completely. He adopted a much rosier borrowing outlook when his team took office.

As a result, his administration cares precious little about what the bond markets think — or may prefer. In their stead, political America is kneeling before a new god. It’s the stock market, stupid!

And, what, in the eyes of the Bush Administration, does the stock market want to lift its sagging fortunes? According to the Bush team, it wants tax cuts — as soon and as large as possible.

That is why Mr. Bush, in his State of the Union address and at other occasions, keeps professing his firm conviction that tax cuts are the mantra that will rectify all the current ills of the U.S. economy.

It is a well-calculated move. Mr. Bush knows that — by linking tax cuts to a revival of the stock market — he ties his agenda even more firmly to that of the American people.

After the dot.com bust and the Enron fiasco, the stock-owning half of the nation is quite depressed. For all the hefty interest rate cuts administered by the U.S. Federal Reserve, more and more Americans are concerned that the stock market — despite some recent signs of life — is not really trending upward.

Add to this market stagnation a low level of personal savings and scarcer public pension finance via Social Security — and many Americans are really concerned. This is all the more true as the large baby boom generation is set to retire in the coming decade.

If the market does not go up, they believe their spending habits will have to change. They will have to save more for later — rather than consume more now. That is an uncomfortable choice — and one which most Americans would like to avoid.

All of these considerations are why tax cuts appear to be such a magic wand. If Americans have more money to spend, corporate profits will increase — pushing stock values higher.

At this point, it isn’t a matter of fiscal prudence any longer for the Bush team. It is a matter of the survival of the American way of life. Stocks simply have to increase in value — and, if they don’t, we will feed ’em tax cuts.

What about the role of journalists in this regard? They are supposed to examine public policy choices critically. But with ever more concentration in the media, the fate of large TV and radio networks — not to mention the fast-merging print outlets — is also tied closely to the stock market.

Under those precarious circumstances, there’s a trickle down effect in newsrooms as well. Ever more journalists’ retirement security — if not their current compensation — is tied in some manner to their companies’ stock performance. That might just taint their judgments a tad when it comes to the task of dissecting the wisdom of tax cuts.