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Allan Sloan

Better Marketing Won't Make Smarter Economics

By Allan Sloan
Tuesday, December 7, 2004; Page E03

It's become a Washington routine: President George W. Bush once again shuffling his economic team, with word emanating from the White House that the newbies will do a better job of marketing the president's program. So you can see a big reason that Bush picked Kellogg's chief executive, Carlos Gutierrez, as commerce secretary. Anyone whose company persuades millions of consumers to pay five bucks a box for grain, packaging and air has got to be a marvelous marketer.

In addition to hiring a packaged-goods maven, the White House unveiled a second marketing move: a mid-December economics conference. This rah-rah shindig is designed to promote Bush's programs the way Tony the Tiger pushes Frosted Flakes: "They're GR-R-REAT!"

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But the real reason Bush has had problems selling his policies lately isn't their marketing. It's the policies. Hooking the likes of me on Kellogg's Raisin Bran -- I've been addicted to the stuff for decades -- is one thing. Hooking lenders and politicians on programs whose numbers don't really add up is a much more difficult problem.

Foreign lenders, who have financed more than 90 percent of the federal government's cash deficit since Bush took office, seem increasingly reluctant to keep lending us so much money at such cheap rates when the dollar is falling so steeply against the euro and the Japanese yen. And the dollar seems about to fall sharply against the Chinese yuan, which is likely to be revalued soon. This isn't a marketing problem, it's a money problem.

On the mushy-math front, the Bushies are doing what I predicted: They're looking for a freebie when it comes to accounting in the federal budget for their proposed personal Social Security accounts. They want to change bookkeeping rules so that these proposed accounts, which would increase the government's need to borrow, wouldn't make the budget deficit bigger.

Here's the deal: Say that wage earners put $60 billion a year of Social Security tax payments into personal accounts rather than having the money go to the Treasury. The Bushies argue that we shouldn't add the $60 billion to the deficit because the personal accounts would reduce the government's future Social Security obligations by more than $60 billion. Account holders, you see, would get a smaller guaranteed benefit than other Social Security recipients. Adding the personal accounts to the deficit, they say, is like prepaying your mortgage and having to show it as a loss.

But as Peter Orszag of the Brookings Institution points out, a dollar of debt today is a far more tangible taxpayer obligation than a dollar of benefits years down the road. Congress can cut benefit formulas -- it has done so with Social Security, and will soon do so again. But Congress can't reduce the federal debt by fiat the way it can reduce benefits.

But if we're going to give special treatment to accounts that cost the government money today but reduce its expenditures tomorrow, which might make sense, we should count as an expense those items that don't increase the deficit but increase the government's future obligations. These are the $155 billion Social Security surplus, and the $68 billion of interest the government paid to its "on-budget trust funds" by giving them Treasury securities rather than cash. Social Security et al. ended up with a total of $223 billion of new IOUs from Uncle Sam -- but that didn't count in the budget deficit. Include it, as you should, and the fiscal 2004 deficit would have been about $635 billion rather than $413 billion. Scary.

You can actually make the case that the president's marketing of his Social Security "reform" has been brilliant. Why? Because it has diverted people from asking a basic, simple question. Which is this: Wasn't Social Security designed to be a safety net for old people? When did it change from something designed to keep you from being poor into something to supposedly help make you rich?

Greg Mankiw, the soon-to-depart chairman of Bush's Council of Economic Advisers, actually had the nerve to tell the truth about Social Security -- and proposed personal accounts -- last week. He told an audience at the American Enterprise Institute that "there's no free lunch" when it comes to these matters and that there isn't a painless miracle cure for Social Security's problems. That's not marketing, it's truth-telling, and it annoys both the right and the left. You can see why Mankiw is joining the second Bush economic exodus. The first one, two years ago, claimed chief economic adviser Larry Lindsey and Treasury Secretary Paul O'Neill. Their successors, now leaving, produced no noticeable improvement. But hope for marketing miracles springs eternal, so Bush is trying again.

Maybe the newbies can slap "new and improved" on his policies and get them sold. But that beautiful cereal box has an enormous price tag on it. No matter how savvy the marketing, there's no such thing as a free breakfast.

Sloan is Newsweek's Wall Street editor. His e-mail address is sloan@panix.com.

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