After Wall Street Rescue, Bush Changes Course on Federal Intervention
Thursday, November 20, 2008
After pledging more than $1 trillion to rescue financial markets, President Bush has fought against a series of proposals for additional bailouts by Democrats and emphasized the benefits of free markets.
The White House, joined by Republicans on Capitol Hill, has derailed a second economic stimulus plan, fought a Democratic proposal to spend $25 billion to bolster Detroit automakers and continues to press for approval of a trio of stalled trade deals. Bush also persuaded foreign leaders to commit to free-trade principles during a global economic summit in Washington last weekend and will attempt the same at a meeting of Pacific Rim nations in Peru this weekend.
The moves follow weeks of complaints from fiscal conservatives that Bush and other Republicans strayed from their principles with a $700 billion rescue plan and other steps aimed at staving off a Wall Street collapse. Many GOP leaders say that the unpopular rescue package contributed to the party's losses on Election Day and that they are determined to hold the line on further expenditures until President-elect Barack Obama takes office in January.
"My constituents are concerned, and I agree with them, that we're on a spending spree with no end in sight," said Sen. John Cornyn (R-Tex.), incoming chairman of the National Republican Senatorial Committee. "There is a feeling that enough is enough."
Bush and his aides say the tumult in credit markets was a unique and particularly dangerous case that threatened the entire economy. White House spokesman Tony Fratto said there is a "bright line" between a situation that affects everyone and one that involves individual troubled companies.
Bush is likely to spend his last months in office arguing against major new government interventions, according to administration officials and GOP lawmakers. Treasury Secretary Henry M. Paulson Jr. has signaled that he is unlikely to seek congressional approval for more bailout money this year.
One possible exception is a compromise rescue plan for General Motors, Ford and Chrysler, which are appealing for billions of dollars amid a collapsing car market and a frozen credit system. But the White House wants any help to come from an earlier infusion of federal funds and to include major restructuring by the companies.
In explaining his approach to the financial crisis last week, Bush told a group of conservatives on Wall Street that he is "a market-oriented guy, but not when I'm faced with the prospect of a global economic meltdown."
At the same time, he added: "History has shown that the greater threat to economic prosperity is not too little government involvement in the market; it is too much government involvement in the market."
This tension between free-market rhetoric and big-spending reality has dogged Bush throughout his tenure. The same president who pushed through a massive tax-cut package during his first year has also presided over the largest federal deficits in U.S. history, spent hundreds of billions of dollars on wars and created a costly prescription drug program that many fiscal conservatives saw as a betrayal.
Those strains reappeared over the past two months as Bush and Paulson prodded reluctant House Republicans to go along with the financial rescue plan. The administration also committed hundreds of billions more to shore up the AIG insurance group, mortgage giants Fannie Mae and Freddie Mac and other companies.
"The best way to understand this administration is that their initial reaction is always the free-market approach," said Al Hubbard, a former Bush economic adviser. "They've got to be persuaded that these times or this situation demands doing something outside the free market. With the credit markets freezing up, it was clear that something had to be done."
Kevin A. Hassett, an economic adviser to Bush's 2004 campaign, said both parties have drawn a distinction between emergency interventions on Wall Street and bailouts of specific firms or industries. "What's happening at this moment is that he's attempting to draw that line," Hassett said of Bush.
Rep. Eric Cantor (R-Va.), the incoming House minority whip, likened the credit markets to electric utilities that could plunge the country into economic darkness if they fail. The automakers, he said, are not in the same category. "There is a real distinction between the auto bailout and what happened with the financial bailout," he said.
Bush's critics argue that he is merely attempting to bolster his conservative bona fides during his final months in office. J. Bradford DeLong, a Clinton administration official who teaches economics at the University of California at Berkeley, said the Bush White House "has never been that clear on what its economic priorities or policies are."
David Hamilton, a University of Kentucky historian who studies the Great Depression era, said he sees similarities between Bush's recent moves and the last months of Herbert Hoover's presidency. Hoover long resisted calls for spending on relief efforts and public-works projects and unsuccessfully tried to enlist Franklin Delano Roosevelt's help before his 1933 inauguration.
"For a presidency that has been so heavily criticized for its unwillingness to rein in spending, they have suddenly found the gospel in the eighth year at an odd time," Hamilton said of Bush. "You have to wonder why they are saying that now is time to draw the line."