As Tuesday's Cabinet meeting convened in a war-crisis atmosphere, Housing Secretary Jack Kemp offered unwelcome advice on how to combat a recession that everybody except President Bush's advisers admits is here.
Instead of denying the slump is finally at hand coinciding with the oil price spike, said Kemp, the administration should fix the blame on Senate Majority Leader George Mitchell (D-Maine) for blocking reduced capital gains rates last year. The secretary went on to urge that this proposal be substituted for the Bush team's recession-fighting formula of higher taxes enacted by Congress and easier money pumped out by the Federal Reserve Board.
Not for the first time, Kemp played the skunk's role at the Cabinet picnic. Nobody applauded. Despite deepened economic deterioration in the economic aftermath of Iraq's absorption of Kuwait, Bush's plan is unchanged. That means he is responding to recession like Herbert Hoover (with higher taxes) and Jimmy Carter (with easier money).
There was no sign of changing this policy at Tuesday's Cabinet session as Michael Boskin, chairman of the Council of Economic Advisers, delivered an upbeat overview of the economy with no definite sighting of recession. That provoked Kemp into complaining the scenario was too rosy on the day before the U.S. Chamber of Commerce would announce the arrival of the recession.
We were alerted to what followed by neither Kemp nor his staff but by others present in the room. The housing secretary praised the president for courage and skill in responding to Saddam Hussein's aggression. But he faulted Boskin, Kemp's friend and frequent free-market collaborator, for failing to scold Mitchell and the Democrats for provoking the recession.
Kemp asserted it would be folly to meet the $64 billion deficit target under the Gramm-Rudman Act. Revenue needed to do that would mean higher taxes, he continued. Such a tight fiscal policy, accompanied by looser money demanded by the administration, recalled for Kemp the bad old days of the Carter administration. Dubbing himself an old hand at ''bashing the Fed,'' Kemp asked: ''Do you really want the Fed to inflate?''
In the ensuing discussion, nobody backed Kemp. Budget director Richard Darman conceded some points but stressed that the federal government's overriding problem is debt -- mountains of it, ever rising higher -- that makes a budget settlement imperative after what he termed years of profligacy. Treasury Secretary Nicholas Brady chimed in that if $200 billion in additional annual debt were to double in the wake of Iraq, the U.S. government would be hard put to find lenders at an acceptable price.
But the idea of higher taxes in the teeth of recession was derided the next day in the rare official U.S. Chamber of Commerce news conference conducted by its chief economist, Richard Rahn. In predicting a mild recession under present conditions, he said a tax increase piled on top would be an ''unmitigated disaster.'' While berating the Federal Reserve for suffocating growth the past two years, Rahn stressed that he does not want the central bank to ''dramatically loosen monetary policy to jump start the economy.''
Like Kemp, Rahn argues a capital gains rate of 15 percent (down from the current 28 percent) is essential to growth. Since Democrats call that a tax benefit for the rich, he would balance it by adopting part of Sen. Daniel Patrick Moynihan's (D-N.Y.) proposal to cut back massive increases in Social Security payroll taxes (a proposal not mentioned by Kemp to the Cabinet but surely supported by him). Rahn's combination frees both capital and labor.
But Bush policy seems frozen, inflexible and flawed. The president long ago put himself in concrete against any Moynihan-style cut. His own officials privately echo the Democratic dirge that the capital gains reduction is for rich men and cannot be sold to the public, forgetting that it was one of Bush's few substantive issues stressed consistently during the 1988 campaign.
The president's men hope the crisis will make Democrats more forthcoming on a budget agreement and the Fed willing to accommodate that with easy money. They may be disappointed on both counts. Democratic budget summiteers show no weakening because of the Mideast. At the Fed, there is substantial feeling that easier money will only confirm higher oil prices now and then feed inflation.
Bush has moved boldly, though with great risk, against Iraq. But the greater danger to his presidency may stem from deciding to stay the tight- fiscal, easy-money course. Kemp's admonitions to his colleagues won him no Cabinet popularity prize but are worth pondering.