Ideological flutter risks the wealth of nations

Buried under a neologistic avalanche is a timely but only half-formed critique of George Bush's fiscal policies, Howard Davies finds.

In a series of New York Times columns over the past four years, the economist Paul Krugman has developed two related theories about the foreign and domestic policies of the Bush Administration. He argues that to understand its foreign policy, we must see George W. Bush's America as a revolutionary power like Jacobin France. The further outside the mainstream thinking of the "international community" its policies are, the more sure Bush, Dick Cheney and Donald Rumsfeld are of their correctness. They positively want to be pariahs in that sense: appeals to build consensus fall on deaf ears. If correct, and the evidence in favour is mounting, this thesis invalidates Tony Blair's approach to transatlantic bridge-building.

Krugman's second thesis, which he developed in a lecture at the London School of Economics recently, is that the prime motivation of Bush's economic policy is to "starve the beast" - the beast of big government and generous welfare programmes. Krugman sees the Administration's tax-cutting agenda as one designed to destabilise the Government's financial position, making it essential for future presidents to implement deep cuts in spending programmes - assuming, as seems realistic, that no candidate will be able to win elections on an explicit tax-raising ticket. We should not, therefore, look for short-term realism in Bush's deficit plans. They are not designed to be coherent. Rather, the Bush aim is, by legislating for a series of future revenue reductions, to set mantraps for his successors.

So, in domestic, just as in foreign policy, Bush is a true revolutionary.

The America he leaves behind will have a fiscal "poison pill" at its heart.

Inside Daniel Altman's Neoconomy you may find a version of Krugman's argument struggling to emerge. The clue is in the subtitle:

"George Bush's Revolutionary Gamble with America's Future". This is a helpful hint, no doubt inserted on the publisher's advice, which will be of assistance to those who have difficulty making sense of the text.

It is not that the prose is dense or obscure. Far from it. Altman was trained on The Economist . So he writes short sentences. Sometimes without verbs. His style is demotic, too. When he wants to tell us what it would mean to raise America's growth rate by 0.1 per cent, he notes that the additional wealth generated would be "enough to pay roughly the entire population of Cincinnati the nation's median annual income. Or to take every American out for a steak dinner."

When he wants to explain how and why the dollar might depreciate as a result of Bush's policies, he tells us that "there's an international market for dollars just as there is for dolls or Dal!s". This incisive observation is presumably targeted at art collectors who are familiar with the global market in surrealist paintings yet unaware that currencies can also be bought and sold. I trust every one of them will buy a copy of Neoconomy .

But one should not allow a rebarbative prose style to obscure other merits the book may have. What could they be? Well, there is the title. Altman is proud of the word "neoconomy", so proud that he uses it on almost every page. And on the pages free of "neoconomy" we usually find a neoconomist or two. Altman identifies a group of economists, mainly friends and colleagues of Martin Feldstein, who have been the intellectual parents of the "starve the beast" philosophy. This causes Altman a problem. He is out of sympathy with the neoconomists, yet, as he tells us more than once, Feldstein is his "longtime adviser", one who "taught me many of the skills I'm using to write this book". (We can only hope that Feldstein is suitably proud of his pupil.) Indeed, this complex relationship with Feldstein is the central problem with Neo-conomy. Altman cannot decide what he thinks about what the Bush Administration is up to. Much of the argument appears hostile. He makes humane and sensible points about public spending, daring to argue that there are goods and services (in addition to bombs) that it is entirely rational for the state to provide. He is rightly anxious about the redistributional consequences of the effective abolition of taxes on inheritance and investment income, and the implications for the fiscal deficit.

But he cannot bring himself to argue that the policy is bound to end in tears. His conclusion is that the voters and Congress may agree, as the neoconomists want, to make all the president's tax cuts permanent, or "they may decide that the neoconomy poses risks that are too great for the budget, the economy and the capitalist system. There will always be disagreement about which choice is right, especially since economics offers no airtight answers or solutions. The voters will have to see through the rhetoric, grasp the economic reality and make their choice."

Whether the swing voters of Ohio thought that was what they were doing when they made their choice on November 2 is not clear. Nor is it clear from Altman's analysis what economic fate awaits them as a result. The dollar has fallen sharply since the election, which may be one clue.

It may be that Krugman has become such a polemicist that he is not the most objective communicator. There is room for a dispassionate analysis of the Bush Administration's economic policies, and the consequences for America and the world. Sadly, Neoconomy is not it.

Howard Davies is director, London School of Economics and Political Science.