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U.S.: Bush Seeks To Restore Business Confidence

U.S. President George W. Bush has been having little success in restoring Americans' confidence in their country's business practices amid a rash of reports about large corporations using questionable accounting to inflate their value. Most analysts agree that Bush is not doing a good job, but they disagree on what a better approach would be.

Washington, 16 July 2002 (RFE/RL) -- Twice in the past seven days, U.S. President George W. Bush delivered major speeches designed to soothe Americans' concerns over the growing scandal of accounting irregularities at large U.S. corporations.

In both speeches, Bush urged corporate executives to live up to high ethical standards, and announced that he has proposed increasing the criminal penalties for accounting fraud.

On 15 July, speaking in Birmingham, in the southern U.S. state of Alabama, Bush warned an audience of corporate executives that they must operate their businesses more ethically. But at the same time, he said the American economy is strong, despite the poor performance recently of the country's stock market.

Both last week and yesterday, his speech was carried live on several news-oriented television networks, and both times viewers saw in the corners of their television screens the latest readings for the country's major stock exchanges.

And both times the market indexes were falling substantially as the president was speaking. In fact, since Bush's speech in New York on 9 July, the Dow Jones Industrial Average -- the country's most-watched stock index -- has lost about 1,000 points, or more than 10 percent of its value.

Economists interviewed by RFE/RL had varying explanations for why the president is having so little luck reassuring Americans, and in particular stock investors, about the strength of the U.S. economy.

Peter Locke, an associate professor of finance at George Washington University in Washington, D.C., said Bush is trapped by the issue of corporate wrongdoing. Locke said the president is doing all he can to combat corruption, but is being overwhelmed by too much bad news.

However, Locke said Bush himself is in part responsible for the perception that the bad news will never stop. "The fact that he's focusing on this issue gives people some fear that there's another fiasco out there," Locke said.

And, according to Locke, it is important for a president to speak convincingly when he is trying to persuade people to act together. He said President Ronald Reagan was successful at inspiring people to have faith in the American economy during the 1980s.

But Locke said Reagan's predecessor, former President Jimmy Carter, was uninspiring when he told his constituents that they would have to bear up under a slumping economy during the 1970s. He said Bush seems to be more like Carter. "There is something to be said for, certainly, getting people excited -- or getting them depressed," Locke said.

Another economist, William Niskanen, who was once a member of Reagan's council of economic advisers, said Bush, the American news media, and most other economists are missing the point of the problem.

Niskanen, now chairman of the Cato Institute, a private Washington research center, said too much focus is being put on questionable accounting practices. They may be illegal, he said, but they are not at the root of what is afflicting the American economy. "These corporations did not fail because they violated accounting standards, and they did not fail because other people [auditors] did not pick up these violations. These companies apparently violated accounting standards to cover up for the fact that they were failing or financially weak," Niskanen said.

One of the core problems, according to Niskanen, is that U.S. law exempts from taxation money spent on loan-interest payments. He said this encourages corporations to finance their operations too much with loans, which have recently led to many business failures. "There are reasons specific to each of these firms, but the general reasons are that our Tax Code encourages too much debt and encourages too much risky behavior," Niskanen said.

Niskanen said Bush should spend less time making speeches about the economy, leaving that chore to his treasury secretary, Paul O'Neill. Instead, he said, Bush should focus his energy on reforming the Tax Code so that it does not encourage corporations to get heavily into debt.

A third economist, Barry Bosworth, said there is merit in Niskanen's argument about reforming the Tax Code. But Bosworth, of the Brookings Institution, another Washington policy group, said Bush could have more success soothing Americans' fears about the economy by devoting more attention to it.

Bosworth dismissed the idea that O'Neill should become Bush's spokesman on the economy, despite the treasury secretary's reputation as a successful, and highly ethical, businessman. He said speaking out on the economy is any president's responsibility. "I think the president has to speak. But when the president speaks, [he has] to say more than what everybody else is saying," Bosworth said.

According to Bosworth, Bush is saying things in his speeches that the American public already knows. He said that gives them the idea that their president is not as involved in the issue as many people believe he should be.

Bosworth said he agrees with the political axiom that, for the most part, a president cannot have a direct effect on the country's economy because an economy cannot be directly controlled. But he added that a president also should understand how important it is that people perceive him as being involved in the issue. "Presidents don't cause recessions [and] presidents really can't cure recessions. But you do have to look like you're involved. This affects people -- a lot," Bosworth said.

Bosworth said the positive effect on people can be to give them confidence. And if people have confidence in their country's economy, they will have enough confidence to spend more than they would if they did not have confidence. And that, he said, could bring the economy back to life.