ST. LOUIS — Aside from disagreements over who should get the credit for the continued strength in the American economy, economic issues seem to be absent from the presidential election campaign. Of course, a cynic might say that is all for the better - the less interest politicians show in economic matters, the less likely they are to mess things up. Although there is considerable justification for taking such a strictly passive position, it may be too simple-minded to result in good public policy.
Surely, the current battery of statistics - especially news that the US gross domestic product rose at an annual rate of 7 percent in the fourth quarter of 1999 - raises the question of how sustainable the upward trend is. Yet, direct measures of an overheating economy are sparse. Inflation remains quite low - the consumer price index ran at a modest rate of 2 percent last year.
Nevertheless, the question inevitably arises whether the Federal Reserve should take stronger action to keep incipient inflationary pressures down or to obviate their increase - say by raising interest rates more than a modest one-quarter of a percent at a time, as it's done recently.
After all, in earlier periods, Fed policy could often be described as doing too much too late. That is, the Fed decision-makers often would wait until rising inflation was well under way before they acted. Then, they overreacted with a tight but belated monetary policy that brought on - or at least hastened the onset of - the next recession.
A complicating factor at present, of course, is the natural desire of the Federal Reserve System to keep out of the political cross-fire, especially in an election year.
A half-percent rise in interest rates, even if appropriate on economic grounds, could likely encourage candidates in both parties to focus on the Fed as a convenient whipping boy for whatever shortcomings they perceive in national policy (few voters, aside from retiree-bondholders, advocate higher interest rates). The long-term concern of every Fed chairman - to maintain the historic independence of the nation's central bank - leads to a position of caution.
Once again, Wall Street is a focal point of economy watchers. A modest correction or two from the market's halcyon highs likely would be accommodated by today's strong domestic economy.
However, a large and prolonged downturn in stock prices could sour investors' perceptions and generate a variety of negative repercussions. Among these could be declines in consumer spending and business investment, and a cutback in the large inflows of foreign capital needed to finance this nation's rising current-account deficit.
Some of these factors would be partially self-correcting. Lower levels of domestic outlays would reduce the current-account deficit and the amount of new foreign financing required.
Yet the result could be the uncomfortable condition of rising interest rates (to encourage adequate cross-border financial flows) at a time when the stock market is down and the economy is slowing. This is not to forecast the return of the stagnation prevalent in earlier decades, but to describe the combination of trends that could possibly lead to that undesirable situation.
These are hardly the economic factors that the presidential campaigns are addressing. But that could turn out to be a blessing, if the result is benign neglect of an otherwise healthy economy by major political forces.
Although a general tax cut would be helpful in its impact on long-term growth and productivity, it is hard to make a case for it as a solution to short-term macroeconomic conditions.
On the other hand, combining a substantial tax cut with comprehensive reform of the tax structure itself remains a very attractive long-run option.
But in the short term, all eyes continue to focus on the Federal Reserve as the key governmental economic player in what is otherwise the Washington gridlock likely to characterize the rest of this year.
*Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University in St. Louis.
(c) Copyright 2000. The Christian Science Publishing Society