Money Angles

By Andrew Tobias

A little more than a year ago, with the economy gloomy, I suggested in these pages that we spike the water with Prozac. The Administration chose to invade Iraq instead, which served much the same purpose -- lifting the national mood -- and was probably also a very good thing for the world. (The toll on the Iraqis was horrible, but so was the prospect of Saddam with the Bomb.)

And there we were again last month, with the economy every bit as gloomy -- except that rather than having to invade anyone to lift our spirits (top choice: Louisiana), we may have accomplished much the same thing through the efforts of the Federal Reserve. When the Fed cut the discount rate a full point, to 3 1/2%, it was like pounding an economy in cardiac arrest. Suddenly, its little eyelids began to flutter, its stock market leaped out of bed, and people began to realize this might be one darn good time to go buy a house, at least in some parts of the country.

You get a couple of first-time home buyers to make their move, which allows the folks they've bought from to trade up, which lets those folks trade up -- and before you know it Century 21 and U-Haul are having banner years, furniture is being ordered, new alarm systems installed, tax revenues pick up . . . oh, happy day. Armageddon postponed.

Not that we're conclusively out of the woods, by any means, or that I was in there with the Smart Money last week paying all-time record-high prices to buy stocks myself -- "Buy low, sell high, ommmmm," I kept chanting whenever I felt the urge -- but things have definitely improved. Confidence is the name of the game; it has taken a decided turn for the better; and it's self- fulfilling. Lower interest rates make real estate and bonds more valuable, which shores up banks and insurance companies; a record-high Dow makes people , feel richer and more optimistic -- and all this has a way of feeding on itself.

A few tiny problems do remain, however -- unemployment, widespread suffering and a nearly $400 billion deficit, for example -- so there is still a search on to see what other steps might be taken to assure recovery.

The first and most obvious would be to change things such that we elected a Chairman -- George Bush, say -- who would handle the foreign stuff (mergers and acquisitions, as it were) and, separately, a President -- Bill Clinton, say -- who would run domestic operations (the factory). It's not as crazy as it sounds. (Well, of course, it is as crazy as it sounds, but never mind that.) In the first place, the job is obviously too big for any one human being, and in the second place, our current CEO doesn't really have much interest in the local stuff anyway, other than cutting the capital-gains tax and dropping the luxury tax on yachts -- so why would he mind?

You may say this is unnecessary, because Mr. Bush already has the power to appoint a domestic czar. But inasmuch as he chose Dan Quayle as the best possible candidate to lead America in his absence and Clarence Thomas as the most qualified man in America to sit on the Supreme Court, maybe it would be best if we left the choice to the voters.

Given the unlikelihood of changing the Constitution by November and given that none of the Democratic candidates can match the President's foreign policy experience, one of them could announce -- right now -- that if elected, his first move would be to offer George Bush the job of Secretary of State. What's Mr. Bush, who has made patriotism and public service such an issue, gonna say? No? Is he gonna say, "If I don't win, I'm not going to help"? Fine. Then you get Nixon or Carter or, my own personal favorite, Margaret Thatcher. Retired world leaders are not that hard to find.

Anyway, that's my first proposal. Other, possibly more realistic, ways to help the Fed:

-- Don't enact a one-time tax break.

-- Don't suspend the penalty on IRA withdrawals.

The idea with both these proposals has been to give the consumer a shot of cash to ignite the economy. But that wouldn't work -- people would sense we were just getting ourselves deeper in hock, spending yet more money we don't have, invading our already too paltry savings. What's needed is confidence, not cash; investment, not spending. So:

-- Cut the capital-gains tax to zero (but only on new investments and only on newly issued stocks and bonds, not trading profits or real estate).

-- Substitute "competitiveness" for "containment of communism" as our fundamental national policy, and announce a bold investment in infrastructure toward that end. Americans are nothing if not enthusiastic competitors, as ex- Virginia Governor Jerry Baliles and others with this vision have noted; a massive investment in infrastructure -- and in education, research and drug rehabilitation -- would build confidence in our long-term competitiveness. That confidence, in turn, would keep us from having to haul out the Prozac or bomb Baton Rouge.