[Congressional Record Volume 148, Number 125 (Monday, September 30, 2002)]
[Senate]
[Pages S9564-S9566]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              THE ECONOMY

  Mr. BENNETT. Mr. President, we have had a lot of discussion on this 
floor about the economy recently. Since we are in an election period, 
we have a lot of discussion on the campaign trail about the economy, 
with a number of questions being raised--in raised voices--as often 
happens during a campaign.
  One of the questions we have heard thunder forth on this floor is: 
Who lost the surplus? Where did the Government surplus go? Those who 
ask the question almost always answer it by saying: It was the Bush tax 
cut that destroyed the surplus. And it is the Bush tax cut that causes 
us now to be in deficit.
  As I have contemplated responding to this, my mind has gone back to 
an old Peanuts cartoon. Charlie Brown and Lucy are having a 
conversation. In the first panel, Lucy is complaining about various 
problems in her life. In the second panel, Charlie Brown says: Yes, 
Lucy, life does have its ups and downs. In the third panel, Lucy makes 
her position very clear. She says: I don't want any downs. I only want 
ups. And in the fourth panel, she is marching off saying: Nothing but 
ups, ups, ups. And Charlie Brown responds with the time-honored 
comment: Good grief.

  There are many people who view our economy the same way Lucy does. 
They do not want ups and downs; they just want ups: a continuum, as far 
as the eye can see, of years that are better economically than the 
years before.
  There was a period of time, in the 1990s, when we were in the longest 
sustained expansion of our history, where people were saying: Lucy has 
finally got her wish. We have nothing but ups.
  During that period, I had the opportunity to talk with Alan Greenspan 
when he appeared before the Banking Committee. I asked him the 
question--not necessarily in Lucy Van Pelt terms--but I said to him: 
Have we repealed the business cycle? As we look at the strength of the 
economy, and all of the years that are ups, have we now reached the 
point when the business cycle will not kick in and we will not see a 
downturn?
  Well, Mr. President, as you know, Alan Greenspan is one who spoke of 
the new economy, who spoke of structural changes in the economy as a 
result of the information age and the application of technology to our 
decision making. But when I asked him the question with respect to the 
business cycle, he smiled that wry smile of his and said: No, Senator, 
we have not repealed the business cycle; it will still manifest itself 
in the years ahead. And it has.
  I brought this chart to the Chamber to demonstrate when the business 
cycle started to give us a ``down.'' You can see, in the third quarter 
of 1999, we were still in a strong ``up'' mode. In the fourth quarter, 
Christmastime, it was strong. While we did not do so well in the first 
quarter of 2000, we were still in the very strong ``up'' territory.
  But by the third quarter of 2000, all of a sudden we were down 
dramatically. We were still not in a recession, because a recession 
technically is when the economy is shrinking rather than growing, but 
there was very anemic growth, indeed, of 0.6 percent in that quarter.
  You get to the fourth quarter, Christmastime, where before you were 
up with a growth of 7.1 percent, and now you have a growth of 1.1 
percent. It was not a recession technically, but it certainly felt like 
one.
  Before, we had been in strong territory, through the 1990s and on 
into the first half of 2000, and suddenly we were down in this weak 
territory in the last half of 2000.
  In the first quarter of 2001, we slipped into red territory and 
negative growth, minus 0.6 percent growth in the first quarter; minus 
1.6 percent growth in the second quarter; coming back out of the 
business cycle, minus 0.4 percent growth in the third quarter; and 
then, in the fourth quarter of 2001, back into positive territory 
again.
  In the first quarter of 2002, we have strong growth again. Then we 
are back to 1.3 percent growth. But these cross-hatched areas show what 
the economists are predicting for the remainder of the year.
  So we go from the stronger period of the ups that Lucy Van Pelt 
loves, then the business cycle comes again, we have a recession, and 
then we start to come out of it again.
  To those who say: Where did the surplus go? and, Wasn't it eaten by 
the tax cut? I say the answer is very clear: It was eaten by the 
business cycle.
  What causes the business cycle? What causes things that have been 
going well for so long to suddenly go wrong? There are several reasons. 
Let me try to discuss each one of them.

  The first thing that causes the business cycle is, quite frankly, bad 
decisions--bad decisions on the part of policymakers in Government, bad 
decisions on the part of business men and women, bad decisions on the 
part of managers.
  One of the reasons we have seen the severity of the business cycle 
tamp down a little, so that the swings are not nearly as wide as they 
used to be in my father's business days or my grandfather's business 
days, where we do not have anything like the panic of 1873, we do not 
have anything like the Great Depression of the 1930s anymore, is that 
business men and women have better access to information and, 
therefore, they make fewer mistakes.
  The classic business cycle in the manufacturing world would run like 
this--this is oversimplified, but it illustrates the point. You open a 
factory, and you start to produce widgets. You can see I went to 
business school because in business school they always talk about 
widgets as the generic product.
  All right. You open a factory. You start to make widgets. Let's say 
your widgets sell pretty well. As the sales reports come in, you, as 
the manager of the factory, the manager of that business, say: We need 
to build more capacity. We need to make more widgets because there is 
demand for widgets out there.
  So you double your shift. You put on two shifts, and you are having 
twice as many widgets come out of your factory. Pretty soon, people say 
to you: The wear and tear on our machinery is such that we need to 
build a new factory to meet this demand for widgets. So you invest in a 
new factory, and you are back to one shift, but now you are producing 
something like three times as many widgets as you were before. And you 
are now in the ``up'' period because people who make the raw materials 
that go into widgets are selling them to you, they are paying their 
employees, they are buying raw materials

[[Page S9565]]

from their suppliers, and it is all running through the economy. There 
is prosperity.
  While there is prosperity in the economy, there is prosperity in the 
Government, because all of the employees of all of these companies 
being hired to help you make more and more widgets are paying taxes on 
their income. They are paying taxes on the profits they make in selling 
supplies and other material to the widget maker.
  Then one day, someone walks into your office as the head of that 
widget company and says: Have you noticed how many widgets we have in 
the storeroom? Have you noticed how big our inventory of widgets has 
gotten? We have so many extra widgets that we have not shipped that we 
need to shut the factory down until we work off the excess inventory. 
We need to shut down at least half of our capacity until all the 
widgets in the storeroom have been cleared out and sold.
  You made a wrong decision to keep manufacturing widgets when the 
demand started to fall off or level off. You didn't realize it was the 
wrong decision. It didn't feel like the wrong decision, as you expanded 
capacity, but now the proof is in the inventory. It is piling up on the 
back lot, and it is overrunning your storehouses.
  You have so many extra widgets, you have to say: Shut the factory 
down; mothball the extra factory we built because we are not going to 
be returning to that for quite a while; lay people off until we can get 
rid of all of the excess widgets we have.
  So you go into the downside of the business cycle. You go into a 
recession. And as you stop manufacturing widgets, you stop ordering raw 
materials from all your suppliers, and they stop ordering goods and 
services from the people who supply them. And those people get laid 
off, and the Government doesn't get any taxes because none of those 
employees is taking home a paycheck. Indeed, they are now drawing 
unemployment compensation so the Government is seeing more money go out 
at the very time less money is coming in, and the Government starts to 
run deficits. We are in a recession and everybody gets concerned. Gloom 
and doom overhang the economy.
  Then one day the same person who walked into your office and said, do 
you know how many widgets we have in the storeroom, walks into your 
office and says: Do you know how bare the storeroom is? We have sold 
all of those widgets. We have sold all the widgets that were in the 
back lot. We have sold all the widgets that were in the warehouse. We 
don't have any widgets. There is still a demand for them out there. You 
better gear up the factory.
  So you get on the phone and you call your workers back and you say: 
We have to gear up the factory.
  Once again, you should have done it earlier, but you made a mistake. 
You had bad information. In the 1950s, in the 1960s, in the 1970s, you 
were dependent on hand counts of inventory, sales figures that were 
sometimes weeks, if not months, after the fact, and it was inevitable 
that even the best manager would make the wrong decision on the upside 
and make the wrong decision on the downside, which meant that the 
business cycle was more and more extreme by virtue of bad information.
  The main contribution of the information revolution to the business 
world has been good information with which a manager can now say: Wait 
a minute. There is a softening in widget demand. We will eliminate the 
second shift, but we will continue to operate both factories.
  Instead of the wild swings that we used to have in the business 
cycle, today's swings are narrower and softer, but they are still there 
because, inevitably, at some point, someone will overestimate sales and 
thereby build too much capacity and then, on the other end, 
underestimate sales and have to turn around, and you will get a 
business cycle.

  In historic terms, this recession, outlined on this chart, is milder 
than any we have had. Those with memories go back to the recession that 
started in the early 1990s. That recession was much sharper and more 
difficult and more painful than this one has been. If you have an even 
longer memory, go back to the recession of the double dip in the early 
1980s when we had economic devastation that would make these kinds of 
numbers look like paradise.
  I remember being taught in school that 6 percent unemployment was 
full employment, that the economy could not absorb any more than 94 
percent of the available workers and when you got to 6 percent 
unemployment, you were at full employment. In the 1990s, we got down in 
some parts of the country to 2 and 3 percent unemployment. There were 
times in my State where employers could not hang on to workers because 
there were so many jobs. They said: Our biggest problem is trying to 
get labor.
  Interestingly, at the height of the latest recession, at the time of 
greatest difficulty in the job market, there was wringing of hands, 
weeping and wailing and gnashing of teeth because we hit 6 percent 
unemployment. The unemployment rate has started to go down now from 6 
percent, after hitting that peak.
  So in historic terms, this is a mild recession, but what comfort is 
that to people who have lost their jobs and, more importantly, to the 
issue I started out to discuss: How about the surplus and what has 
happened to the surplus and who lost the surplus?
  You can anticipate my answer to that. The surplus was lost to the 
business cycle. I said there were several things that cause a business 
cycle. I have given you the one that happens within the business cycle 
itself.
  The other is that outside things come along. The oil shock that hit 
us in the 1970s helped trigger difficult times. September 11 hit us 
just as we were struggling with the economic downturn and made it 
deeper and longer than it would otherwise have been. Outside shocks and 
outside circumstances can also trigger a business cycle.
  So it is not just bad decisions on the part of business leaders; it 
is also outside problems. We had both of those hit at the same time. 
The business cycle turned us down, and then September 11 hit us. We 
have still not recovered from September 11.
  I was speaking to a good friend in the hospitality industry. He said: 
After September 11, we were off 20 percent from the norm. This is an 
industry that is bigger than the automobile industry in its total 
impact on the economy.
  I spoke to this leader over the weekend and said: Have you recovered 
yet?
  He said: No, we have come back in relative terms. We are now only 10 
percent down from the norm.
  But in that industry, 10 percent is huge. We have seen airlines that 
are faced with bankruptcy because people are afraid to fly. They are 
filling their planes, but they are filling their planes with cut rates 
that can't possibly give them an adequate rate of return.
  What happened to the surplus? What happened to the surplus is that 
the economy got hit with business cycle problems and with outside 
shocks simultaneously and, as I was describing in the widget business, 
when the economy gets hit, the Government gets hit. Tax revenues go 
down as business activities go down.
  As these numbers remain strongly blue and go strongly blue into the 
future, the tax revenues will come back. They will come back by virtue 
of the strength of the economy.
  The fundamental rule I want everyone to understand is this: Money 
does not come from the budget.
  Money comes from the economy. We can pass any kind of budget we want. 
We can make any kind of projections we want. But we will be humbled by 
the realities of the marketplace every single time. Sometimes the 
marketplace will produce more revenue than we budgeted for. That is 
what happened in the 1990s. We budgeted, hopefully, to get to a balance 
by 2002, and the economy surprised us and took us not only to balance, 
but surplus, in 1999. We were then budgeting surpluses for as long as 
the eye could see. The economy said: No, you are forgetting the 
business cycle. That, plus the attack of the terrorists, threw us into 
this situation, and Government revenues went down, regardless of what 
we budgeted.
  Let us understand, when we talk about what happened to the surplus, 
that it was not the passage of the tax cut that caused the surplus to 
disappear, it was not really much of anything we did here on the 
floor--except as we reacted to the two realities that hit us 
unexpectedly. The business cycle came along and said I have not been 
repealed, and the economy slowed down,

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and then outside shocks hit us in the form of a terrorist attack that 
devastated large segments of the economy that have still not recovered.
  Those of us who are so sure that we control this economy, and what it 
does by virtue of what we pass here, need to have a little more 
humility and a little more understanding and realize once again that 
the most important thing the Government can do in order to maximize 
Government revenues is to create an economic climate in which market 
forces can produce the greatest beneficial result. But even at those 
times, when the atmosphere is most conducive, the business cycle is 
still with us and will humble us if we keep thinking that, like Lucy 
Van Pelt, we can go through life with nothing but ups, ups, and ups, 
and never face the reality of the occasional down.
  I appreciate the indulgence of my fellow Senators. I will have more 
to say on this at another time when we have a sufficient amount of 
morning business. I recognize the time has come to return to the debate 
of the bill on the floor.
  I yield the floor.

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