Mr. Cheney's Economy
Friday, March 5, 2004; Page A22

ON TUESDAY evening, Vice President Cheney offered a curious take on the economic cycle. Speaking on Fox News, he said, "What the Democrats are offering at this point are tax increases, at exactly the wrong time," and he added that the nascent recovery would be choked off by his opponents' policies.

Not only does this overlook the fact that Democratic policies would not be implemented until next year, assuming the election went their way, it misses the signs of overheating that are gathering in the economy right now. The day of Mr. Cheney's interview, Federal Reserve Chairman Alan Greenspan signaled that interest rates would have to rise to forestall inflation, though he was vague about the timing.

Mr. Cheney no doubt knows that tax policy ought not be linked to the economic cycle anyway; changes in tax law take so long that it's better to leave fine-tuning to the nimbler Fed. But since he has posited the link, we invite him to consider the following: Inflation was dormant in the 1990s because of low commodity prices, cheap oil, cheap Asian imports and a strong dollar. But in recent months commodity prices have been rising, and the Organization of Petroleum Exporting Countries has been cutting production to keep oil prices high. Several East Asian economies are experiencing modest inflation, which may feed through into the prices of their exports to the United States. The sharp fall in the dollar against the euro and the British pound has made imports from those trading partners more expensive. Admittedly, strong productivity growth, another reason for past low inflation, has not dried up. But with economic growth roaring along at an unsustainably high rate, Mr. Greenspan is right that the engine will need to be cooled soon.

For the past three years or so, the Bush administration has justified its irresponsible budget deficits by pointing to the need to stimulate a sluggish economy. It was never a good argument, but the return of inflationary pressure has made it an even worse one.