Political Hay

It Is the Economy, Mr. Moron

For Democrats it's turned into a losing issue.

By 4.9.04

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In case you haven't noticed, Democratic politicians don't always tell it like it is. In fact, they are frequently downright dishonest. And when it comes to talking about the economy in an election year, what they say is as about as reliable as John Kerry's 1971 testimony regarding American war crimes in Vietnam.

When Democrats attack the "Bush" economy, they are forced to do so in a very focused manner. A lot of the economic data over the past six to nine months, after all, has been pretty positive -- robust economic growth, low inflation and interest rates, high productivity, and a falling unemployment rate. Democrats, however, can and do highlight two sore points -- the federal budget deficit and the job losses during the first half of the Bush presidency and the slow (up until now) rate of job creation over the past year.

Given their history, as well as their current policy prescriptions, Democrats' complaints regarding budget deficits ring hollow. Among the main causes of the current deficit are the 2001 recession and the collapse of high priced technology stocks, which reduced both income and capital gain tax revenue and increased spending on unemployment benefits. Add to that costs for homeland security, increased national defense, and a few billion for the horrendous Farm Bill.

Most Democrats, of course, weren't and aren't for cutting any of these things. Indeed, John Kerry proposes dramatic new increases in spending. Instead of focusing on spending, the Democratic attack on budget deficits center on Bush's tax cuts (which even most liberals admit only have totaled perhaps one-third of the deficits over the past couple of years -- and that assumes that the tax cuts had no positive impact on economic growth).

AS WE ALL KNOW, after Al Gore invented the Internet, a great economic bubble grew with "dot-com" companies sprouting up everywhere. The result was a robust economy in the late 1990s built on what turned out to be hype. When the bubble burst, the record high employment levels we saw in 1999 and 2000 started to fall back. Unfortunately for George W. Bush, he took office in January 2001. Employment peaked the month after George W. Bush's inauguration. Over the following six months the economy lost 841,000 jobs largely as a result of the reverberations of the collapse of the tech bubble. No reasonable person can lay that on any Bush policies.

At the job markets' worst point, June 2003, the economy had lost 2.6 million jobs from its peak. Nearly half of those (1.25 million) were lost in the six months following September 11, 2001, when the economy was pounded by the crippling of the travel, lodging, and entertainment industries, a depressed stock market, and devastated consumer confidence. So 2.1 million of the 2.6 million jobs lost during the Bush administration (at its worst level in June 2003) were largely, if not entirely, attributable to economic conditions inherited by Bush or from the effects of 9/11. And if it had not been for the $300 and $600 checks sent to households during the summer of 2001 as a result of the first Bush tax cuts, the recession, and resultant job losses would most assuredly have been worse than they were.

But changes in employment is an odd way of determining the state of an economy. The unemployment rate is a more meaningful measure of the job situation than is comparing changes in employment numbers, as the unemployment rate measures a status which can be compared over time to some benchmark, versus a change from one period to another. In 2001 the tech sector boom that had helped to push unemployment levels to near-term historic lows, started to turn into the "tech wreck." But is the fact that employment is now less than it was at its peak in 2001 an indication that the employment situation is really bad -- as bad as the Great Depression, as Democrats like to say? Hardly. But the unemployment rate isn't a winning issue for Democrats. At 5.7% the current rate is less than what it averaged during Bill Clinton's first term.

THE "PLAN" PROPOSED BY the Democratic presidential nominee, John Kerry, to invigorate the economy sounds rather unconvincing. Repealing tax cuts (a.k.a. raising taxes) on the higher income brackets (which many small businesses, which create the majority of jobs in the American economy, pay) is not a way to increase growth and employment. And his professed hostility to corporate America and his willingness to embrace more regulation of all sorts is similarly disconcerting. His calls for additional regulation of pharmaceutical product pricing, for instance, would not only stifle the development and discovery of new drugs but would kill job growth in the pharmaceutical and biotechnology industries (which many state governments -- from Arizona to Michigan to South Carolina -- are trying to nurture).

Most economists, including Alan Greenspan, have been predicting strong job growth for months, and a recent survey by Manpower shows that twice as many companies plan to hire workers in the second quarter of this year as during the same period last year. So the robust March job growth performance is probably not a flash in the pan.

Many conservatives have also begun to talk a lot about The Bureau of Labor Statistics' Household Survey (rather than the more often cited BLS Establishment Survey based on business payrolls) that shows job growth (as corroborated by other strong economic indicators) has been vastly understated by the payroll survey due to a secular increase in the number of self-employed (non-payroll) Americans. But as logical as this argument may be, talking about some alternate way of measuring employment from what they are used to hearing will leave most Americans skeptical and unconvinced. Fortunately, the likely future strength in payroll job growth won't require such a complicated explanation.

John Kerry is trying to keep his attacks simple, too. He drones on about 3,000,000 lost jobs (rounding to the nearest million) confident that the media will not correct his overstatement. And he plays the classic liberal Democratic class warfare games, complaining about tax breaks for the "rich" and trying his best to link tax cuts to slow job growth.

Again, a simple answer to Kerry's simple attacks will likely be the most effective. And the simplest answer is to point out what the economy has done since Congress passed Bush's additional tax cuts and tax cut accelerations in late May 2003. Here's a sampling of some economic data:

Is such data the result of a failed economic policy? Does this performance suggest the need for a radical change in course?

To be sure, not all of the positive data we have seen over the past 10 months is due to the tax cuts passed in May 2003. A good part of this is likely due from the natural recovery coming off of the shock of 9/11, and bouncing back from the economic stagnation during the months of uncertainty leading up to the commencement of the war with Iraq. But the stimulative effects of the tax cuts, particularly in providing a boost to the stock market, and consequentially to consumer confidence, are undeniable. And unfortunately for John Kerry's presidential aspirations, the full effect of the tax cuts has probably only just started to take hold.

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About the Author
Brandon Crocker is the chief financial officer of a commercial real estate development and management company in San Diego.