Duking it out

David Wessel aptly (subscription) points to the difference b/n politics and economics.


Bush, Kerry Are Both
Right on the Economy
July 1, 2004; Page A2

President George W. Bush says the economy is “strong and getting stronger.” Challenger John Kerry says, “We can do better.” The Bush campaign says cruise lines are carrying 74% more passengers than in 1996, half of them folks earning less than $60,000 a year. The Kerry campaign says health-insurance premiums rose 40% between 2000 and 2003. The Bush campaign says that Americans’ after-tax incomes are rising faster than inflation. The Kerry campaign says hourly wages aren’t.

Tweet! Time out for perspective from the sidelines. Each campaign’s assertion is factually defensible. Here are four more meaningful ones.

The economy is doing better. But it’s not yet good.

The U.S. economy — finally — seems to be firing on all cylinders. Employers — finally — are hiring again. It is hard to chart an economic indicator that hasn’t turned up. That is why the Federal Reserve yesterday began raising interest rates1 from half-century lows.

It is easier for Americans to find work than it was six months ago, but not yet easy. Employers added about 950,000 jobs in the past three months. But that is still 1.3 million shy of the March 2001 peak — and not nearly enough jobs to absorb the 3.4 million people who have joined the labor force since then.

Mr. Bush rightly says his tax cuts helped, and were designed to pay lasting dividends. But Democrats make a strong point when they say different tax cuts and spending have produced more jobs sooner — and ask who will pick up the check for borrowing done on Mr. Bush’s watch.

Profits have done a lot better than wages lately.

The most encouraging economic development in the U.S. is the persistence of strong growth in productivity, the amount of goods and services for each hour of work. Rising productivity is why Americans enjoy more than their grandparents without working more.

But the benefits of this added productivity largely have fattened profits, not wages. The slice of the national economy pie going to wages — now about 63% — is lower than it has been since 1966. Commerce Department data show after-tax corporate profits at 9.6% of gross domestic product, the highest since the government began counting this way in 1947, blogger John Irons of Argmax.com points out. That is pinching middle-class workers. Yes, they are stockholders, too, but they live on their wages, not their dividends.

This trend isn’t Mr. Bush’s doing, though he hasn’t done anything to resist it. A Democrat might have pushed tax cuts less generous to the rich, or backed an increase in the minimum wage. But no matter who wins in November, the profit trend probably won’t persist. As unemployment falls, history suggests workers will claim a more normal-size slice. Wages will rise; profits will be squeezed.

A return to the boom economy of the late 1990s, alas, isn’t likely.

Underlying a lot of Bush-Kerry banter are the warm memories of the late 1990s with its pleasurable mix of low unemployment and inflation, rising wages and business investment, federal budget surpluses and soaring stocks.

Candidate Bush can’t admit that he can’t deliver former President Bill Clinton’s second-term economy. Candidate Kerry can’t promise to bring it back, though he wouldn’t mind if swing-state voters think he can.

Neither man’s economists believe we can return to the 3.9% unemployment that prevailed at the last presidential election, and the Fed isn’t going to let that happen anyhow. The late 1990s was an unsustainable bubble. It isn’t coming back. The question, nearly impossible to answer, is how much of the late 1990s we can reasonably aspire to.

Presidents get too much blame and credit for some things, and too little scrutiny for others.

Making scorecards of what happened on any president’s watch is easy, but easily misleading. Mr. Clinton didn’t create the prosperity or bubble — you pick — of the late 1990s. Mr. Bush didn’t cause employers to be so exceptionally slow to hire after the recession ended. Presidents don’t have that much power.

But presidential economic policies do matter; it is just that effects doesn’t show for a decade, maybe even a generation.

So tear up those job-tally scorecards. Look at three things the president can influence: How will the U.S. reduce the federal deficit and prepare for the approaching, costly retirement of baby boomers? How can federal leverage improve public schools and put college within reach of more Americans? What will the federal government, the largest purchaser of health care, do to make sure all (or nearly all) Americans get health care and get the most value for health-care dollars with the least waste?

Write to David Wessel at capital@wsj.com

Comments are closed.