http://online.wsj.com/article/0,,SB109896974730858417,00.html
THE MACRO INVESTOR
By STEVE LIESMAN
The President's ERA: Five Critical Data Points Define Bush's 'Economic
Record Average'
Wall Street Journal, October 29, 2004
Baseball's elegance in part comes from its defined rules for laying
blame and giving credit. A starting pitcher who hurls five innings is
"of record" for the win or loss. If he leaves the game with runners on
base and they score, the runs are charged to his account.
Would that presidential politics were as graceful.
I sat down this week to do a Bush Economic Report Card, and the results
are below. There's a huge caveat -- an inelegance, if you will -- about
where to lay blame and give credit for the Bush economic record. From
the recession that began three months after he took office to the
economic impact of 9/11, questions remain about exactly when we declare
the president the "pitcher of record," and which runners on base should
be charged to his ERA (economic record average). I decided to take a
page from baseball and be ruthless.
I chose five economic statistics I think matter most: gross domestic
product, unemployment rate, payrolls growth, real disposable personal
income and the deficit. I assessed President Bush's record over his
entire presidency, beginning with the first month he took office, since
there is no other place to make a meaningful cutoff. (Should it be the
second month, and if so, why not the third?) I stuck to the first month
and, in other cases, the first quarter of 2001.
I compared his economic record to the average during the decade prior to
his taking office -- the first quarter of 1991 through the last quarter
of 2000. These 10 years have the advantage, for comparison purposes, of
including a war, a recession and a series of tax hikes. It has the
disadvantage, for the president, of also picking up one of the greatest
economic booms in American history.
Should I have used a longer time comparison? I don't think so. Today's
is such a different economy -- high productivity, low inflation and
globalization -- that I don't think it can be compared meaningfully with
20 years ago.
In the president's point of view, the economy has been looking up in the
past year or so. So, I went a step further and provided averages for the
past year as well.
And there I think we've hit the nut of this very tight election race.
Beyond the normal disagreements between right and left, and the new ones
over the war and terrorism, the past four years of mixed economic
results stands as a dividing line for the electorate.
Some people are clearly doing well with gross domestic product averaging
just above 4% in the past year. But others must surely be hurting after
four years of an average growth rate that is below trend at under 3%.
Tuesday, the electorate will get a chance to play umpire and call the
occupant of the White House "out" or "safe." Here's the economic box
score:
Gross Domestic Product
(average annualized quarterly growth rates)
Bush presidency: 2.4%
Past year: 4.1%
Prior 10-year average: 3.4%
Growth in two of the first four quarters of the Bush administration was
negative. The National Bureau of Economic Research, which dates the
business cycle, says the recession began in March 2001 and ended in
November 2001. In fact, the economy actually contracted for a single
quarter in the third quarter of 2000, before President Bush took office.
The Bush administration argues it can't be held responsible for the
recession. The Kerry campaign concedes nothing, criticizing the Bush tax
cuts as the wrong prescription for the economy. They point out that more
than a year after 9/11, the economy was still struggling with sub par
growth of just 2.6%, followed by a weak quarter of 0.7%.
Recent trend: Overall growth has been above trend since the second
quarter of 2003, averaging 4.7%. Looking at the growth swoon in late
2002 and early 2003, it's almost as if we had another recession in the
middle of the Bush presidency and this is the recovery we've all been
waiting for. The Bush tax cuts have clearly helped, although studies
have shown that as a stimulus tool, they were less than optimal since
wealthy people didn't spend a large percentage of their tax cuts. (Then
again, where's the boost in the savings rate if they didn't spend it?)
Finally, growth has clearly been helped by low interest rates from the
Federal Reserve. And the quality of that growth has been slanted toward
corporations compared with workers. It remains to be seen if, in coming
months and quarters, this income translates into jobs and income for
ordinary workers.
Unemployment Rate
(monthly average)
Bush presidency: 5.51%
Past year: 5.63%
Prior 10-year average: 5.59%
Here's one of the two categories where the president beats the 10-year
average, even if just barely. The president is fond of citing the
current rate of 5.4%, as lower than the averages of the 1960s, 1970s,
1980s and 1990s. But that's a single month compared with 40 years.
Clearly helping this number is the lower labor-force participation rate.
At an average participation rate of the past 10 years, the unemployment
rate would be more like 6.4%.
Recent trend: Paradoxically for the president, who says he inherited a
recession, he also inherited a very low unemployment rate that keeps
down the average for his presidency. The result is that the average for
the past year is higher than the one for his entire term. Still, the
average has clearly been declining, down to the current rate of 5.4%,
from a high of 6.3% in June 2003.
Payrolls Growth
(average monthly change)
Bush presidency: -14,000 a month
Past year: +142,000 a month
Prior 10-year average: +194,000 a month
We've arrived at the heart of the Bush economic problem and, ironically,
the core of his economic argument for re-election. There's no debating
the weak payroll numbers over the past four years. There's also no
debating the role of the recession and the 9/11 terrorist attack in
reducing those numbers. It's as much a fact that this is the worst jobs
recession in the post-war era, as it is that it was preceded by one of
the biggest job booms.
Democrats point out that a year after 9/11, the economy was still losing
jobs. and, grading the president even from that point, produced average
job gains of just 50,000 monthly.
Recent Trend: The president can indeed boast of having created 1.9
million jobs over the past year, a marked improvement. (In my average
for the Bush presidency, I've included the 236,000 jobs the Labor
Department said it would add to prior payrolls.)
Still, the president's recent average of 142,000 a month is below the
estimated growth of the labor force of 150,000 a month. The White House
argument is that we are in a period of high productivity growth that
inevitably will lead to jobs in coming months. As one economist told me,
"Productivity growth is great, except every four years when there's a
presidential election."
Real Disposable Personal Income
(average monthly year-to-year change)
Bush presidency: 2.63%
Past year: 3.75%
Prior 10-year average: 3.06%
Here, the president comes up most starkly against the 1990s boom. From
1998 through 2000, personal income -- adjusted for inflation and after
taxes -- rose an astonishing 4.5% on average each quarter. It then fell
by nearly half just as the president took office and, again, the
president's record suffers from the 2002-2003 swoon. However, the
10-year average includes the 1991 recession when this data series nearly
fell to zero.
Recent trend: This series has come back strongly, up 3.75% over the past
year, and the president exceeds the prior 10-year average. The tax cuts
have helped boost this series and the president picked an excellent time
for his best showing in this area. The question for election day is
whether the distribution of these gains have been wide enough to help at
the polls.
Deficit
(percentage of GDP)
Bush presidency: 1.86%
Past year: 3.8%
Prior 10-year average: 1.53%
The president's record just doesn't stack up well here. And, more than
with any other series, these are the results for which he is most
responsible. He chose to push tax cuts in the face of war, and the
fiscal results are simply and predictably poor. The question isn't
really whether the president is responsible, the question is how much
they matter.
Short-term, the stimulus provided by the tax cuts appears to have been
necessary. It could have come in the form of tax cuts or as higher
government spending; either way, they would have swelled the deficit.
And, a large chunk of the deficit is the result of lower tax receipts
from the recession and, less so, from 9/11. Judged by low bond yields,
fixed-income investors don't seem overly concerned with the current
deficit, which is below some of the worst levels as a percentage of GDP
we saw in the Reagan years.
But long-term, most economists agree these deficits will have to be
addressed at a time when there will be additional pressure on the
government to meet the health and retirement needs of the baby-boom
generation.
Recent trend: The size of the deficit has increased every year as a
percentage of GDP for the past four years. The Congressional Budget
Office predicts it will start declining next year, if the president
sticks to his budget plan -- a plan many economist say is
unrealistically austere for everything but defense and homeland
security.
Then again, not too many economists have much faith in the ability of
Sen. John Kerry, the Democratic challenger, to make much more headway
and deliver on his health-care and tax-cut promises.
. If you'd like to reach Steve Liesman, write to him at
[EMAIL PROTECTED], and place "Attn: Macro Investor" in the
subject line.
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