George W. Bush has the worst
economic record of any president
since Herbert Hoover.
by Harold Meyerson
The American Prospect, June
Economists are admitting to confusion,
always a bad sign. The American economy has entered "a baffling
twilight zone," writes Robert J. Samuelson. "People
yearn for clarity and confidence, while the new stagnation provides
mainly uncertainty and contradiction."
The Federal Reserve seems particularly
vexed. Profits and productivity are up, but growth is negligible
and employment is down. The Fed's governors have been cutting
interest rates since January 2001-12 separate cuts, taking interest
rates on overnight bank loans from 6.5 percent down to 1.25 percent,
the lowest level in 40 years-yet the layoffs keep coming. Fed
Chairman Alan Greenspan has been predicting recovery, but recovery
hasn't appeared. Testifying before Congress in late April, Greenspan
prophesied a better second half of 2003. "1 think it includes
jobs," he said.
Companies, the Fed complains, aren't expanding
as they should. "An undercurrent of pessimism has persisted
among business leaders for some time now," Fed governor Ben
Bernanke recently grumped, "more so than can be accounted
for by what seem to be the generally good fundamentals of the
Official unemployment now stands at 6
percent; 8.8 million Americans are unemployed, an increase of
3 million since October 2000. The specter stalking the Fed is
that of deflation, something that our central bank has not concerned
itself with since the Great Depression. The Fed's most recent
report warns, in ever-cloudy Fedspeak, of an "unwelcome substantial
fall in inflation." No one is anticipating a 1930s-style
collapse of prices, wages and employment, but the threat of prolonged
stagnation, with all its quiet human disasters, is very real.
Several decades ago, French social commentator
Alain Minc wrote evocatively of a "slow 1939," in which
the economy, bolstered by the safety nets put in place in response
to the real 1939, does not crash; it sags. We seem to be in a
slow l929 right now: Wages decline slightly (by 1.5 percent over
the past year for workers at the median income level), workweeks
grow shorter (to 34 hours, the lowest level since the government
started measuring workweeks in 1964), health insurance premiums
and co-payments grow more costly, and factories don't run at full
speed. (In fact, they're running at the lowest level of capacity
since 1983.) Growth creeps along (rising at a 1.6 percent annual
rate in the first three months of 2003) but productivity grows
faster (at nearly 2.5 percent). America can increase its output
by z.5 percent, therefore, without hiring more workers. To hire
more workers, growth has to outpace productivity. It's not.
Disasters occur, but discretely and discreetly:
Medicaid is cut, and seniors can no longer afford their medication;
college tuitions are raised, and students have to leave school.
And jobs are lost: The private sector
has shrunk by more than 2.6 million jobs since George W. Bush
became president. That is, by any standard, quite a record: No
American president has presided over a net loss of jobs during
his term in office since Herbert Hoover grappled so disastrously
with the real 1929. When Bill Clinton was in the White House,
America gained an average of 239,000 jobs per month. Since Bush
took office, the number of jobs has declined at a monthly clip
On the basis of no credible evidence whatsoever,
the White House boasts that Bush's proposed tax cut would create
1.4 million jobs by the end of 2004. Even if it did, Bush would
still have presided over a net loss of 1.3 million jobs during
the 2001-2005 presidential term.
Presidents do not really pay a penalty
for holding office when the economy first implodes. Americans
did not turn against Hoover because the market crashed; they turned
against him because his recovery program, such as it was, failed
to produce a recovery, because the economy cascaded downward for
three and a half years while he rejected one plausible remedy
after another. Likewise, no one holds Bush accountable for the
dot-com bust or the shock of September 11. His problems are that
he's enacted and proposed nothing that would arrest the current
slide, and that his policies have actually worsened it.
More precisely, his policy has actually
worsened it. For it is the distinctive feature of the Bush presidency
that there is but one economic policy come boom or bust, fire
or flood. That, of course, is tax cuts, preponderantly for the
rich. As a candidate in 2000, Bush argued for tax cuts because
the government was actually running a surplus, and it was a more
productive use of funds to return that money to taxpayers. Then
the bubble burst, the surplus turned to deficit and those same
tax cuts were repackaged as an economic stimulus. The $1.6 trillion
tax cut of 2001 was so advertised, though it didn't really kick
in for the better part of the decade, and most of it was targeted
to the wealthy-the class of Americans least likely to spend it.
Since it was enacted, it has stimulated the economy to the tune
of 1.7 million jobs lost.
Undeterred, the administration is back
at it again with its proposed $726 billion tax cut, more than
half of which takes the form of eliminating the taxes on dividends-which,
again, will go overwhelmingly to the rich. It's difficult to find
anyone not working for the administration who believes this cut
will really stimulate the economy. Though virtually no one noticed
(there was a war on), in mid-March the Congressional Budget Office
(CBO) issued its study of the Bush tax cut. "Taken together,"
the report concluded, "the proposals would provide a relatively
small impetus in an economy the size of the United States."
The study had been supervised by Douglas Holtz-Eakin, who came
to the CBO after serving as chief economist for Bush's Council
of Economic Advisers.
The hallmark of the Bush approach to the
economy is its absolute rigidity. On matters economic, Bush is
a monomaniac with a bad idea, a doctor who prescribes the same
all-purpose snake oil no matter what the ailment. And while Bush
is not responsible for the post-boom bust in which America finds
itself, his refusal to contemplate any remedy save his own for
the economy is directly responsible for the increasing longevity
and severity of the bust.
Rigidity should be the last thing you
want in a president forced to navigate a treacherous economy.
"lf we can't get a president with a fluid mind," noted
Raymond Moley in the spring of 1932, "we shall have some
bad times ahead." Moley at that time was just beginning his
stint as head of Franklin Roosevelt's brain trust, the academic
advisers on whom Roosevelt relied to help formulate fixes for
the Depression. Moley needn't have worried about Roosevelt, who
mixed and matched, embraced and abandoned a range of economic
strategies during his '32 campaign-and then his first three years
in the White House-before settling upon the policies we now think
of as the core of the New Deal. Surrounding himself with advisers
who favored a centralized, planned economy, others who recommended
stronger antitrust enforcement and more regulation, and still
others who argued for bolstering working-class purchasing power,
FDR's credo for a nation in trouble was, "Above all, try
"This country is big enough to experiment
with several diverse systems and follow several different lines,"
Roosevelt once told adviser Adolph Berle. "Why must we put
our economic policy in a single systemic straitjacket?" A
sentiment more alien to Bush is hard to imagine.
With the economy going nowhere but south,
the administration has been obliged to come up with an explanation
for the downturn that directs responsibility away from the White
House. Until 9-11, the recession was Bill Clinton's fault; thereafter,
it was Osama bin Laden's and, more recently, Saddam Hussein's.
Here, from a recent stump speech,
is the president's explanation of the
economy: "We've got a deficit because we went through a recession.
We've got a recession because we went to war, and I said to our
troops, 'lf we're going to commit you into harm's way, you deserve
the best equipment, the best training, the best possible pay."'
If the president's account is accurate,
we've just gone through the first defense buildup in modern history
that depressed rather than boosted the economy. A more plausible
calculation, from Larry Mishel of the Economic Policy Institute,
is that new defense spending will add o.4 percent to the gross
domestic product this year alone. The somewhat more sophisticated
version of Bush's self-exculpatory account is that business refused
to invest more due to the uncertainty attending the coming war.
But that gainsays almost everything business leaders themselves
are telling us.
"There's a wide gap between economists
and business executives," Sung Won Sohn, the chief economist
(though one who's business executive-friendly) of Wells Fargo,
remarked recently. "Businesses are basically shell-shocked.
They want to see demand rising first."
In fact, what the economy is going through
is a classic case of excessive productive capacity built up in
a boom time in anticipation of a demand that never came. In 1998
productive capacity was increasing at an annual 8 percent rate
in manufacturing, with huge investments in telecommunications
and high-tech that were helping drive the boom. Not surprisingly,
it's here that the bust is concentrated today. Since July of 2000,
America has lost z.~ million jobs in manufacturing; indeed, manufacturing
jobs have now declined for 33 consecutive months, which is the
longest period of job loss in the post-World War 11 era. And because
manufacturing jobs pay significantly better than retail and service
sector jobs, the impact on the economy is magnified.
The other engine driving the boom was
the market itself, in which investors placed bets on the future
value of companies that proved to be largely, if not entirely,
illusory. Thanks to the deregulation of financial endeavor-bringing
with it the decline of accounting standards, the systemic overvaluation
of stocks by analysts, the fictitious bookkeeping of Enron and
the like-$7 trillion invested in U.S. stock markets has been lost
since the bubble burst in 2000. This has not worked wonders for
Alongside the problems of vanishing capital
and manufacturing decline is that of inadequate purchasing power.
Median earnings grew consistently during the near-full employment
years of 1998-2001, but they've been falling now for the past
four quarters. With wages drifting downward, American consumers-even
if they saved some money by refinancing their homes-are not going
to shop their way out of the current downturn.
In sum, the current economy is one in
which any number of classical Keynesian remedies to boost purchasing
power could be applied, particularly with the Fed warning of deflation,
not inflation. The administration not only shuns contact with
Keynesians, however, it shuns contact with any economists-save
supply-siders-who've endorsed its tax cuts, as a number of deficit-conscious
business economists have been heard to complain.
By insisting on tax cuts for the rich,
moreover, the administration blocks any efforts at real stimulus.
In the White House's legislation, no federal funds will flow to
the states, which are experiencing the same revenue decline the
federal government is. Unlike the federal government, however,
they have to balance their budgets. The estimated $68 billion
in deficits that the states are running this year (a total that
is expected to rise to $140 billion over three years) is coming
out of health-care coverage for children and the poor, out of
K-12 classrooms, out of the pockets of students who can't afford
the tuition increases at public colleges and universities. It
is coming out of the jobs of state, city, public-health and school-district
employees. By his obsession with cutting taxes on the rich, George
W. Bush is not only failing to provide an urgently needed stimulus,
he's actually deepening a downturn he could alleviate.
He could, if he chose, boost purchasing
power or halt layoffs by directing his tax cuts to low- and middle-income
families, or by providing relief to state governments, or by funding
a massive renovation and construction of schools. He could ease
the rising burden of costs experienced by nearly every American
family by creating a system of universal health coverage. But
as Bush sees it, he is in office precisely not to do these things.
On matters economic, he is there to shrink the role of the public
sphere and magnify the market. Recovery is all well and good,
but it is not his primary purpose as president.
Can Bush get away with it? Can he turn
in the most dismal economic performance of any president in decades
and still win re-election?
Perhaps. The economy will have to loom
larger in voters' minds than the amorphous war on terrorism, in
which, we can be certain, the administration will find new threats
and exploit old ones. The Democrats need a candidate who stands
for homeland and defense security, and-in contrast to Bush-economic
security as well. And their candidate needs an economic agenda
that plausibly addresses Americans' anxieties about their health
care, their jobs and their children's educations. A program that
merely contains economic insecurity rather than attacking it will
only guarantee a second term for Bush.
But even if the economy doesn't improve,
and even if the Democrats put forth a credible economic program,
that's still no guarantee of a Democratic victory. To begin with,
the politics of a slow 1929 don't resemble those of the original
article. Slow l929s don't wipe out tens of millions of families.
According to some recent polling, the most ubiquitous way in which
families are experiencing the downturn right now is having to
cope with increased medical expenses. In some households, that
will mean more illness; in a relative few, death; in many, increased
anxiety and cutting back on other necessities. In aggregate, though,
these do not portend a political groundswell to sweep Bush from
the White House.
"Six percent unemployment won't turn
Bush out of office," says a consultant to one of the Democratic
presidential candidates. "It will have to go to 8 or 9 percent,
just for starters. Besides, the public has less and less confidence
that the government can manage the economy. Their understanding
of the economy comes largely from the business and right-wing
press; if there's anyone they hold responsible, it's Greenspan.
I'm not sure the Democrats have anything programmatic to say that
will convince people the economy will perk up."
Whatever short-term fixes the Democrats
may offer, then, they also need to find a way to talk about the
larger economic health of the nation. Above all, they need to
draw a clear line between Bush's preference for tax cuts and their
own preference for a major national investment in health care,
education and transportation. On this question, in poll after
poll, the public unambiguously favors the Democrats' investments
over Bush's cuts. Among the presidential candidates, Missouri
Congressman Dick Gephardt has already begun this discussion; his
fellow candidates would do well to snipe at him less and develop
their own alternatives more.
As for Bush, the responsibility for dealing
with the economy is now entirely his. With interest rates hovering
at 1 percent, Greenspan is running out of tools to fix this mess.
With the election year now taking shape, Bush's one-note obsession
with tax cuts presents the Democrats with their best opportunity.
And the economy with its gravest threat. a
Harold Meyerson is the Prospect s editor