the economy doing? This is shaping up to be the
number one question affecting President George
W. Bush's re-election bid. If you turn on the
TV or pick up the newspaper, it looks like the
economy is picking up steam, roaring out of a
long slump just in time for the election season.
then you turn to your neighbors and friends, and
they say it still feels like a recession. Part
of this disconnect is because most people get
their income from the labor market, not the stock
market. The Dow is up 15 percent for the year,
but unemployment is unchanged and wages are stagnant.
reporting puts a lot of emphasis on the stock
market, and sometimes even more esoteric indicators
such as quarterly GDP growth or the Institute
for Supply Management Manufacturing Index. (Both
have recently taken big jumps.)
the vast majority of Americans still own little
or no stock, even including retirement accounts.
So the growth of the economy won't help them until
it shows up in rising employment or wages.
the Republicans got a lot of mileage out of that
8.2 percent growth in the third quarter, "the
fastest in 19 years." I was a guest recently on
a right-wing talk radio show in Boston, and the
host kept coming back to that. As far as he was
concerned, this was incontestable proof that the
sun was shining brightly on the U.S. economy,
and the Republican tax cuts had worked.
tried to point out that the economy had suffered
a net loss of 2.3 million jobs since January of
2001, but he dismissed this as just liberal gloom-and-doom.
But one quarter of fast growth won't reverse this
kind of damage, and growth for the fourth quarter
(ending this month) will probably be about a third
of the last one.
tellingly, we can see the terrible underperformance
of the economy by simply comparing it with previous
economic recoveries. It is now a full two years
since the recession of 2001 ended. Normally our
economy creates millions of jobs when it recovers
from a recession. The last recession -- the one
that cost George W. Bush's father his job -- was
considered exceptional in that it was followed
by a "jobless recovery."
even that "jobless recovery" had produced a net
gain of 1.4 million jobs by the time two years
had passed. The two previous economic recoveries
(1982 and 1975) produced 7.2 million and 4.7 million
jobs, respectively, in their first two years.
We are now facing the unprecedented phenomenon
of a "job loss" recovery: two years into the rebound,
a net loss of 768 thousand jobs.
bleeding has stopped in the last three months,
with modest job growth. But we need job gains
of more than 150,000 each month just to keep the
unemployment rate from rising.
tax cut did stimulate the economy -- we saw the
effect in July and August, which gave us Mr. Bush's
big quarter. A much bigger stimulus was provided
by mortgage refinancing, which pumped more than
$200 billion into the economy over the previous
year. This is because households use the refinancing
to borrow against their mortgage (adding to their
record levels of debt).
both of those sources of stimulus have run their
course, and consumption was already flat in September
and again in October. And there are serious clouds
over the horizon. The biggest is an estimated
$3 trillion bubble in housing prices, which when
it breaks could have an effect comparable to the
collapse of the stock market bubble in 2000. A
reminder: it was the bursting of the stock market
bubble that caused the 2001 recession and our
current "job loss" recovery.
course, President Bush cannot be blamed for the
stock market bubble -- it was bi-partisan negligence
that allowed it to grow to such outlandish proportions.
But he took advantage of the recession that followed
to win approval of enormous tax cuts, mostly for
tax cuts have provided minimal stimulus to the
economy, while costing trillions in lost future
revenue -- making it politically more difficult
to counteract the economy's weakness. This will
prove to be a costly mistake, and the electorate
may hold him accountable for it.
Weisbrot is Co-Director of the Center for Economic
and Policy Research (www.cepr.net), in Washington,
Posted: December 7, 2003