Knight-Ridder/Tribune Information Services, July 27, 2004
"Our economy since last summer has been growing at the fastest rate in 20 years" said President Bush in a speech last week. The word went out from on high, and soon it began to spread: the fastest-growing economy in 20 years! A very important discovery for this election season, with voters none too pleased about the state of the economy. During a TV talk show (CNBC's Morning Call) on which I appeared, this claim was repeated to me.
Is it true? Well if you pick the right three quarters -- the first quarter of this year and the second half of last year, to be exact -- it is technically true. Over these three quarters the economy grew by 5.4 percent, which is faster than any other 9-month period in the past 20 years. But not by much. For the last 9 months of 1999, for example, the economy grew by 5.1 percent.
But why take 9 months? If we look at the last year, it's not any record at all. Similarly for the last two years. And since the recession ended in the last quarter of 2001, the economy has grown by 3.6 percent. This not bad, but not particularly strong growth for a recovery from a recession -- when the economy usually grows at a much faster than normal rate.
In the same speech Mr. Bush also bragged about the 1.5 million jobs created since last August. This impressive-sounding number also depends on a careful selection of time period. If we look at Mr. Bush's whole presidential term, the economy is still down more than a million jobs. Even the 1.5 million jobs created during Mr. Bush's selected ten months are a weak performance, barely enough to keep pace with the growth of the labor force.
The economy from here on will have to do better than even Mr. Bush's "brag period," just for him to avoid the record achievement of being the first president since the Great Depression to preside over a net loss of jobs for the country.
Perhaps the worst part of the "job-loss" recovery for most people has been that real wages -- adjusted for inflation -- have actually fallen over the last year. This means that most Americans are literally not getting anything out of our "record" growth.
The Bush administration does have some real 20-year record-breaking numbers but they are not the kind that it would like to advertise. Here's the gold medal: our Federal budget deficit of $639 billion for 2004 is 5.6 percent of GDP, the highest since 1983, and second highest since World War II. Of course this figure from the Congressional Budget Office counts the borrowing from the Social Security and Medicare Trust Funds -- which any good accountant would tell you should be counted, because it will have to be paid back.
This knocks the wind out of another of President Bush's recent economic boasts: that the tax cuts enacted in 2001 and 2003 were a sound economic policy that ought to be continued. It is true that the tax cuts provided some modest stimulus to the economy, as opposed to doing nothing at all. But doing nothing was never the only practical alternative, and most economists would see these tax cuts as terribly irresponsible.
That's because the tax cuts build a huge structural deficit into our federal budget, for years and even decades to come, until they are reversed. Another record: federal tax revenues are at their lowest in more than 50 years, as a percentage of our economy.
For a small fraction of the trillions of dollars of deficit spending that the tax cuts have created over the next decade, we could have gotten the same or greater stimulus to the economy from a temporary rebate aimed at the majority of households -- and not so concentrated on the "haves and the have-mores."
About 24 percent of the Bush tax cuts have gone to the highest income one-percent of taxpayers. These are people who had already increased their after-tax income by 139 percent from 1979 to 2001 -- more than a $400,000 increase after inflation.
The Bush Administration decided that these were the folks who most needed more tax breaks: on capital gains, dividends, and inheritances. Now there's another record we could break: for inequality of income and wealth in America.