Economic Finger-Pointing

by Doug Payton

Robert Kuttner, co-editor of The American Prospect magazine, had a pitiful article on his magazine's web site yesterday that really needs a good Fisking, "The Fruits of Bushonomics".

George W. Bush faces a race between the ill-advised economic policies sown in the first half of his term and the bitter fruit that those policies are starting to bear. If the sour effects of his economic policies are evident by mid-2004, he is in deep political trouble.

One can only say this with a straight face if, upon being reminded of the lingering economic effects of 4 planes that crashed on Sept. 11, 2001, one simply holds one's hands over one's ears and melodiously intones, "La la la la, I can't hear you!" Even assuming that the policies are partially to blame (which I'm not stipulating), one would be hard-pressed to find its effects amongst the much larger economic wreckage left by the al-Qaeda attack. This is equivalent to saying that, amidst thousands of acres of forest torched by lightening, one grove of trees in it might, in fact, have been burned by a campfire. But Mr. Kuttner is now going to stand there, point at that supposed ring of stones with charred wood in it, and blame it for everything his eye surveys.

For now, at least, Bush can say that the economic news is mixed. The unemployment rate went up to 6.4 percent in May. It dropped slightly, to 6.2 percent, in June -- but only because more and more people have dropped out of the labor force entirely as payrolls continued to shrink.

When W was campaigning for president, he correctly noted that the economy was about to go into a downturn. Democrats lambasted him for (first) trying to bash a good economy, then (when it was apparent that the economy was in a downturn) for creating the downturn merely by speaking of it. But the trend was already there. Kuttner is now blaming Bush for a trend that existed before he took office, and was made dramatically worse by terrorists. Never you mind the trend, says he, it's the President's fault.

Economic growth came in at 2.4 percent for the second quarter of 2003. That was better than expected, but it needs to hit 4 percent or higher to reduce unemployment. Bush's cheerleaders say that will happen, in well-choreographed fashion, in the election year.

Since he brings up economic growth number, let's look at that trend thing again. At the Bureau of Economic Analysis (part of the Commerce Department), they have an Excel(tm) spreadsheet showing the quarterly GDP change data going back to 1946. Scroll on down to the year 2000, and you'll see that trend in all its glory starting in Q3 of 2000; definitely not on W's watch. The bottom was hit in Q2 of 2001 (where the economy shrank by 1.6%), again barely after Bush had a chance to warm the seat in the Oval Office. Bush inherited a tumbling economy, and when it started to come back, al-Qaeda made itself a household word. Even two 4+% quarters in 2002 didn't help the unemployment rate (at best, it flattened). Such a situation is less (if any) of Bush's making, and more of one where he was given a bad one, which only got worse, completely outside of his control. Further, the numbers for the past 3 quarters (1.4, 1.4, 2.4) do, in fact, point to an economy that is set to start making headway in the unemployment department. No "cheerleading" required.

But will it? Timing is everything. George Bush the first missed his rendezvous with prosperity in 1992. And the policies of Bush I were not as damaging as those of Bush II. Consider these several danger signs:

Deficits and interest rates. Long-term interest rates have gone up a full point in a month. Mortgages, which could be had at a bargain-basement 5 percent in late June, are back to 6 percent. The refinancing boom is slowing. The bond market is swooning.

Apparently, Mr. Kuttner believes that those bargain-basement rates would last forever. And is 6% really a "danger" sign? For perspective, rates between 1992 and 2000 (during a Democrat administration) varied between around 6.7 and 9.2%, spending most of their time in the 7s and 8s. Sure the refinance boom is slowing, in the same way price affects everything. We still have rates that are lower than anytime during the Clinton administration, and this is a "danger"?

Bush optimists contend that interest rates are going up because investors, sniffing a recovery, are shifting to stocks, leaving less demand for bonds. Dream on. Skeptics correctly point to the immense deficits resulting from Bush's three tax cuts. If unsustainable deficits loom, the money markets eventually push up interest rates.

Immense deficits from tax cuts. Must've been immense tax cuts. (Hold that thought, we'll return to it later.) Oh, and what about spending? You remember "spending", don't you, Mr. Kuttner? How about reducing that to ease the deficit. But you just know that, being a good liberal, he'll never mention that.

Most serious of all, if long-term interest rates are impervious to the Fed's policy of cutting short-term rates, then Alan Greenspan's sorcery has lost its power. (And deservedly so. Greenspan should have used his prestige as a central banker to discourage the Bush tax cuts instead of taking a dive as a good partisan.)

Instead Mr. Kuttner suggest more taxing & spending, like a good partisan.

Trade. Like his military policy, Bush's trade policy has been a blunt instrument. Bush and his economic appointees have been pushing for more international trade with few conditions attached. In theory this is good for everyone. In practice, global trade with few ground rules has exported more jobs than it has imported.

Goodness, this protectionism rhetoric sounds positively Buchanan-esque. In addition, the "giant sucking sound" we were to hear from Mexico was never really audible.

The Democrats may be divided on some issues, but on trade most Democrats favor conditioning trade with labor and other regulatory standards so that its benefits truly flow both ways. In an election year with a soft economy, Bush-style free trade is likely to be an ever harder sell.

'Scuse me as I go off to find out who's signature is on the NAFTA agreement.
...
Ah, found it!

Vanishing services. Ordinary Americans are saving a few bucks in their federal income taxes.

Whoa, wait a minute. Just a few bucks? A miniscule tax cut? But I thought it was responsible for the "immense deficits".

Most of the breaks went to the top.

Or, more accurately, the more you paid the more you got, which is eminently fair. And Bush even bowed to Democrat pressure to give tax "breaks" to people who didn't pay any taxes, which is, to be perfectly honest, unfair. Of course, as a "good partisan", Mr. Kuttner isn't challenging the logic of Democrats who both argue against any tax cuts at all while at the same time arguing for tax "cuts" for those who don't pay.

Mr. Kuttner, would you start sending me a paycheck for working for The American Prospect? Yeah, I know I don't actually work there, but if it's OK to "refund" money to people who've not paid any, it must be OK for me to get money for something I don't actually do.

But as Bush and company cut federal aid while adding costly federal mandates, local services are deteriorating. Meanwhile, many states are having to raise property and sales taxes.

States have been on a spending spree for quite some time, and for many things other than those basic services. Oh rats, there's that "S" word again; "spending". And again, as a "good partisan", Mr. Kuttner knows only one remedy for balance sheet problems; more taxes.

A lot of this is implicitly about class and the tiny elite that Bush has helped.

Well what do ya' know, I'm part of the "tiny elite"; those people in America who actually have children and are getting a tax rebate! Unfortunately for the phraseology, this supposed "elite" is far bigger than Mr. Kuttner wants to admit.

In good times Americans don't want to hear about class. Everyone expects to be Bill Gates someday. But in tough times, regular people become far more alert to who is getting most of the cookies. Bush is accountable for that, too.

At all times, all Democrats want to talk about is class--how one is getting more "cookies" than another--and want to demonize Bill Gates, and those like him, as (at least) merely lucky and (at most) greedy monsters. At all times, no one should care about who's getting most of the cookies, because it shouldn't be the government's job to hand out cookies (and it shouldn't be stealing so many of the ingredients).

Liberals are accountable for that as well as their failure to lay blame and give credit where they are properly due, ignore the spending side of government deficits, and using class warfare to divvy up government "cookies" to their constituents.