The Wall Street Journal's David Wessel blows his virtual referee's whistle:
Posted by DeLong at June 30, 2004 06:47 PM | TrackBack | | Other weblogs commenting on this postWSJ.com - Capital: Tweet! Time out.... Each campaign's assertion is factually defensible. Here are four more meaningful ones.
The economy is doing better. But it's not yet good. The U.S. economy -- finally -- seems to be firing on all cylinders. Employers -- finally -- are hiring again. It is hard to chart an economic indicator that hasn't turned up. That is why the Federal Reserve yesterday began raising interest rates from half-century lows. It is easier for Americans to find work than it was six months ago, but not yet easy. Employers added about 950,000 jobs in the past three months. But that is still 1.3 million shy of the March 2001 peak -- and not nearly enough jobs to absorb the 3.4 million people who have joined the labor force since then.... Democrats make a strong point when they say different tax cuts and spending have produced more jobs sooner -- and ask who will pick up the check for borrowing done on Mr. Bush's watch....
The most encouraging economic development in the U.S. is the persistence of strong growth in productivity, the amount of goods and services for each hour of work. Rising productivity is why Americans enjoy more than their grandparents without working more. But the benefits of this added productivity largely have fattened profits, not wages. The slice of the national economy pie going to wages -- now about 63% -- is lower than it has been since 1966. Commerce Department data show after-tax corporate profits at 9.6% of gross domestic product, the highest since the government began counting this way in 1947, blogger John Irons of Argmax.com points out. That is pinching middle-class workers. Yes, they are stockholders, too, but they live on their wages, not their dividends.
This trend isn't Mr. Bush's doing, though he hasn't done anything to resist it. A Democrat might have pushed tax cuts less generous to the rich, or backed an increase in the minimum wage. But no matter who wins in November, the profit trend probably won't persist. As unemployment falls, history suggests workers will claim a more normal-size slice. Wages will rise; profits will be squeezed....
Underlying a lot of Bush-Kerry banter are the warm memories of the late 1990s with its pleasurable mix of low unemployment and inflation, rising wages and business investment, federal budget surpluses and soaring stocks. Candidate Bush can't admit that he can't deliver former President Bill Clinton's second-term economy. Candidate Kerry can't promise to bring it back, though he wouldn't mind if swing-state voters think he can. Neither man's economists believe we can return to the 3.9% unemployment that prevailed at the last presidential election, and the Fed isn't going to let that happen anyhow. The late 1990s was an unsustainable bubble. It isn't coming back. The question, nearly impossible to answer, is how much of the late 1990s we can reasonably aspire to....
Making scorecards of what happened on any president's watch is easy, but easily misleading. Mr. Clinton didn't create the prosperity or bubble -- you pick -- of the late 1990s. Mr. Bush didn't cause employers to be so exceptionally slow to hire after the recession ended. Presidents don't have that much power. But presidential economic policies do matter; it is just that effects doesn't show for a decade, maybe even a generation.
So tear up those job-tally scorecards. Look at three things the president can influence: How will the U.S. reduce the federal deficit and prepare for the approaching, costly retirement of baby boomers? How can federal leverage improve public schools and put college within reach of more Americans? What will the federal government, the largest purchaser of health care, do to make sure all (or nearly all) Americans get health care and get the most value for health-care dollars with the least waste?
Once again another round of 'the president doesnt really effect the economy' bullshit. I (obviously) disagree. by implementing tax and investment policies, the economy- in the form of individuals and businesses- invests accordingly. By lowing cash out penalties (taxes on capital gains) Bush2 encouraged businesses (business owners actually) to pull their money out rather then keep it in the business. the economy responded accordingly. And Clinton's higher taxes on the rich encouraged them to keep their money in the business, creating growth and resultingly- jobs. Both these trends were reinforced by changes in the economy- more consumer spending under a general uplift under Clinton. The reverse under Bush2.
In short Weasel's these conclusion- "This trend isn't Mr. Bush's doing" is wrong. and weasel is a big fat stupid idiot- or in short- just like any member of the republican leadership.
Posted by: disgusted on June 30, 2004 07:51 PMI know some on the right, those who feed on the idea of people on the left who "wish that the economy goes south" so that Bush is screwed, will take this comment the wrong way, but I feel it's definitely a valid question.
Job growth, as we all know, has been pretty good; the economy is finally stating to show some real muscle when it comes to that area. Months ago, there was some growth, but it wasn't very big. I just have to wonder, how long will this last? Is it likely to continue to around the time of the election and even after that? If so, will it get even better, or will it retard slightly? And what will be the cause of what happens, as best as one can predict? (Yes, there is more than one question, but still...)
Posted by: Brian on June 30, 2004 08:30 PMMr. Wessel, what about the fact that the tax cuts were structured poorly for job recovery--pointed out by a passel of economists at the time--and delayed job growth for two or three years, when most wars rustle up jobs? What about the fact that those same cuts are skewed so the boss'll keep more, and the workers less? Oh, and thanks for mentioning the deficit--though we might bristle at blaming it on Social Security.
Posted by: Lee A. on June 30, 2004 09:05 PMBrian,
Call on me! I think I know, I think I know the answer (based on months of reading this blog). The answer on timing - nobody knows. The answer on what will happen and the cause -- growth will be stunted because a fundamental imbalance is retarding economic performance. There is a structural shifting of the percentage of national income that goes to wages and to capital, with capital being the benefactor. While this structural change may be temporarily masked during the rebound phase of the cycle, the structural problem for the economy as a whole lies in the fact that consumers, being primarily wage earners, will not have sufficient funds to power demand to the most desirable degree.
Did I guess right?
Does our host the Prof agree with this stuff?
I think it's a hash. Why are some sensible macro-economic policies ignored? For example: a sensible counter cyclical fiscal policy. Yes, I know that is cyclical stuff, but the long run is a lot of short runs put together, and the costs of bad countercyclical macro policy don’t go away just because it is “just cyclical”. Those lost work-years are lost forever, and lost of ordinary working people were hurt. I don't like his idea of attributing every nice macro event in the 90s to the bubble, either. There was some unwise financial deregulation that contributed to the bubbleness of the 90s, but this guy's sweeping dismissal of everything as bubble is very flip.
Why are micro issues like health care mixed in without any discussion of how they affect macro issues.
And when we say the Pres can't affect the economy much, that position seems to start with a discussion of the macro economy, but then gets generalized to every policy. In the long run, don't some micro policies matter just as much for distribution -for example labor policy. For the poor, did Rubin's efforts to force more financial institutions to target loans to poor minority communities make no difference?
And finally, it is just plain wrong. This very poor, underperforming recovery is due to the ridiculous fiscal policies of the Bush administration. There have been big economic costs, and anyone frightened or bullied into giving into this guy's bogus whistle needs to say exactly what macro theory they believe in. Mainstream modern Keynesian synthesis macro has the theory, it has predicted much better than anything else what has actually happened. And it says, yes, policies set by the president can make a big difference. Not all the time, but that is no excuse for incompetence.
Brian,
"Job growth, as we all know, has been pretty good"-
No Brian, here in the US of A we know that job growth has been abysmal, but tending back in recent months.
How many major tax cuts has Bush2 passed? 3?4? and in each one he's predicted job growth. For the last one, which was deliberatly called the "Jobs and growth Plan", Bush predicted 4.1 million new jobs from ordinary job growth. And an additional 1.4million new jobs from his tax cut, and these 5.5 million new jobs would be over June 03- Dec 04. Thats 306,000 new jobs each month. And Bush2 has met this goal for a grand total of 2 months that he's been in office.
Clinton's average job growth was ~280,000/month. over 8 years of his presidency. And of course the break even point for our growing population 125,000-150,000. But Bush is on track to be the first president to have net negative job growth in his tenure i.e.- more jobs have been lost then created. which doesnt even touch the growth in population.
But as a 'Referee', this gets a pass from me. Not perfect (really? policy decisions take *decades* to assess?; no mention of military adventures; no mention of deficits; no mention of increasing disparities in income distribution;) But the 3 issues he selected as the basis for choosing a President were reasonable, no? (OK, so 2 of them were related to the well being of boomers like him.) [and me.]
It gets a pass until I consider the actual choice and recognize that one of the candidates got in there by mistake and has operated for a whole term without a policy apparatus. So the choice is easy: one of them is disabled and never has worked properly. Why would you ever pick him?
Does it matter in this discussion that congress has to part to play in the tax and spending bills?
Perhaps the question should be asked a different way. How much can a president impact economic performance? How many points of difference can they have on GDP growth or employment numbers?
I'll be skeptical, sure they have an impact but its very hard to say even in a ballpark what that impact is If the democratic tax proposal was passed, what would the employment picture have been? Better, but how much? Would the fundamental trend of a jobless recovery been wiped out? Not likely.
So here is my prediction, baring a major 9/11 scale incident or a new war, the next for years will look roughly like the economy did last cycle once it started up the job curve. The president may deflect that curve a bit at the margins.
The dominate factor will be the day to day decisions of the billions of people that act to impact the US economy. And the fundamental force that those billions of people are exerting is an acceleration of technology that is going to trump all these political concerns.
Posted by: Rob Sperry on July 1, 2004 12:04 AMWessel wrote a great article. For those who want to judge Bush harshly, the last paragraph contains ample ammunition. From a structural perspective, Bush is a failure.
But the rest of the story is best told as Wessle tells it: presidents glimpsing the economy from the sidelines, taking credit for what they can, controlling not very much actual economic reality.
Clinton's "record" on job growth over eight years surely as much as anything is attributable to supply side issues like demographics over which he had no control. It's absurd to suggest all of this was driven by the demand side of the labor market, and thus by policy. Not over eight years. Clinton's policies were fine, and one can't blame him for trying to take credit, of course. But bigger forces were at work; how do we dismiss the labor market story so lightly?
Attributing changing shares of national income to labor and capital to policy is even sillier. The share of national income going to capital was rising in almost all advanced economies during the 1990s, and then it shrank, and now it's rising again. If this trajectory were unique to the United States, one might be able to make a case that policy had something to do with it. But it isn't, and you can't.
Posted by: Jim Harris on July 1, 2004 04:50 AMJim Harris -- for most part I agree with you.
But I would look at the sharp drop in the cost of high tech equipment as the primary factor driving the Clinton boom. The quick and easy way to see this is to compare business fixed investment as a share of GDP in both nominal and real terms. In nominal terms there was no capital spending boom in the 1990s. This point of view is standard economic analysis fully accepted by mainstream economics and I continued to be amazed at how often it is overlooked in analysis of the 1990s economy.
It never ceases to amaze me how American journalistic "objectivity" has to translate into giving both parties an identical number of criticisms and gold stars. Don't ever let the facts get in the way of objectivity!
I noticed MASSIVE STRUCTURAL DEFICITS got about one sentence in this article. If the implications of running the fisc into the ground were to be developed in this article, the reporter's editors would have demanded more discussion(for balance) of Kerry's flip-flopping French background. :)
Posted by: Drew on July 1, 2004 05:12 AMProfits normally rebound strongly when the economy has the cyclical rebound in productivity. This is the period when unit labor costs growth is less than price increases. The spread between unit labor costs and prices is the dominant force driving margins.
Because the productivity rebound this cycle lasted two years rather than one year the profits rebound was stronger than normal this cycle. But this period ended in the first quarter when the increase in unit labor costs exceeded the rise in prices. So labors share should now start to rebound.
However, this still means that trickle-down economics has not yet trickled-down significantly.
Posted by: spencer on July 1, 2004 05:17 AMWhy do I get the feeling the Good Professor had something to do with this article ...
Posted by: praktike on July 1, 2004 06:24 AMI thought the article misfired on several points.
1) Bush has created massive structural deficits but the states are still having budget problems. If the deficit were going to boost the states, then Mr Bush would have the kind of job growth he needs going into the election. However, Mr Bush has told the states to go Cheney themselves so he is left with not enough jobs.
2) There has been no change in the minimum wage, even though the economy has been in expansion since 2001. Increasing the minimum wage would give workers a larger share of the pie and help the revenue stream since corporations are paying few taxes and worker are. By not raising minimum wage, the government loses double. Not only do we not get the revenue from increased worker earnings and FICA payments, we have to make up more of the too low wages with EITC.
3) Mr Clinton made major improvements to earnings of low income workers and those improvements allowed everyone in the economy to make more money. Mr Bush has catered to his wealthy buddies with the idea that trickle down will help the working poor. This has widened the income gap. The wealthy are in a much better position to capture additional money in the economy than the poor. If extra money is given to the poor, it will eventually be captured by the wealthy. However, if extra money is given to the wealthy, they might invest that money overseas with little return to our working poor.
4) The fiscal policies that Mr Bush has installed are not sustainable. Since there is no public admission of their unsustainability, we have no clue what Mr Bush will change to arrive at a sustainable revenue stream.
Posted by: bakho on July 1, 2004 06:25 AMRob, Does it matter in this discussion that congress has to part to play in the tax and spending bills?
Not when the entire government is controlled by republicans.
Brian, Job growth, as we all know, has been pretty good.
Are you kidding me? I will ask you what I ask every other person that makes that ridiculous argument Where are the those jobs? Full time, good paying jobs with health benefits? I'm waiting.
Even the USA Today can identify that the jobs being create are crap.
"We're creating a lot more jobs but they are still largely lower-paying jobs," says Mark Zandi, chief economist at Economy.com. Zandi calls the difference between the higher-wage and lower-wage job creation pace significant.
Nearly 14% of the jobs added have been temporary workers, who typically are paid lower wages. Restaurant workers, who also usually are paid lower wages, have been added, too. Higher-paid computer jobs have been added at a snail's pace.
Well. I'm still waiting Brian.
Posted by: me on July 1, 2004 06:47 AM> Rising productivity is why Americans enjoy more than their grandparents without working more.
Just curious about this. Real wages peaked in 1973. So yes, Americans enjoy more than their grandparents... but not more than their parents? Or am I misunderstanding the statistic?
Posted by: Josh Yelon on July 1, 2004 07:23 AM>>Rob, Does it matter in this discussion that >>congress has to part to play in the tax and >>spending bills?
>Not when the entire government is controlled by >republicans.
If your purpose is to blame republicans then sure, the shifty spendy republicans are worthy of blame. But if goal is to parse the effects of president on the economy then I disagree.
Clinton had a republican congress for 6 years, and those were the best growth, best employment years of his presidency. For the two years he had a democratic congress he failed to get much of his agenda through; no health care reform, no stimulus package, no BTU tax etc.
Perhaps part of Clintons was success with the economy was because he had an opposition party in congress. But more of I think more of it was the result of underlying technology trends that don’t care what party is in power.
Posted by: Rob Sperry on July 1, 2004 09:25 AMLefties shouldn't be so scared of the notion that growth is mostly exogenous. Maybe it isn't true, and we should reject it on those grounds, and maybe it is (I'm ill-informed, and leave this to our esteemed (or at least tolerated) host), but we shouldn't be arguing against it on ideological grounds, even if the notion of exogenous growth, for now, hurts Clinton's legacy and helps Bush's appearance. In the long run, exogenous growth is friendlier to the left than to the right: after all, if growth is endogenous, it should be a priority of government to any sensible person, even if it means sacrificing other social desirable goals. If growth is largely outside of the government's domain, then we can ease up a little bit on efficiency, free markets, union busting, etc, and ride out the economies nigh-unchangable "natural course."
I should note that by "left" and "right" I am using somewhat antiquated terms, where, at least in the domain of economics, "left" is something like "social democrat" and "right" is something like "classical liberal." In reality, the "right" is now something like "theocratic-corporatist" and the "left" is "a bunch of incoherent bickerers, including social democrats, classical liberals, etc, with muddled good intentions." If all y'all are classical liberals, then by all means, endogenous growth is very good for your ideology.
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