August 12, 2004

Hoist by Their Own Petard

I do wish the Economist had bylines: | America's economy: ...for George Bush the news that only 32,000 new jobs were created in July is doubly troubling... the first president since Herbert Hoover to face the electorate with an economy that has fewer jobs than when he took office.... What makes this all the more embarrassing, however, is that the White House has lately gone out of its way to claim responsibility for the short-term performance of the jobs market.... George Bush's team was quick to claim credit earlier this year... [for] job growth. John Snow... 300,000 new jobs in March “clearly demonstrated” that Mr Bush's tax cuts were working.... “driving job creation”. The administration did not simply claim that the huge fiscal expansion... had helped cushion America's recession (which would have been correct). It went much further. Tax cuts, intoned every Bush official, were the elixir behind the jobs recovery.

Now that the payroll figures have weakened, the Bush team is squirming. White House aides offer a slew of reasons why the statistics which just a few months ago “clearly demonstrated” the wisdom of Mr Bush's economic policies should now be discounted. The president himself pretends the bad news simply does not exist. “We have a strong economy and it's getting stronger,” he claimed only hours after the jobless figures were released on August 6th....

America's economy has cooled.... It is too soon to say whether this is a temporary blip or something worse.... Either way, the current hiccup can hardly be blamed on Mr Bush. And, in any case, there is precious little he can do about it. The short-term vagaries of the business cycle are beyond the reach of any president. That is why claiming otherwise when the news was good was a foolish risk for the Bush team to have taken. They gambled on the economy, and for the moment at least they appear to have lost.

Posted by DeLong at August 12, 2004 01:00 PM | TrackBack | | Other weblogs commenting on this post

It's the economy, stupid.

That slogan seems to work for all bushes, huh?

Posted by: Andrew McManama on August 12, 2004 01:23 PM


It's the economy, stupid.

That slogan seems to work for all bushes, huh?

Posted by: Andrew McManama on August 12, 2004 01:26 PM


It's the economy, stupid.

That slogan seems to work for all bushes, huh?

Posted by: Andrew McManama on August 12, 2004 01:26 PM


While they have much to recommend them otherwise, their mindless support / rationalizing of Bush makes the Economist a rather pathetic rag.

Posted by: MattB on August 12, 2004 01:57 PM


While they have much to recommend them otherwise, their mindless support / rationalizing of Bush makes the Economist a rather pathetic rag.

Posted by: MattB on August 12, 2004 01:59 PM


Bush has broken the Reaganite economy - the game of Reaganomics was to keep money in stocks and out of commodities. Simple - keep money in stocks and out of commodities. So simple even a chimpanzee could do it: run a deficit lower than what the rest of the world will finance, generate more paper to sell to saudis so that we can buy their oil, keep GDP growth moderate, real wages rising by less than productivity, and don't rock the boat.

Posted by: Stirling Newberry on August 12, 2004 02:14 PM


The Economist's take is for those keeping score. Undecided voters may not be interested in keeping score. It's the price at the pump, the whispers from the personnel office, the prospect of retiring on time and well off that matter. I'm not really sure who the all-spin-all-the-time brand of politics is for ... unless its for the Washington Post reporters who "inevitably" report what the White House tells them.

Posted by: kharris on August 12, 2004 02:21 PM


I'd be interested to know where you come down on this, Brad:

"The short-term vagaries of the business cycle are beyond the reach of any president."

Pretty much how I learned it.

Posted by: djangone on August 12, 2004 02:37 PM


With all of this intense debate over job creation numbers and its subsequent effect on America's economic health, I find myself lost as to which side to believe. I came across a compelling article the other day, opined by Brian S. Wesbury for the 11 August 2004 edition of the Wall Street Journal, lauding the entrepreneurial risk-taking and investment trends as being far more important indicators for future growth than nonfarm payroll statistics. He contends further that we should look instead at household survey numbers, which appear to be a better method for predicting job growth because nonfarm payroll accounts do not measure the self-employed like household surveys do. Household survey statistics therefore are more reflective of the true state of the American economy, cemented by the robust economic numbers experienced as of late, e.g. 4.5% GDP growth revised for the second quarter along with an 18.4% increase in exports, retail sales up 4.8% so far this year, and real business fixed investments jumping 8.8% in the second quarter. So my question is, what's really happening here? The Economist certainly takes a bearish viewpoint on the prospect of a healthy American economy returning anytime soon, as delivered weekly by the Buttonwood column. America is drowning in its own debt with disatrous implications should investment from abroad slow. What if investment, fueled by foreign capital flows, continues to wane as the crush of our current-account deficit scares off foreign investors? Or is it simply a result of the national banks in Japan and China losing their ardor for buttressing an over-valued dollar as the former's economy pulls out of deflation while the latter hopes to cool off its blistering GDP growth. So I ask, is investment really a better economic indicator than the creation of nonfarm payroll jobs, and if so, will a drop in investment flows from outside the US really make such a dramatic impact on the health of our economy?

Posted by: ABoly on August 12, 2004 03:15 PM


The Republican Party doesn't believe that. Why should anyone else?

Posted by: Stirling Newberry on August 12, 2004 03:18 PM


The Administration could have pushed Congress last year to begin a revenue sharing plan with the states. A Republican Congress could have set the plan in motion last winter and assured an extra stimulus in this election year. That Republicans did not provide for an extra stimulus this year is astonishing. Middle class households were troubled, the Administration and Congressional Republicans never seemed to notice.

Posted by: Anne on August 12, 2004 03:35 PM


Look, it's simple. The good job creation numbers a few months ago were due to Bush's tax cuts. The lousy job creation numbers we're seeing now are all Clinton's fault. Got it?

Posted by: joe on August 12, 2004 03:52 PM


GWB in October 2004:

"So I don't know where [the economy] is heading. You know, I just don't spend that much time on it, Kelly, to be honest with you. . . . I truly am not that concerned about it."

Posted by: ogmb on August 12, 2004 04:07 PM


opined by Brian S. Wesbury - that idiot was on CNBC that morning and even Mark Haynes, the host, asked him "You don't believe that do you?"

Posted by: me on August 12, 2004 04:28 PM



First, never believe anything you see on the WSJ editorial page. Next, understand that Wesbury writes for the WSJ editorial page quite often.

Entrepreneurial risk-taking is not measured directly anywhere, but it is a favorite notion among supply-side cheerleaders. When you see that sort of term being set off against hard data like job growth, you have very likely entered into the land of faith-based economics.

Investment trends? Corporations are piling up cash. Typically, the most powerful driver of corporate capital investment is retained earnings, which show up as cash if not invested or paid out as dividends. Right now, corporations have massive resources to invest in capital, but are banking those resources to a greater extent than is normal. Venture capitalists report having lots of funds, but few places worth putting those funds. That's not risk taking, its risk aversion.

Wesbury touts a pace of real non-residential fixed investment growth in Q2 that is, in fact, below the average in 2003, below the average of the past 12 months, below the average of the last half of the 1990s. That is not a sign that investment trends are strong. Certainly, non-res fixed investment is up from recessionary levels, but so is employment. If we are being asked to prefer investment trends to employment data, there ought at some reason to think they are telling different stories – I don’t see it.

Search this website for discussions of trying to pass off household jobs data as superior to data from the establishments survey (they aren’t, but right-wing hacks have made a cottage industry of arguing that they are). In doing so, you are also likely to find estimates of the share of jobs reported lost in the payroll survey that are made up by self-employment reported in the household survey. Wesbury could give you the figure, but he doesn’t. Better to hint that self-employment is big, than report actual figures, which make clear that self-employment represents a small share of jobs lost from payrolls.

It is also worth asking why, when payroll jobs were available, “entrepreneurs” abandoned self-employment back in the 1990s. Not all “entrepreneurship” is voluntary. Wesbury, by the way, has not chosen entrepreneurship. He collects a paycheck.

Oh, and one more thing. The household data are showing an average of roughly 182k jobs added per month over the past 6 months, vs 180k for the payroll survey. Claiming that the household survey shows something magical that is missed in the payroll survey really comes down to preferring the household numbers in periods when household data show stronger growth than payroll data. A big chunk of that 182k monthly average for the household survey came in July. Try to find Wesbury warning when the March payroll report showed 353k new payroll jobs that the payroll data were not to be relied upon, that the “superior” household survey showed a 3k drop in jobs.

Posted by: kharris on August 12, 2004 04:36 PM


So, is the Economist accusing Bush of lying when he took credit for positive "short-term vagaries of the business cycle" or is it another variation of the WaPo accuracy/truth conundrum wherein accurately quoted administration statements are true even though the content is false because the intent of the administration is not to deceive but rather to risk a false result?

Posted by: dd on August 12, 2004 04:42 PM


To djangone, re your post -

'I'd be interested to know where you come down on "The short-term vagaries of the business cycle are beyond the reach of any president."

Pretty much how I learned it.'

I don't know what the Prof thinks, but I would agree --if "short-term" means monthly or quarterly, or even annual jiggles around a trend. But the Bush II recovery has been, by very very far, the worst, by most macro measures, of any post-war recession, and it has been going on for almost four years. That is NOT beyond the reach of any president, especially for a president has gotten pretty much everything he has wanted wrt macro policy.

The Economic Policy Institute has a nice set of new reports that display the numbers. And the Bureau of Labor Statistics has lots of data that will verify this.

And remember, this US admin has no consistent story whatever on the recession. Look back at the news. Remember, before 9/11, when it was the mildest recession ever and would soon drop into history without a trace. Then after 9/11 it became severe again, and was crowned as part of the trifecta. Now it is useful to say that the recession was very severe because it is the natural consequence of the wicked historically unprecedented, irresponsible, noxious, and probably malevolently crafted, Clinton/Rubinomics bubble. But we never heard the opinion that it was a bubble when they were saying through mid-2000 how the next 20 years of prosperity would pay for their tax cuts.

And also remember that the lack of jobs has not been due to a huge amount of job destruction. If you will look through the archives here you will see references to the data. It has been due to a lack of job creation. To me, that means the problem is mainly the inability of Bush II to formulate effective policies in the wake of what was by most measures, a mild recession.

If you go back and read people like De Long, Benjamin Friedman, Alan Blinder, Brookings folks, and, yes, Krugman (who was not a lefty until he said bad things about Bush) you will get a consistent story. And go back in these archives and read kharris, anne, and many others and you will also get a consistent story.

--So, Prof D, do you agree with that??

By the way, thank you kharris for helping me in a previous post with the child credit checks and the retail store sales forecast. I understand the word "hurts' makes no sense in the context of the article, but that was secondary. I like reading you folks on the forecasting stuff and how all the time series macro numbers are correlated. But I want to make a point that we should look for some evidence that there are exogenous forces that are producing employment effects, and be able to make some predictions using those exogneous numbers, and I think cash to middle and lower class is an important one (and no new cash there --> continued bad employment numbers through the election -and I guess now even worse with the oil prices). So I will get off that hobby horse for awhile.

Posted by: jml on August 12, 2004 07:40 PM


Yesterday the FT & today the Economist; are theri any British allies left (except for Blair)?

Posted by: daveb on August 12, 2004 09:38 PM


"While they have much to recommend them otherwise, their mindless support / rationalizing of Bush makes the Economist a rather pathetic rag." --MattB

"Yesterday the FT & today the Economist; are theri any British allies left (except for Blair)?" --daveb

I'm with MattB on this one. I expect the Economist to find some way of recommending a Bush vote come November. It's entertaining to speculate what it can possibly come up with.

Posted by: yabartleby on August 13, 2004 06:03 AM


Strange, yabartleby, I am at this point expecting the Economist to abstain from an endorsement, or to give a "close-your-eyes-and-think-of-a-growing-economy" endorsement Kerry. They have given lots of signals of displeasure with Bush, and its hard to find an issue on which he and they see eye-to-eye, and on which Kerry is a noticably worse choice.

Posted by: Silent E on August 13, 2004 06:18 AM


Stuck between Iraq and a soft patch.

Japanese GDP rose just 0.4% in Q2 (that annualizes to 1.6%, just to make it comparable to US figures). That is the slowest growth in 5 quarters, and well below the 1.1% median estimate. On a nominal basis, Japanese GDP actually contracted 0.3% in Q2 - deflation is still afoot. Eurozone GDP rose 0.5% in Q2, vs 0.6% in Q1 and 0.4% in the latter 2 quarters of 2003. At least there, things are steady, if not strong. South Korea has cut rates to restore growth (don't scoff - South Korea is pretty big).

Posted by: kharris on August 13, 2004 06:39 AM


Normally I agree that that White House policies have little impact on short run economic developments. But this time may be an exception.

One of the primary reasons the economy is slowing is high oil prices and the invasion of Iraq and turmoil following it is a significant factor in high oil prices. So in this case admin policies are having a significant impact on short run developments. Moreover, federal policies have a significant impact on the long term underlying trend and because the underlying trend under Bush is so weak the normal short run swings above and below trend mean that the below trend swings are closer and closer to zero or negative.

Also note that this mornings trade report means that 2nd Q real gdp and productivity growth will be revised down from a half to a full percentage point when the next gdp report is issued.

Posted by: spencer on August 13, 2004 07:58 AM


The Economic Cycle Research Institute is saying the world economy is on a cyclical slowdown and that factoring out oil will not reverse the cycle.

Posted by: Nelson on August 13, 2004 08:56 AM


How serious might this slowing be for America? The remaining stimulus from the tax cuts will fast be of little consequence. The Eurozone growth will have a muted impact here, while Asia is slowing. Canada and Latin America will help some. But, I am concerned.

Posted by: anne on August 13, 2004 09:21 AM


43 man potrzbie anyone?

Posted by: al neumann on August 13, 2004 10:23 AM


Odd thing about the June trade data. All broad categories of exports were down. Either that was some kinda soft patch, or there is something wierd about the trade figures. Was there a port problem that I didn't hear about? The June deficit was a couple of standard deviations from the 10-year trend, plus a little. Really a big drop.

Less suspiciously, the deficit widened both because of a big drop in exports and a big rise in imports. Consumer goods imports were not a big part of the story, which is consistent with the slowing in consumer spending in June. Capital goods imports, on the other hand, were quite strong. That is not consistent with the capital goods categories in Q2 GDP, so maybe we will see upward revision to capital spending in the next release of GDP data.

Posted by: kharris on August 13, 2004 10:46 AM


Report Finds Tax Cuts Heavily Favor the Wealthy

WASHINGTON - Fully one-third of President Bush's tax cuts in the last three years have gone to people with the top 1 percent of income, who have earned an average of $1.2 million annually, according to a report by the nonpartisan Congressional Budget Office to be published Friday.

The report calculated that households with incomes in that top 1 percent were receiving an average tax cut of $78,460 this year, while households in the middle 20 percent of earnings - averaging about $57,000 a year - were getting an average cut of only $1,090.

The new estimates confirm what independent tax analysts have long said: that Mr. Bush's tax cuts have been heavily skewed to the very wealthiest taxpayers. Those are also the people, however, who pay a disproportionate share of federal income taxes.

The calculations, which were requested by Congressional Democrats, are all but certain to intensify a central debate between Mr. Bush and Senator John F. Kerry, the Democratic presidential nominee.

Mr. Bush has argued that the tax cuts provided crucial support to the economy at a time when it was mired in a recession and reeling from the effects of a stock market collapse, terrorist attacks and corporate scandals.

Mr. Kerry has argued that the cuts were tilted so much in favor of the wealthy that they provided relatively little stimulus to the economy and set the stage for record budget deficits. Since 2001, the federal budget has deteriorated from a surplus of more than $100 billion to a deficit expected to exceed $400 billion in 2004.

Posted by: anne on August 13, 2004 11:08 AM



The US is the largest economy in the world and the driver of most FDI...are you surprised the world economy slows when we do?

American productivity is up (way up!) and it shouldn't surprise us that when the cost of labor is high, that we hire less labororers. The only way for productivity to rise is for a small amount of costly laborers to produce are much or equal to a large amount of costly workers.

The question is - does a drop in non-farm payrolls really affect Investments and growth? Keynes says yes, the neo-conservatives (I won't call them Smithian) say no. They look instead and see inflation.

The consumers are the drivers of American GDP, and to cut their income makes money scare, driving prices up. Rising intrest rates also make money scare, driving prices up. Gov spending helps increase growth, but can it really outweigh the potential loss of consumer spending? Most Americans are spending more then they earn; the trend shows little sign of change since credit is easy. But are they consuming as much this year as they did last?

FDI in the US in Europe is down. Is this because of political uncertaincies? Or it is because of where the US and Europe spent their money this year - on international security, not domestic prosperity?

On the fical side, the amount of currency trading is still high; alas that doesn't add to GDP. Neither does raising the interest rates - something I thought should only be done to cool an economy. Does August 2005 really look like a red-hot year at this point?

Our uncertainity - at the polls, at the Fed, in the marketplace - makes the rest of the world uneasy. No surprise then, that everyone would stop pushing with their spending and producing and instead look for a good mattress to hide their money under.

it trying to figure out how bad our recession really is...and if it's really, really bad, then which was more devestating decision- deficit spending or the Fed?

Posted by: devgirl on August 13, 2004 11:25 AM


"At least [in the EU], things are steady, if not strong."

We're talking 2% of real growth on a yearly basis. Not bad, especially if you keep in mind that in the EU, both fiscal and monetary policy have been more restrained than in the US. I would argue that the EU is perhaps seeing a productivity boom*:

"We're not going to have the breakdown for a while, but the figures seem to suggest that predominantly this (growth) is being led by exports, and so it is vulnerable to what happens in the global economy."

... well, with 1 US Dollar = 0.82 Euro and Japan's stubbornly weak yen policy, I find this remarkable. Of course, growth in the US and elsewhere my be helping. But still, it means that EU's exporters have been able to take advantage of the global recovery in spite of the Euro's appreciation. This reminds me of Germany's past export achievements "in spite" of the strengh of the DM.

* I'd be curious to see if this could be the productivity boom that Professor DeLong promised the EU in the FT many months ago.

Posted by: Jean-Philippe Stijns on August 13, 2004 11:29 AM


ECRI's weekly leading index (WLI) has been slipping since March due to a "less friendly consumer spending environment" and monetary policy tightening. In the latest week, falling stock prices and mortgage applications in addition to weak corporate credit readings pushed the index lower.

As far as consumers, if the proliferation of payday loan businesses is any indication of their financial health, I would say many are in deep trouble.

Posted by: Nelson on August 13, 2004 11:55 AM



I’ll tell you why. It’s because they decide before they have all the data. And, most importantly, they usually don’t realize it. Another way to put it is that, basically, you can only see what you’re looking at. For example about a third of the human genome is the same as the mouse genome. Therefore it would be very easy for an investigator to look at massive amounts of genome data and conclude that people are basically mice with a few improvements.

As true as this is, it won’t help you much if you’re trying to understand human affairs… a little perhaps, but not too much. A trained geneticist won’t make this mistake, but and economist or a physicist might. So, what I’m saying is that accurate understanding requires examining ALL THE DATA.

Next, you have to interpret the data properly and people do this by applying theories based on simplified models for comparative analysis. Unfortunately THEORIES ALWAYS CHANGE OVER TIME and old truths become new superstitions.

As I’ve said many times before on this site –


Calling each other “liars” and “idiots” is a sign of

Posted by: Adrian Spidle on August 13, 2004 12:47 PM


Did anyone order fruitcake?

Posted by: ogmb on August 13, 2004 02:01 PM


the Economist bangs their petard against the wall.
(why are we ruled by these petard bangers?)

Posted by: DavidS on August 13, 2004 03:20 PM


Thanks so much for offering a rebuttal to the Wesbury article. I agree with you, any WSJ editorial is highly suspect but I didn't know enough specifics to counter it. I've heard much about the over-flowing corporate coffers hardly any investment. Apparently CEOs are preparing for the gathering storm to hit. This is much more tanglible proof of risk-taking (or lack thereof) than the selective numbers Wesbury used. There's another entertaining piece by Steve Forbes in today's edition of the WSJ if you're in need of a laugh...

Posted by: aboly on August 16, 2004 10:34 AM


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