TCS Daily

It's Still the Economy, But Are Voters Stupid?

By James K. Glassman - May 13, 2004 12:00 AM

It's been a miserable month in Iraq, but a wonderful month for the American economy.

"The April employment report confirms unambiguously that the labor market is back," said, the respected website, on Thursday. Some 288,000 net new jobs were created, and, after upward revisions in earlier reports, 867,000 have been created since the start of the year. Expect 3 million for 2004.

There were gains across the board, including manufacturing. The unemployment rate fell to 5.6 percent, wages are rising, retail sales are surging, new home sales set a record, and GDP for the past 12 months is nearly 5 percent.

These are amazing numbers, and they make doomsayers like Lou Dobbs of CNN, Paul Krugman of the New York Times, John Kerry of Massachusetts look awfully silly.

But, while the economy is robust, voters don't see it that way. A Gallup Poll taken May 2-4 found that only 43 percent of Americans believe it's improving while 51 percent say it's deteriorating.

They should try France. Unemployment there is 9.8 percent and the economy has barely grown over the past year; ditto, Germany, Italy, Belgium, Spain. We're hot; they're ice-cold. President Bush's tax-cutting policies, combined with low interest rates from Alan Greenspan's Fed and the imagination and resiliency of U.S. businesses and workers, have turned the U.S. economy around.

Despite the problems with the war, keep your eye on the economy. It's the top concern of voters, ahead of Iraq and terrorism. It's the economy, stupid, that will determine this election, and the economy right now is terrific.

Still, Gallup found that 56 percent of respondents disapproved with how President Bush was handling the economy, while only 41 percent approved -- the worst results in a year. Bush's ratings on the economy today are worse than his ratings on foreign policy and on Iraq.


Voters' economic perceptions always lag reality. For example, the recession before last officially ended in March 1991, a full 19 months before the presidential election, but George H. W. Bush lost his job mainly because of the economy, nonetheless. His son's recession ended in November 2001 -- a full 36 months before the election -- but because the recovery has been slow, voters still feel it.

Yes, inflation is rising now, but it's still extremely low -- an estimated 2 percent for the year. The Fed will raise interest rates for sure, but it's unlikely the hikes will do damage.

Democrats, however, are still relying on a rotten economy to win for them in November. They need to get real.

At a symposium at the American Enterprise Institute in January, after top policy advisors for the Democratic presidential candidates blasted Bush for his economic failures, I asked, "Let's assume the recovery accelerates. What's your fallback position?"

The advisors replied by blasting Bush some more. Kerry has been calling Bush another "Herbert Hoover" -- even though the unemployment rate is less than the average during the decades of the 1970s, 1980s and 1990s.

But what else can the Democrats do? "The economy,...despite some indicators, continues to be an enormous source of concern" to voters, says Tad Devine, a senior advisor to John Kerry.

True, but it's almost certain that the concerns will ease in the months ahead. Notice I said "almost."

According to my "Being There" thesis, incumbents (mayors, governors, and particularly presidents) get the credit or the blame for the state of the economy, whether they had anything to do with it or not. This time, President Bush deserves real credit for his timely tax cuts.

There are three worries. First, the stock market has skidded, and, since two-thirds of voters own stock, they may see their account at Merrill Lynch as the best barometer of the economy, not the unemployment rate. Second, some money problems, beyond the president's control, are weighing on voters, like higher gas prices and health costs. Third, a few smart economists, including my AEI colleague John Makin, think the economy will slow in the second half as inflation rises.

Perhaps. My guess is that the market will pick up, and gas prices will fall. As for a slowdown: If it arrives, it will be too late to hurt Bush. Since voters' perceptions lag reality, they will still be reacting to the first half of the year; that is, right now, when the economy is booming.


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