TCS Daily

The Bush Economy

By James K. Glassman - October 7, 2004 12:00 AM

Iraq won't win the election for John Kerry. He has to convince voters that George W. Bush has botched the economy. That's a tall order right now, with the unemployment rate down from 6.3 percent to 5.4 percent in a year. It's back where it was when Bill Clinton was re-elected in 1996.

Kerry has another problem. His debate with Bush on Friday comes the same day as a report that will almost certainly show powerful employment gains, including upward revisions from earlier this year.

Still, Kerry is trying hard, and two main themes will be on display during the debating to come.

Kerry says Bush is "the first president to lose jobs in our country in 72 years." This statement is both false and disingenuous. Franklin Roosevelt lost lots of jobs; so did Ronald Reagan. Both inherited bad economies from their predecessors -- as did Bush.

The president was faced in his first year with a tech bubble that had burst, a terrorist attack that had killed 3,000 Americans and the worst corporate accounting scandals in history. None of these was Bush's fault; Clinton deserves at least some of the blame for all three.

The real question is how Bush handled the cards he was dealt. He did what any economist -- Keynesian or supply-sider -- would prescribe: cut taxes, increase spending and loosen monetary policy (really, the job of the Fed). All steps were taken quickly, and the economy has turned around.

The big job losses occurred at the start of the administration. The big gains have occurred in the past year.

The second theme that Kerry will push is outsourcing or offshoring -- the hiring of foreigners by American companies. This accusation makes Kerry the first major-party presidential candidate in decades to spout a protectionist line on trade.

Outsourcing is a non-problem. The latest statistics show that of the 1.5 million jobs lost last year in mass layoffs, less than 1 percent were sent abroad. Daniel Drezner of the University of Chicago also points out that while 4,633 workers were laid off from offshoring in the first quarter, Kodak laid off 15,000 because of the growth of digital photography.

It is technology and competition that are costing -- and gaining -- jobs for Americans. When we have an edge over the rest of the world -- as we do in many sectors, from entertainment to financial services -- we gain from trade. When other countries have an edge over us--as they do in textiles, for instance -- then we gain as well, as nearly 300 million Americans pay lower prices. That's the way trade works. It benefits both parties. Obstructing it would be a disaster.

My guess is that the emotional and cynical appeals that Kerry is making won't work -- for the simple reason that the real economy is alive and well and getting better. "The U.S. will probably grow more in the second half than in the first," says David Malpass, chief economist for Bear Stearns. I agree.

The unemployment rate today is lower than the average of the past three decades. Household wealth has soared to a new record, and 69 percent of Americans own their own homes, the highest proportion ever.

Last week, the final figures for Gross Domestic Product in the second quarter were announced. GDP, the nation's total economic output, grew nearly 5 percent for the year. That's greater than in any 12-month period during the Clinton administration. Personal income is up 5 percent in the past year, and business spending is strong. Inflation is tame, and interest rates are low. Compare the United States with Kerry's paragons abroad. Unemployment in France is 9.9 percent; in Germany, 10.6 percent.

On Friday, statistics on employment will be released. August showed a gain of 144,000 jobs, but, because of the hurricanes, the increase could be smaller for September. But there should be a dramatic upward revision for past months as the Bureau of Labor Statistics reconciles the payroll survey, which shows a net loss of about 800,000 jobs during Bush's term, with the household survey, which shows a gain of 2 million jobs.

Kerry, through distortions and obfuscations, will try mightily to convince Americans that Bush has messed up the economy. If reality counts, he won't get away with it.


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