October 30, 2003
From the desk of Jane Galt:Break out the bubbly
The US economy grew at a blistering 7.2% annualized rate in the 2nd Quarter.
It won't last, of course; such growth rates aren't sustainable for developed countries. But it's an awfully good sign.
What does that mean for the election? It's obviously good for Bush, although one can't tell how good. Not that it should be, in the fairest of all possible worlds, since his economic policies have had, at best, marginal effect. But knowing that the economy is growing makes people feel optimistic, and makes worries about the situation in Iraq less pressing; if economic growth is strong, maybe we can afford that $87 billion, or even a little more, after all.
Articles like this one by Daniel Gross strike me as more hope and hype than hard-hitting analysis. I suspect we'll see a lot of it in the months ahead (just as Republicans kept waiting, ever so hopefully, for Americans to discover that they were really getting poorer all the time under Clinton.) Gross trots out every possible argument for how Bush hasn't done any real good for the economy, even when they're mutually contradictory; first he claims that the Bush tax cuts haven't really helped the economy (an assertion with which I agree), and then he claims that we're only having all this stupid growth because Bush spiked the punch with tax cuts, and it will all go away next quarter. He complains that we haven't yet had two consecutive quarters of robust growth since Bush took office, which is unsurprising given that he took office right at the beginning of a recession; all the forecasters I've seen expect robust growth to continue through 2004, barring a big external shock. While I'm as concerned as the next guy about the potential problem represented by our massive overhang of consumer, corporate, and government debt, the undertone of hope that it will all come crashing down in time to put a Democrat into the White House is, I think, more wishful thinking than solid analysis.
Posted by Jane Galt at October 30, 2003 1:13 PM | TrackBack | Technorati inbound linksDear Megan,
"... [Bush's] economic policies have had, at best, marginal effect."
I respectfully disagree.
Point one: marginal effects {for example, adding 2% to growth over a six-month period) can have material impact when they accumulate and compound over a two or three year period (for example, adding 2% annual growth over a 36 month period adds about 6.1% total; over a 72 month period it adds about 12.6%).
Point two: I don't think Pres. Bush's economic policies have been necessarily marginal. Pres. Bush is the CEO of the hugest corporation in the world, and he has been patiently and successfully changing the flow and distribution of a large fraction of our nation's GNP (through tax and spending changes). I expect that economists 30 years from now will look back and acknowledge that Pres. Bush has been successfully tugging our economy into growth, not unlike a tugboat leading a cruise ship to its berth.
Point three: Pres. Bush's most important economic policies have been his decisions to invade Afghanistan and Iraq and to fight forcefully against Islamist terrorists. These are national security policies first, and economic policies second, but they have done more to keep the economy from tanking than anything else he could do. (And a strong economy is very important for the War on Terror -- it's a virtuous circle.)
So, that's what I think. If I had a lot of money, I'd be throwing some of it W's way and singing his praises.
Think the unemployment rate is going to be a lot more important than GDP growth. Hours worked dropped during the summer.
Mr. McCullough,
I'd say you were basically right about the role of unemployment versus GDP growth as an election issue. Of course, people are more inclined to pay attention to their individual circumstances than the state of the overall economy when evaluating a politician or leader. The thing is, though, unemployment is generally seen as a lagging indicator of economic activity. Businesses hire people after business activity starts to heat up and fire people after business begins to slow down. That means, though, that continued improvements in the umemployment rate will come closer to the election than the underlying growth spurred the rate downward.
"I'd say you were basically right about the role of unemployment versus GDP growth as an election issue. Of course, people are more inclined to pay attention to their individual circumstances than the state of the overall economy when evaluating a politician or leader."
But unemployment has stayed well under 10% all along. Maybe 20% of voters have either been unemployed for a long time under Bush or had a family member unemployed. By your logic, the other 80% are in the Republican camp, right?
No, even though this campaign seems likely to wind up with the Democrats nominating a candidate nearly as bad as McGovern, Bush isn't going to get that big of a landslide. But I don't think any recounts will be needed to confirm his victory this time.
I'd say the hours-worked bit might be of concern if it was atypical during a growth phase to have hours worked during the summer drop off. There's all kinds of reasons I can think of for that to happen. So unless it's the case that the hours-worked indicator is seasonally adjusted, I think it's possible you have a non-point here.
Caveat: I know squat-all about economics, economies, and nearly everything that starts with "econ".
Lagging indicator or not, if the unemployment rate doesn't budge by next November it's going to be a weakness for Bush. What's the NAIRU now, something like 4%, 4.5%?
Though I am certainly not a trained economist, the point made by an earlier commentor is quite apt: unemployment is nearly always a lagging indicator in a growing economy -- which the US economy now is. This being the case, I would expect that during the next couple of quarters unemployment will begin to subside.
Probably just in time for the 2004 election, no less.
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