http://www.command-post.org/oped/2_archives/008917.html
November 22, 2003
It's The Economy, Stupid
Cycling to 2004 (washingtonpost.com)
I generally agree with Robert Samuelson -- and mostly do here as well -- but
I have one minor quibble: the first President Bush wasn't voted out because
the economy was in the dumps, he was voted out because of peoples'
perception that the economy was in the dumps.
The recession of 1990-1991 ended in March of 1991 and the election was in
November of 1992. The problem was one of perception: the elder Bush seemed
out of touch because he said repeatedly, and accurately, that the recession
was over. The recession wasn't pronounced as officially over until December
1992, one month after the election.
The current President Bush has made every effort to not repeat his father's
mistake and it will likely work. If he loses re-election I doubt it will be
over the economy, given the current optimism among businesses. The most
recent recession was driven by a lack of business investment -- consumer
spending and productivity remained strong throughout -- and the best part of
the recent report of 7.2% annual growth in the third quarter was that the
growth was helped significantly by business investment.
The U.S. economy seems to have just voted for George Bush. Almost all
recent indicators favor the president's reelection: economic growth, rising
at a 7.2 percent annual rate in the third quarter; jobs, increasing 286,000
since August; productivity, advancing at roughly a 5 percent rate since late
2001. Nariman Behravesh, chief economist for the forecasting firm Global
Insight, has one of those equations that predict election results based on
the economy and various political factors (incumbency, party affiliation).
By the latest reports, Bush wins 56.6 percent of the 2004 vote.
Behravesh admits that these equations aren't infallible and that even if
the economy stays strong, other factors -- Iraq, terrorism -- could doom
Bush. But the business cycle is moving in his direction. It's psychology as
much as numbers. Behravesh talks regularly with corporate executives who,
until recently, "had retreated into their shells. They stopped capital
spending. They stopped hiring. They became extremely risk-averse. Now,
they're coming out of their shells." Capital spending (aka business
investment) and hiring have both revived. In the third quarter, business
equipment and software spending rose at a 15 percent annual rate.
Government policy and the enormous resilience of the U.S. economy explain
the turnaround. Critics can gripe about Bush's big budget deficits and tax
cuts, but they've obviously juiced the economy. The tax cuts alone provided
$61 billion in fiscal 2003 and will add another $149 billion in fiscal 2004,
estimates the congressional Joint Committee on Taxation. Next year's tax
refunds are expected to rise 27 percent, says USA Today. (Cynics may suspect
Bush of trying to buy the election.) Similarly, the Federal Reserve's low
interest rate policy encouraged massive mortgage refinancings -- boosting
consumers' purchasing power -- and aided the economy in countless ways.
[....]
What we have is a cyclical recovery. The same thing is occurring in Europe
and Japan. Of course, long-term problems remain: American consumers are
heavily indebted; the big U.S. budget and current account deficits will
someday have to be curbed; the mortgage refinancing boom is ebbing;
worldwide surplus capacity is still widespread; and China represents a huge
unknown. Any of these problems might undermine economic and -- Bush's
greatest vulnerability -- job growth. Could the recovery falter in a few
months or, possibly, just after next year's election? Well, yes.
But for now, economists are raising their forecasts for 2004, and assuming
they're right, the politics are plain. Democrats' economic criticisms will
resonate less, and Bush's bragging will resonate more. At the White House,
they may not be dancing over the economic news, but they must be smiling.
Unlike his father, Bush may have beaten the business cycle.
As President I would be a basket case from having my re-election determined
by something that's largely out of my control: the economy.
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