July 14, 2004
Before political advertising begins to swamp the
airwaves, I think it is a good time to review what is happening in one of
the two major issues of this campaign:
A few months ago I received an e-mail from a seventh
grade student who was researching whether President Bush’s policies were
beneficial or hurtful to the economy. At
the end of the questions raised, I was asked my political leanings.
This is a legitimate question to filter out bias in the
answers. However, I responded
that I was answering these questions as an economist.
By that I meant that most economists would understand how I reached
my conclusions, even if some would not agree with my results.
(Economics is an
imprecise science, but it is enough of a science to have more than opinions
to support conclusions.)
Both major candidates are presenting implications about
the economy that really are not justified.
John Kerry has no business implying that this is the worst economy
since the Great Depression. It
is true that Bush is the first president since Herbert Hoover who probably
will have fewer people working when we go to the polls than when Bush was
However, the economy is a dynamic system that provides
outcomes well after policy has been altered.
I believe that most economists will assume that much of the economic
weakness creating that outcome already was apparent before the last
election. Indeed, both Federal
Reserve and tax cutting measures have aided economic performance in the past
At the same time, President Bush cannot explain why
three tax plans were required to jump start the economy. He also must address the legitimate concern that the average
worker in the past year has seen raises declining while living costs are
rising. When the June estimate
of average earnings adjusted for inflation is released, it almost certainly
will show that the average worker received a full percentage point less in
earnings gains than was suffered in price increases.
I will give the President a little leeway, as the tax
cuts did provide some additional purchasing power to offset the surge in
energy, food, medicine, and education costs.
But oil production shortfalls in Iraq more than a year after the old
regime was toppled, clearly is adding to gasoline costs. If I cannot pin some responsibility for that on the
President, who gets the blame?
So, is the economy strong and getting stronger as
President Bush claims, or is the expansion weak and missing the ordinary
worker, as Senator John Kerry avers.
The strength of this economy probably is assured, but oil prices and a related, growing currency problem will assure less than desired economic growth. The best the President can offer to address this issue is to prevent the lapse of some of the tax cuts that are scheduled by current legislation to expire at the end of this year.
This does not mean Senator Kerry has any stronger
policy options. Indeed, both
candidates estimate that the federal deficit will remain above $200 billion
per year in 2009 if their programs are enacted.
That is not good enough. Our
surge in productivity began as the government got out of the way and allowed
a surge in the private use of credit. No
concern about getting out of the way of private borrowing needs currently is
expressed by either candidate.
To be sure, the Senator will alter the mix of tax
benefits. The well-to-do will
lose some of their tax benefits in his administration while more benefits
will be provided to lower income earners.
While this redistribution of tax burdens might marginally reduce the
lost purchasing power of the average worker, real gains will come from
addressing the problems caused by rising materials prices and using
appropriate economic policies to provide a healthy environment as the
I am hopeful that a better understanding of economic
policy proposals will be forthcoming as this campaign progresses.
Does the President truly have no concern about deficits and only
wishes to assure that current tax cuts are permanent?
Is that policy sufficient to address economic problems that already
are developing in exhausted purchasing power by workers and potential
currency related problems?
On the other hand, I was brought up with the notion
that if you criticize you must also explain how you will improve.
Except for changing tax burdens, I have so far heard very little
plans for improvement from the Kerry camp.
Hopefully, the contrasts of
economic policy will be more clear than the generally incorrect
claims about the economy. We
are in a recovery. The economy
is getting stronger. There are
problems that are being ignored by this administration, especially the
structural deficit. (That is
the deficit that will remain even after high economic growth and employment
has been attained). Unlike the
Depression, our banking system is strong.
Now what economic problems do you expect and how do you plan to address them in your next administration President Bush, or in your new administration Senator Kerry?