The Bush Boomlet
The economy just had a great quarter. Does that really mean it's booming?
When the Department of Commerce releases third-quarter gross domestic product figures Thursday morning, it will kick off one of the best days of the Bush presidency. As the Wall Street Journal reported, respected forecaster Macroeconomic Advisers believes the economy grew at an annual rate of 6.9 percent last quarter.
If the Commerce figures match that forecast, it will be the highest quarterly GDP increase since the economy grew 7.1 percent in the fourth quarter of 1999 and the first time in the Bush presidency that the economy has grown by more than 3 percent for two straight quarters. Bush partisans have been quick to promote the not-yet-released figure, as well as other encouraging recent data, as evidence of an imminent boom. William Safire, a self-professed member of the newly formed "Pollyanna Conspiracy," pounded the drum in the Times today—gleefully predicting growth next year "near a brisk 4 percent." Treasury Secretary John Snow last week boldly proclaimed that the economy would create 2 million new jobs by next fall. Last week, Jerry Bowyer, a sober Pittsburgh-based supply-sider, released a book titled The Bush Boom.
From the outset, Bushies claimed that lowering marginal rates and cutting taxes on dividends and capital gains, while feverishly boosting government spending, would usher in economic nirvana. Because many of the same folks also argued that President Clinton's 1993 recipe of raising taxes on a few people and closing deficits would usher in depression (that's you, Capitol Hill Republicans, Club for Growth, Wall Street Journal editorial page), it was hard to take the argument seriously. And for much of the Bush administration, they have indeed been wrong.
Could things be different now? After all, the markets are soaring, interest rates are low, the economy is finally creating jobs, and productivity is strong. A boom would have all sorts of salutary results—and not just for the richest among us and the Bush re-election campaign. (With only a year until Election Day 2004, time is running out for the economy to turn up.) A sustained period of above-trend economic growth, and the concurrent rise you'd expect in the markets, would boost the value of assets in college-savings programs and 401(k)s, shore up woefully underfunded corporate pensions, and provide relief for fiscally strapped states in the form of higher tax revenues.
But thus far, the Bush boom rests more on hope than hard data—and on a pretty weak definition of a boom.
Some of the Bush boom is a matter of defining performance. We have yet to see two consecutive quarters of impressive growth. And even if John Snow's prediction of 2 million new jobs in the next 12 months materializes, that is still poor by historical standards. That breaks down to only 166,000 new jobs per month—which barely covers the 150,000 new job-market entrants each month and leaves a mere handful of positions for the millions of jobless who are currently seeking work. Between October 1993 and October 2000, the economy created an average of 2.88 million jobs per year. That's a boom.
The Bush boom promoters also sidestep the real issue about the third-quarter growth. It would be hard for the economy not to surge when you consider how much money the administration has poured into it in the form of tax cuts and government spending. It remains to be seen whether the economy can produce jobs and growth without continual booster shots, and whether the massive deficits the administration is running will drag down growth for years to come.
In Bush Boom, Bowyer argues that markets and investor activity can tell us more about the economy's health than the backward-looking government data upon which we usually rely. As evidence for the boom, he points to personal income, which has grown at a 5 percent clip since the third quarter of 2001, strong productivity, and reduced taxes on investment. (OK, OK, and OK.) Employment growth, he argues in the antidisestablishmentarian vein, is happening under the radar screen. (Maybe.)
The problem for the boomsters is that the data by which we traditionally measure economic growth examine the past, not the future—tomorrow's GDP figures will tell us what happened in the past quarter, not what will happen next quarter or next year. Job creation—just one among many important indicators but probably the most important political indicator—is a famously lagging indicator. Worse, these figures are always subject to revision. So, an economy that seems to be doing poorly can, when one looks back at it a few years later, be deemed to have been doing OK (see: 1991 and 1992). And when you're at the tail end of a boom, it can feel like it's going to go on forever (see: 2000).
So, we might well be on the cusp of a period of above-trend growth, low interest rates, and booming asset values—the likes of which we haven't seen since, well, the late '90s. Or we may be muddling through an extended period in which we have some good quarters, some bad quarters, and the occasional great one—just as we have for the past few nonbooming years. As the most recent GDP release shows (see Table 1 in the link) the economy has occasionally performed impressively—5 percent growth in the second quarter of 2002 and 4 percent in the fourth quarter of 2002—only to lapse back into subpar numbers. It could be that the third quarter's reputed 6 percent growth, aided substantially by higher government spending, and tax cuts, and rebates, just isn't sustainable. The Hudson Institute's Irwin Stelzer, a rare voice of reason at the Weekly Standard, argued in this piece that while there's reason for optimism, euphoric feelings should be tempered by the possibility that higher interest rates and high oil prices could cool the fevered growth.
The Bush boom may or may not be a reality. I'd settle for several quarters of consistent growth, with job creation and GDP expansion at rates remotely close to those of the '90s. But that doesn't make for a particularly sexy book title, or for a compelling re-election slogan.
Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at firstname.lastname@example.org and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.