Bush's war economy.
The Bush economy is not likely to sustain itself. Nor does the uptick compensate, in any significant way, for the destruction Bush's policies have wreaked on U.S. workers over the last three years.
The high rate of growth "is great as far as it goes," says Max Sawicky, an economist at the Economic Policy Institute. "But you shouldn't gloss over all the damage that's already been done: the bankruptcies, the mortgage foreclosures, people going without health insurance, evictions, repos--all the things that happen when you run out of money."
The amazing thing about the growth in the third quarter is that it took this long for the economy to get moving. Alan Greenspan at the Federal Reserve Board has been holding interest rates down at historically low levels. Bush has been spending money on the military like he was Ronald Reagan, and his summer tax cuts--as lopsided as they were in favor of the rich--still shoveled $100 billion of disposable income into the economy.
"Almost anything that pumps that much aggregate demand into the economy is going to be expansive," says Robert Pollin, an economist at the University of Massachusetts-Amherst.
But Bush can't rely on such injections forever. While Greenspan continues to hold interest rates down, he will be under pressure to raise rates if the economy keeps growing. On November 6, Greenspan gave the first hint that the party may be over. "No central bank can ever afford to be less than vigilant about the prospects for inflation," he told the Securities Industry Association.
And no matter what Greenspan does, long-term interest rates are already rising, making it harder for businesses to take out loans and dampening the home-refinancing market. In fact, much of the growth in the third quarter was in response to feverish refinancings that have now chilled.
"You had the peak of the mortgage refinancing boom, which led to a huge flood of cash," says Dean Baker, co-director of the Center for Economic and Policy Research. "And people spent that money on cars and home remodeling." The numbers back Baker up. Spending on consumer durables, such as cars, was up 26.9 percent from the previous quarter, and new home construction and remodeling rose 20.4 percent.
Already, the early numbers for the fourth quarter are not encouraging. "September consumer spending was down 0.6 percent from August," says Baker, "and car sales plummeted."
Another factor that won't reappear in the next quarter is the child tax credit. Bush won't be sending checks out to millions of parents, so the "finding-money-in-the-street" mentality that boosted spending over the summer was a one-shot deal.
Granted, Bush is still relying on vast quantities of military spending. In the second quarter, military spending jumped by a whopping 46 percent over the previous quarter (with total government spending up 25.5 percent). And while military spending was flat in the third quarter, it was still at an unusually elevated level. To keep it there is one of the unstated reasons why Bush wanted that $87 billion check for Iraq. (Military spending, it should be noted, is an inefficient way to stimulate the economy. A dollar spent on building bridges or repairing schools has a bigger multiplier effect than a dollar spent on a new bomb. And if a lot of those military dollars are spent in Iraq itself, the benefits to the U.S. economy will diminish accordingly.)
The irony is that Bush could have stoked an even hotter economy. As James Galbraith pointed out in our October issue, Bush could have spent some of those deficit dollars on social needs, or spread them around to the states, or targeted the poor and the middle class for most of the tax cuts.
Instead, Bush is content with trickle down and war.
This strategy may be shortsighted, even for his own reelection purposes. There are dark clouds on the horizon.
Rental and housing prices are already falling in San Francisco and Seattle, says Baker, who predicts the housing bubble will burst before next November. If that happens, he says, the economy will go into another recession: the so-called double dip.
At least two other factors complicate the picture. Those rising long-term interest rates are one problem. The deeper Bush's deficits, the higher such rates will go. "This would have an immediate negative effect on investment," says Sawicky.
Another is the fiscal crisis of the states. Facing their own deficits, state governments are cutting back on spending and laying off public workers. "A major failure of Bush's policy was not leveraging money to the states," Sawicky says. "The state deficits are a drag on the economy, and they offset some of the stimulus at the federal level."
The biggest issue for the economy--and for Bush--is jobs. On this front, he may be in bigger trouble than he thinks. While the job growth number for September was revised up to 125,000 and the October figure came in at 126,000, this is not the nirvana Bush made it out to be.
First of all, these gains are not keeping up with the growth in the work force, which expands by about 150,000 people every month, due to the growth in the working population. So Bush needs to clear that number and then create 300,000 more jobs a month "to lower the unemployment rate by one percentage point over the course of a year," according to the Economic Policy Institute.
Secondly, the good news on the job front is "nothing that great in the scheme of things," says Baker. "In the late 1990s, we had months where we were getting 300,000 or 400,000 or 500,000 new jobs."
When he announced his "Jobs and Growth Plan" in June, Bush promised it would create 306,000 new jobs each month. By the end of September, he was already off by 891,000 jobs.
All told, the U.S. economy under Bush has lost 2.4 million jobs since the March 2001 recession began. The U.S. economy has now been in recovery for more than two years, yet "only one state has a lower unemployment rate than when the recession started," the Economic Policy Institute reports in the "Job-Watch" section of its website. "The post-recession labor slump has now become the first ... without a full recovery of jobs within thirty-one months" since records began back in 1939, it says. "This is the largest sustained loss of jobs since the Great Depression." It is the very definition of a job-loss recovery.
More seriously for Bush, Baker believes, is that the bulk of the job growth has already occurred. "We've already seen it," he says. "There's not much reason to believe there will be a lot more," he says.
He bases this on the fact that employers increased the work week by only one-tenth of an hour in October and did not increase overtime hours. Typically, before they hire new workers, employers will force their current employees to take on more hours, including overtime. As this has not happened yet, employers may not feel the need to hire new workers anytime soon. Asks Baker: "If we don't even see the hours going up yet, when are we going to see them?" And if consumption is already dropping, as Baker says, employers are likely to remain shy about expanding payrolls.
One reason consumption may lag, Baker says, is because of poor wage growth. In October, hourly wages rose all of one penny, and that translates into an annual hike in wages of only 1.2 percent. At this pathetic pace, wages won't even be keeping up with inflation. "Workers are not going to see extra pay in their pockets," Baker says, so they won't be spending more. Over the last two-and-a-half years, there has been an "unprecedented 1.2 percent real decline in wage and salary income," says Job Watch.
Almost nine million people are unemployed today. Of those, two million have been unemployed for twenty-seven months or more--a depressingly high proportion. According to JobWatch, 2.3 million more are not even included in the unemployment statistics because they are too discouraged to look for work. Every one of these eleven-million-plus individuals is a human tragedy.
The high unemployment rate and stagnant wages may drag the economy down. "It's hard to see how this recovery will be sustained," says Baker.
On the other hand, Bush may get lucky. If Greenspan resists the temptation to raise interest rates, if oil prices stay low, if Congress keeps writing blank checks for war and occupation, if the housing bubble doesn't burst, if consumers pick up their spending, and if employers keep hiring more workers, Bush's recovery might just chug along through November.
But then he would have made our economy ever more dependent on war. Already, he is using his war-engineered deficits to say there is no more money left in the Treasury to regulate corporations or address the crying needs of the country: the schools that are crumbling, the forty-three million people without health care, the thirty-five million people in poverty, the nine million people who go hungry.
This is no accident. It is by design.
He wants an economy that rewards the rich and releases corporations from oversight. He does not believe it is the role of government to care for the needy. He wants to privatize that function to faith-based groups. And he doesn't care if the public schools decay: If they do, the better his case for private school vouchers.
For Bush, one of the primary functions of government is to wage war. And he's betting the store on that.
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|Title Annotation:||Comment; George W. Bush|
|Date:||Dec 1, 2003|
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