Like Father, Like Son
Lester C. Thurow is a professor of economics and management at the Massachusetts Institute of Technology and has written Building Wealth: New Rules for Individuals, Companies and Countries in a Knowledge-Based Economy.
Cambridge -- George Bush (US president No. 43) seems to be following in the political and economic footsteps of George Bush (No. 41). Bush 41 and 43 are both foreign policy heroes with overwhelming approval a year and a half before they want to be reelected. But Bush 41 does not get reelected because the economy is crumbling under him, and his foreign policy successes in the Persian Gulf War quickly evaporate without much positive left to show the American electorate by November 1992. Saddam Hussein, after all, is still running Iraq. Bush 41 ends up being defeated by a previously unknown Arkansas governor.
Bush 43's foreign policy successes similarly are now evaporating very quickly. The American public was told that most Iraqis would welcome the American armed forces as liberators. It isn't turning out that way. Because they aren't being welcomed by anyone, the almost daily killing of American soldiers in Iraq is seen not as the work of a few diehard Saddam Hussein supporters but as an expression of the general dislike of Americans. From the US perspective, the Iraqis were liberated from a brutal dictator that killed them by the tens of thousands, and yet they are ungrateful.
As a result, there is no reason for the American public to put up with military deaths. There are no weapons of mass destruction, and there are no links to Osama bin Laden. In the end there was no threat to the US. If Iraqis aren't grateful for being liberated, there is no reason to have gone there in the first place, and a successful war doesn't end up being seen as a long-term foreign policy success.
A little more than a year before Bush 43 wants to be reelected, the economy is in much worse shape than it was under Bush 41. Looking at GDP growth rates, the two presidents appear similar. In the year of what was supposed to have been his reelection, 1992, the economy grew 3 percent under Bush 41. This is close to the current consensus forecast for 2004 under Bush 43.
But there is a big difference if one looks at employment. Bush 41 could claim to have created 3.6 million jobs in his four years in office. Thus far Bush 43 has lost 2.4 million jobs and is currently losing jobs at the rate of 400,000 every three months. Bush 43 is very likely to end up being the only American president since Herbert Hoover to preside over an American economy with fewer jobs when he runs for reelection than when he was first elected.
A smaller percentage of American teenagers has summer jobs in 2003 than at any time in recorded history (going back to 1948). "Help wanted" advertisements are at a 40-year low. The data do not exist, but I would be willing to bet a lot of money that among May and June's university graduates, fewer had a job nailed down at the time of graduation than at any time since the Great Depression. Almost a million information technology workers are unemployed.
Jobs go down while the GDP is going up if productivity is growing faster than output. In 2002, productivity grew twice as fast as output, and something similar seems to be happening in 2003.
For Bush 43 unemployment is now about where it was under Bush 41 in late 1992, between 6 and 7 percent. But employment has fallen faster than unemployment has risen since many of the unemployed do not seem to be meeting the requirement for being officially unemployed. Telling a Labor Department census taker than one is unemployed does not make one unemployed in America. A worker has to be involved in an active job search. And many seem to have quit searching. But in recent months even the official unemployment numbers have started to rise rapidly. As a result, Bush 43 is apt to end up with an unemployment rate in November 2004 that is far above that of Bush 41 in November 1992.
It is important to remember that jobs are the most important economic variable in the average person's life. Most Americans don't know and don't care if the GDP is going up or down. What is my probability of being fired? How easy is it to find employment? These are the most important, and often only, economic questions the average person asks. And the answer to these questions is easy. It is now harder to find a job in America than at any time since the Great Depression. Your probability of being fired is higher than it has been at any time since the Great Depression.
Since Chairman Alan Greenspan and his Federal Reserve Board have done everything they can to help ensure the president a healthy 2004 economy, Bush 43 has to find remedies in fiscal policies. He needs fiscal stimulus now. But he can only have a big short-term fiscal stimulus if he retracts some of his long-term tax cuts and refocuses on large and quick short-term tax cuts. Whatever one thinks about reducing personal income taxes on dividends, for example, this tax cut does nothing to stimulate short-run demand.
But to refocus his tax cuts Bush 43 would have to admit error and say he asked for the wrong set of tax cuts. American presidents just don't do that. They are like Moses. Everything they say and do is chiseled in stone and cannot be changed.
And, as a result, Bush 43 finds himself between an economic rock and a political hard place.