Thursday, October 09, 2003

Money Talk: Republicans are cheering about the economy growing. Democrats are accusing this administration of economic incompetence. Polls indicate that people aren't confident in Bush's handling of the economy. I guess it all depends on your point of view.

The economy, for all intents and purposes, is improving -- slowly. Productivity, which is how the economy is measured, has gone up. The Dow Jones Industrial Average is up for the year. The number of jobs being created, however, is very low. But as the economy improves, economists expect the number of jobs being created to go up as well.

So that looks good for Bush, right? Not during an election year.

For the 2004 presidential elections, Democrats won't need to concede that the economy is improving. They will simply compare the "Bush economy" to the "Clinton economy". While things will probably be going well in 2004, times won't be as good as during the tech boom of the 1990s.

Of course calling it the "Bush" or "Clinton" economy is a misnomer. The president has no real control of the economy. If he did, we would never face a recession again. He can only indirectly influence the economy through policy. This is a global recession. The truth is Clinton just happened to be in office when the tech boom gave us unprecedented economic growth. Then the bubble burst, Clinton left office, and Bush was stuck with the after effects. Neither president should get credit nor blame.

But politicians know that's not what voters want to hear. That's why Arnold Schwarzenegger has promised to bring jobs back to California. If the state's economy picks up and jobs are created before the end of Arnold's first term in 2006, the only person you could conceivably credit would be Gray Davis. Truth is, California's economy likely will turn around, but mostly because the national economy is improving overall.

So the Democrats will make Bush sound bad by talking about deficits. While the word "deficit" means the government spent more money than it collected in a single year, the term resonates in the voter's mind as meaning "economic trouble".

Democrats charge that Bush's tax cuts, which totaled $81-billion this year, created a $401-billion deficit for 2003. But looking at the numbers, you can see that this makes no sense. The deficits were caused by the recession. The only way to get rid of deficits and create surpluses is through a growing economy, which increases tax revenue. Also, government spending needs to be cut. But with a war being fought against terrorism, that's going to be hard to do.

Truth is, occasional deficits are not bad for the economy. The government is borrowing money from the American people who invest in bonds. Government spending drives up the economy, and people end up with more money from their investments. But that's tough to explain in a sound bite.

Bush's policies are debatable. Should Bush have cut those taxes? The rich benefit the most, but the rich also pay most of the taxes. The richest 1 percent (who make over $300,000 or $500,000 a year depending on who's talking) pay 37.4 percent of the tax revenue collected by the IRS. You can't have meaningful tax cuts without some going to the rich.

I don't think there's anything particularly wrong with tax cuts. Personally, I enjoyed my $300 check. But Bush is promoting tax cuts no matter what the economy is doing. We've got budget surpluses? He says that we must give back the people their money. We've got budget deficits? Then he says that we must cut taxes to spur the economy. I don't think he could find a reason not to cut taxes.

I encourage robust debate over Bush's economic policies. But, unfortunately, I expect political rhetoric about "tax cuts for the rich" and "class warfare". Meanwhile, I'll be shopping with my $300.

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