Skip to comments.Why the American Public Rejects the Bush Economic "Plan" (Part I)
Posted on 02/16/2006 11:38:31 AM PST by Willie Green
For education and discussion only. Not for commercial use.
There was bad news for the White House and the Republican Party in the Associated Press-Ipsos poll on public attitudes conducted Feb. 6-8. By a 61-35 percent margin, respondents said that the country was on the "wrong track," and by 57-40 percent disapproved of the way President George W. Bush is running the country. Those surveyed also disapproved by a margin of 61-35 of how the Republican-controlled Congress was handling its duties, with a plurality of 47 percent saying things would be better if the Democrats were in charge. With Congressional elections only nine months away, the public could make that change if their dim view of the GOP persists.
Perhaps most perplexing to Republican leaders is that by 58-40 percent, those polled disapproved of how the Bush administration is handling the economy. A Gallup Poll conducted during this same time period also found a 56-40 percent disapproval score for economic policy.
The White House trumpets low unemployment (4.7 percent), rising real per capita after-tax income (up 7.9 percent since January 2001), booming housing construction, and low inflation. According to the 2006 Economic Report of the President, released Feb. 13, the future never looked brighter. How can people not be happy? Perhaps because the selective reciting of statistics in Washington does not pay the bills in Peoria.
Part of the problem with Bush administration stats is that they measure from the bottom of the 2001 recession rather than from the state of the economy before the recession. The recovery from the recession has actually been very slow, even though the recession was shallow. This is because the recession has masked some very negative structural changes in the economy which counter-cyclical policy tax cuts, increases in government spending, and money creation by the Federal Reserve is not designed to remedy.
Only 2,093,000 total jobs were added over the five years (2000-2004), a gain of only 1.58%, the weakest five-year increase on record. Only half of these net jobs were in the private sector, that part of the economy supposedly subject to the most stimulus in the Bush program (tax cuts and low interest rates). The other half came from increased government employment, not exactly where a conservative Republican administration would want it. Though the Labor Department hailed the creation of 193,000 payroll jobs in January, this was 40,000 less than most private sector economists had predicted and an indication that the economy is slowing.
Manufacturing has lost 2.9 million jobs, with losses slightly worse in durable than non-durable goods. There have been job losses in every major industry. A housing boom should boost durable goods production, except that too many of these items are now imported from overseas. And much of the construction work is done by illegal immigrants, who will work for much less than skilled American craftsmen.
There has also been a lost of 209,000 private-sector white-collar supervisory positions in line with the loss of blue collar workers. These well-paying jobs have been replaced by lower-paying service sector jobs in health care, social work, education, and restaurants. Unemployment is low because people have to work to eat, so they take whatever jobs are available. Even so, since Labor Dept. stats do not count people who have been out of work for more than six months, the kind of unemployment that affects how people and families actually live is still high. The Labor Department reports there are NOW over 5 million of these "discouraged workers" no longer counted as being in the labor force, but who still want a job. The editors of The Economist magazine of London, whose views on policy do not differ fundamentally from Bush's, have calculated that real unemployment in the United States is closer to 8 percent. Adults are not participating in the job market at 2000 levels (67.4 percent then versus 65.5 percent now), and total hours worked in 2005 were still less than in 2000. Additionally, the stagnation of wage and salary levels for most Americans does not indicate a tight labor market.
Another disturbing fact, which undoubtedly underlies the negative Bush poll numbers, is that households drew down their net savings last year. This has not happened since the Depression year of 1933 and indicates that the American people are trying to maintain their living standards without adequate income. The Bush approach of trying to boost "after tax income" by cutting taxes, rather than raising base income by creating better jobs, is a losing proposition.
In presenting the FY 2007 Budget to the Senate Finance Committee Feb. 7, Treasury Secretary John Snow argued for making the tax cuts enacted during President Bush's first term permanent, despite an estimated budget deficit for 2007 of $354.2 billion. Though he claimed that the economic recovery is strong and deep, he still said, "Tax increases carry an enormous risk of economic damage." This statement implies that the economy is not on a self-sustaining upward course, but is still dependent on heavy fiscal stimulus from the government.
Back when I was teaching economics at the University of Tennessee, the textbook used for the introductory sequence was the top-selling work of Campbell R. McConnell. McConnell was a follower of Abba Lerner, who had taken the Depression era doctrines of John Maynard Keynes to the extreme. Whereas Keynes believed in running deficits during a downturn to stimulate the economy, he also favored paying down debts when times were good, thus balancing accounts over the course of the business cycle. Lerner and McConnell believed deficits should be run all the time, without concern for any mounting debts. Indeed, they feared the accumulation of personal savings. They called their theory "functional finance," the function being to continually stimulate an economy they did not believe could ever run reliably on its own.
This outlook was popular among liberal-left academics (like those who ran my department and made the textbook decisions) because it fit their notion that capitalism was an inherently flawed system whose internal contradictions required government management to overcome. Their view now seems to have been adopted by the Bush administration.
Putative conservatives cannot acknowledge the liberal lineage of their ideas, so they invented the new school of "supply side" economics. But the only real difference is that while liberals favor creating deficits by boosting government spending on programs for their constituents, supply-siders want to create deficits by cutting taxes for their constituents. But it is the same political game one based on a dismal view of the underlying economy.
Snow fell back on supply-side rhetoric, claiming "lower tax rates are good for the economy and a growing economy is good for Treasury receipts. Indeed, our rate of economic growth led to record levels of Treasury receipts in 2005." But a closer look at the composition of tax receipts disproves his claim. According to the administration's Office of Management and Budget, individual income tax receipts for 2005 were $77.3 billion less than in 2000. The increase in overall tax receipts from individuals came mainly from social security taxes, which were not cut. These fall mainly on middle and working class families, whereas income tax cuts help those in the upper income levels. Individual income tax collection is not expected to reach the 2000 level again until 2007.
Corporation income tax receipts have gone up, indicating where in the economy the real money is being made. Indeed, the Bush administration seems to think mainly in terms of how the corporate sector is doing. The new Economic Report, for example, downplays the negative household savings rate, arguing, "Personal saving is only one part of national saving. The personal saving rate does not include corporate saving in the form of retained earnings; but corporate saving adds to the wealth of corporate shareholders and supplies funds for investment."
Snow himself acknowledged the flaw in his supply-side reasoning (inadvertently) when he told Senators, "In 2011 we will again reach, as a percentage of GDP, the levels we've seen over the average of the last 40 years." Thus, it will not be until three years after Bush leaves office that fiscal behavior will get back to normal. And even then, Snow defines downward what is considered normal.
OMB projections for 2011 have tax receipts at 17.9 percent of GDP. Forty years ago was 1966. The average share of GDP collected in Federal taxes from 1966 to 2001 the 36 years before the Bush tax cuts went into effect was 18.3 percent. Almost all the cases where the tax share was significantly lower were during recessions, when tax receipts declined due to reduced economic activity and high unemployment. One suspects that Snow wanted to go back 40 years so as to be able to average in the period of "malaise" during 1973-1979, when the tax ratio averaged 17.9 percent. Tax receipts naturally jump when times are good and people are making money. The tax share of GDP averaged 18.5 percent during the vibrant 20 years from Presidents Reagan to Clinton. But during the 2002-2005 period, tax receipts as a share of GDP have averaged only 17.1 percent. This fact reflects the extreme nature of the Bush tax cuts, and the weakening tax base.
Government spending during this period has not been historically high as a percentage of GDP despite the Iraq and Afghan wars. Indeed, it has run slightly less than the average of the 1990s 19.6 percent versus 20.7 percent during 1990-2000. What has caused the budget deficits has been the drop in tax revenues. Thus, in the Bush plan, budget deficits will continue out to 2011, and beyond. This is another source of dissavings in the economy, as budget deficits destroy capital, decrease investment, and prevent Americans from reaching their full potential as producers of wealth. The winners are those rival economies overseas where people do save, invest, and produce to wipe out American industries in cutthroat competition.
(Part II will follow next week.)
Don't you really mean that home mortgages are at an all time high? People with mortgages don't own their homes.
If prosperity in this country were anywhere near as "hollow" as Buchanan suggests it is, there would be no career prospects for some inside-the-Beltway snot who has never had a real job in his life. When I meet Pat Buchanan at a truck stop somewhere in the Midwest and learn that he's working as an over-the-road trucker for 43 cents per mile, then I'll concede that maybe he's right about this "hollow prosperity" nonsense.
Mostly the same silly gaggle of naysayers squawking because Pat Buchanan wrote the article. They always chant the same mantra, no matter what the topic is.
That's because he always chants the same mantra, no matter what the news of the day is. I've debunked many of his claims enough times that I probably do sound repetitive.
Back in the 1990s he was complaining that high-tech "service" jobs weren't as good as the manufacturing jobs we had 50 years ago -- and now he's complaining that the loss of these jobs is an ominous sign for this country. When he complains about the loss of jobs that he never thought were worth a damn in the first place, he really comes across as a pathological malcontent.
It could also be said that few people hold title to or own equity in homes without mortgages.
The number of high wage jobs has risen, dramatically.
Did you read the article. Are those govt. jobs the high wage jobs you refer to?
Well, understand that Bush is a Moderate, not a Conservative. He only looks like a Conservative when compared to the Democratic Party, which is so far Left that in the last election, the US Communist Party chose to support the Democratic candidate in unusual break from it's tradition of fielding it's own candidate.
Consider how the Dem's committ hate thought and hate speech routinely towards this Moderate, even Liberal in some areas, President.
Says a lot about the Dem's, nothing good btw.
"By a 61-35 percent margin"
Less then 15% of the people control 85% of the money.
I'll listen to them. A man once noted that Wall Street was a place where people in Rolls Royces we told how to invest by people that drove VW's.
I don't spend any time wondering how the masses handle their money since I have seen too many reports the 70% of the people have no idea how to handle money.
Hey William R.! Do you remember 9/11?? $7 trillion to $8 trillion lost???
You didn't have any pointed comments.
So the lender gets to keep any increase in the value of the property? Can the people who pay the mortgage borrow against the equity? I think that would be a difficult thing to do if you didn't own the home. The average American household has 57% equity in their home. Are you saying that this wealth doesn't belong to them?
Given the title itself and who posted it, did you really need a barf alert?
I am a software engineer with over 30 years experience. I have kept current in software and electrical engineering. I am currently paid at 75% of what I was merely three years ago. My family is drawing from savings every month just to live. Don't tell either Willie or myself that we don't know what this is all about. The misguided economic policies of this administration are indeed impacting the earning capabilities of well educated people.
Don't feed me that line about finding a job that makes better use of my skills. I am an engineer with science, math, and electronics training and experience. These jobs are just plain disappearing.
I am not a banker or a real estate agent in my brain. There are NO appropriate uses of my training, skills, and cranial abilities except engineering. To suggest that we retrain is like telling Einstein that he should give up math and sell shoes.
Unless, of course, you are an engineer.
Can you knock down a wall and add rooms without the bank's or the town's permission? Could you make the home smaller if you thought the heating bills were too high?
The average American household has 57% equity in their home. Are you saying that this wealth doesn't belong to them?
Have a major sickness in the family that causes the loss of the house due to forclosure. See what amount of that equity you get.
Straight out of the Kerry/Edwards talking points.
So then it's crap. Gotcha.
OMG They killed kenny...
worst economy since hoover....
did I miss anything?
No, I think you pretty much covered it all,
so you can go back to watching Oprah. Thanks!
Oprah's still on TV?
I had no idea....
One of these days I'll get around to reading it....
It 'is' on my list....
Oh brother .. here they go with their fake polls again.
This is getting tiresome. We know they over-sample democrats so they can get the results they want.
For months they said Bush was at 39% - but Rasmussen had Bush at 48% - that's a big difference. The difference was oversampling of democrats. The democrats are liars.