Let's look again at the chart deftly deployed by Paul Krugman in the New York Times on March 9 to blast the Bush economic team for missing its employment forecasts.
(Source: The New York Times)
No doubt, it's a screw-up. But just how did they manage it? Was Economic Team Bush getting its job targets, as many suspect, from Karl Rove? Did the professionals turn prostitute, as Krugman charges in no uncertain words?
So far as we can tell from the numbers, it's the Scotch Verdict: Not Proven. We can make this clear immediately. We need only extend the historical tail of the Krugman chart back in time, say to 1991 -- as in the chart below. Our new chart shows that the Bush forecast did not imply unusually rapid job growth for an economic expansion. To the contrary. The growth track in the first set of Bush forecasts, published in 2002, is a bit lower than the actual rate of job growth under Clinton. And it is considerably lower (though probably for good reason) than the average growth rate of payroll jobs in non-recession years since 1952.
(Source: Economagic.com and my calculations.)
And so, the failure of the jobs forecast did not occur because economic recovery forecasts were abnormal. They were not. So far as we can tell, it did not occur because someone cooked the books, under instruction or otherwise. No. The true reason is worse than that.
Bush's jobs forecast failed because a jobs recovery never began at all.
Look at monthly payrolls compared to a year before. The period through January 2004 is by far the longest episode of steadily falling payroll employment since World War II: 32 months, with the end still uncertain. The next worst was 26 months, roughly from the end of World War II to the 1947 start of the Cold War. Apart from these two periods, the average period of job losses on this basis (over 11 episodes) is just one year. And as Lee Price of the Economic Policy Institute points out, since 1939 full recovery of all jobs lost in recession has never taken more than 35 months.
Something's happening here. Four years after the tech implosion, two and a half years after 9/11, one year after the start of the Iraq war -- we are still not creating new jobs in serious or sufficient number.
And let's therefore ask, why not?
Is it because, as many have said, Bush's tax cuts are primarily for the rich, who do not spend their tax-cut gains? This argument has practical virtue. It makes a case for repeal of the worst Bush tax cuts, which is useful: The worst Bush cuts should be repealed. But the facts don't support this particular argument as to why.
Bush did cut taxes on the rich -- relentlessly, recklessly, wrongly. But most of those tax cuts have yet to be phased in. They are part of the revenue losses still to come in the decades ahead. They aren't the big thing behind deficits we're seeing now. Therefore, reconfiguring the tax cuts already in place to benefit only the middle class and poor would have helped some -- but not that much.
Moreover, in 2001 and 2003, taxes were cut for the middle class. Those cuts were the sweetener for the enormous future giveaways to the rich. They happened first through cash rebates and then through an expanded child credit. Taken entirely alone, these cuts weren't bad policy. Without them -- and without the short-term deficits they caused -- the recession and job losses would have been much worse. And in 2003 the middle-class tax cuts did deliver a burst of spending, leading to an 8 percent economic growth rate in the third quarter.
But it didn't lead to new jobs.
And then too: In 2001 and 2003 Bush took us to war. That entailed large increases in public spending, boosting demand and economic growth. The macro effects of the Iraq war were roughly sufficient to double the growth rate in the second quarter of 2003, getting (as many thought) recovery underway.
But that didn't lead to new jobs either.
Some people appear to believe that the root cause lies in the person of the president himself: Clinton good, Bush bad. Replace Bush, economy better. But this is economics for children.
Truth: The conditions for this disaster were set by the tech debacle, by the enormous and unsustainable accumulation of household debt, by the decline in our trade competitiveness and trade balance (under the "high dollar policy"), and by the unsustainability of regressive and opportunistic state and local tax structures. Not since the 1920s had growth been so dependent on speculative investment and mortgage finance. Not in history has our trade position been so weak.
Most economists missed the significance of this. Back in 1991, most of them just assumed that we were facing an ordinary recession and that an ordinary recovery would follow. Those who felt that way repeatedly made forecasts no less wrong than those adopted by Bush's Council of Economic Advisers. And that is why the official forecasts -- apart from their natural obscurity -- attracted little attention at the time.
But a few did not go along. It was possible to figure things out. The British economist Wynne Godley has been writing strategic analyses for years on the Web site of the Levy Institute.
What's the difference? In general terms, it is that Godley is not engaged in the facile maneuver of the forecasting trade, which is mechanically to predict an "average recovery" starting some time in the near future. Rather, he presents the implications of a very specific theory of financial relations and behavior. And this approach, because it could pick up the unique financial signature of the late 1990s, got the essentials of our problem right.
(Godley was not alone, either -- though very few cared to listen. I lectured on Godley's thesis in the summer of 2001 -- though in China, where no one could hear.)
The failure of Bush and his economists does not lie in faking a prediction. It lies in failing to understand what the underlying problems are. It lies in failing to propose policies suitable to their cure. It lies in the wanton pursuit of a strategy of tax cuts for the long term aimed at the political, not economic, objective of exempting plutocrats and their fortunes from federal tax. In lies in the rush into military adventures -- from missile defense to Iraq -- that achieve little, waste vast resources and make a proper jobs-and-security policy even more difficult down the road. Most of all, it lies in failing to care, one way or another, what might happen.
That we-don't-care attitude showed up pretty clearly when Bush nominated his "manufacturing czar" -- a steel-building man who promptly and sensibly withdrew. The nominee, a Nebraskan named Tony Raimondo, got a bad rap, momentarily, for being an outsourcer. It turns out he isn't: His new factory in China is for the Chinese market, which is, of course, booming. And one can only admire the man's frankness about the effect of Bush's Iraq adventure on his domestic business: "They sure as hell don't want to buy a building if there's a war."
It turns out that the job of "manufacturing czar" isn't new: An existing post in the Commerce Department just got relabeled. It showed up again on March 11 when Commerce Secretary Don Evans said the administration had "57 ... objectives in its plan to reinvigorate U.S. manufacturing." Fifty-seven objectives? Now there's a number for you! Is there a list? Or does Evans have ketchup, or Theresa Heinz Kerry, on his mind for some reason?
And will the Democrats under the leadership of John Kerry do better? Let's hope so. But let's recognize that the challenge will be enormous.
To begin with, there is a good chance that things will get worse, not better, after the election. But even if a normal jobs recovery, at the normal growth rate, somehow got underway, would that be good enough? I don't think so. We would be starting then from a deep hole and "normal" growth would leave millions unemployed and underemployed for many years.
We should aim for something better: A strong recovery brought on by good policy. Whether we can get it will depend on what President Kerry eventually does.
Right now, the test should not be whether enlightened policy emerges in the heat of the campaign. It probably won't. But Franklin D. Roosevelt campaigned against deficits in 1932 and embraced them in 1933 -- and thank God for that flip-flop. If John Kerry wants to campaign on halving the deficit in four years, I won't complain.
But when the policy is tried, and nothing happens, I ask only that he be ready to change, and quickly, to something much more substantial.
Kerry's right move now is to make a broad and forceful commitment to the return of good jobs at decent wages -- to the return of full employment. It lies in stating a willingness to do, in good time, whatever may prove necessary to achieve that goal. It lies in helping to prepare the public for big policy changes when it becomes necessary to have them.
The most important thing is to keep an open mind.
James K. Galbraith
James K. Galbraith organized a conference on the “Crisis in the Eurozone” at the University of Texas at Austin on November 3-4. Papers and presentations can be found at http://tinyurl.com/3kut4k5, along with a video archive of the full meeting. MORE FROM James K. Galbraith
COMPLETELY AD FREE,
FOR THE NEXT HOUR
Read Now, Pay Later - no upfront
registration for 1-Hour Access
7-Day Access and Monthly
Subscriptions also available
No tracking or personal data collection
beyond name and email address