Thu, Dec 09, 2004 - Page 9 News List

Bush's 'drain America first' policy leaves US more vulnerable

Although facts do not always speak for themselves, it does not take much to work out where the US economy is today, where it's heading, and who's to blame

By Joseph Stiglitz

Last month's US election saw the two sides throw facts, figures, interpretations and counter-interpretations at the hapless electorate. It is an old trick: throw enough mud and some of it will stick. Confuse the voters enough, and eventually more will be likely to stay with the horse they know.

Most of the media not controlled by the right wing tried to play the role of honest broker, giving equal weight to each interpretation. If one side said the sky was blue and the other said it was orange, journalists would work hard, for the sake of appearing balanced, to find some academic, even a color blind one, willing to say that the sky was indeed orange.

But is it all just a matter of opinion? Are all interpretations equally valid?

I can answer that question only in my own area of expertise, economics. With the election over, the debate itself has much to teach us about economics, economic policy and media spin.

President George W. Bush cited seeming huge job growth in the last 13 months, claiming that the US labor market had turned the corner. Is this true?

The claimed increase in jobs has barely kept up with growth in the labor force. Although job growth in October was robust at last, in September there were only 96,000 new jobs, 50,000 short of what was needed.

But at this point in the business cycle, the US normally should be creating jobs at a rapid pace to make up for job losses earlier in the cycle -- as it did in 1993 to 1995. In fact, this is the worst job recovery after any of the US' nine postwar recessions.

No spin can alter this fact. The US has not turned the corner. On the contrary, most forecasters expect next year to be weaker than this year, with growth insufficient to eliminate the "job deficit" -- the gap between the number of jobs needed during the past four years to provide employment for new labor-market entrants and the actual number of jobs created.

But don't blame Bush. The economy was in a downturn when he took office in 2001, and Sept. 11 and Iraq made matters worse.

True, the economy was slowing when Bush took office, but he also inherited an enormous fiscal surplus, amounting to 2 percent of GDP, which he transformed into a yawning deficit, equaling 4.5 percent of GDP. Normally, a fiscal turnaround of this magnitude would provide massive stimulus. The economy should be going gangbusters. Inflation -- not jobs -- should be the main worry.

This has not happened because Bush pushed a tax cut that was not designed to stimulate the economy, but to benefit the rich. A tax cut to low-income individuals or increased unemployment benefits would have provided far more stimulus to consumption, just as a temporary investment tax credit would have boosted capital spending far more than reducing taxes on dividends did. In fact, fixed business investment as a share of GDP is some 2 percent lower today than four years ago.

True, the terrorist attacks in the US and the Iraq war hit the economy hard. But it was evident even before Sept. 11 that Bush's medicine wasn't working. In his annual economic report in February 2002, and again in February last year and February this year, Bush confidently -- and wrongly -- predicted that his tax cut would create millions of jobs.

Finally, Bush cannot be given a pass on the Iraq war and its economic consequences. Critics warned that the war would cause instability in Iraq and the Middle East, and that this would lead to high oil prices. Bush ignored these warnings. But the critics were right.

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