Kerry's Wrong on the Economy, Too

Just as he has in stump speeches all year, John Kerry used Wednesday’s final presidential debate to paint a wildly inaccurate portrait of U.S. economic performance under President Bush. “The American middle-class family isn’t making it right now,” he claimed.

The economy, as Kerry falsely depicts it, is in the worst shape it’s been in many, many years. Bush, he claims, has the worst jobs record since Herbert Hoover and the worst growth record since World War II.

As an antidote Kerry promises higher taxes on the “rich” (i.e. the small business owners who create jobs) and more big government programs.

But the hard facts refute Kerry’s doom-and-gloom demagoguery.

In fact, considering the external shocks to our economy over the past several years–9/11, the stock market collapse, the recession, the corporate scandals–it is remarkable it is growing much at all, let alone at the fastest pace in the industrialized world.

Strong Growth

To be sure, Bush has made some damaging economic and fiscal decisions. These include the steel trade tariffs and a vast expansion in government spending that has caused debt and deficits to soar. For these transgressions, Bush deserves demerits. But Bush has gotten many policies right, not the least of which has been tax policy. The acceleration of growth and productivity and the rebound in the stock market correspond directly with the Bush capital gains and dividend tax cuts of May 2003.

So here is a quick summary of what is right about the U.S. economy in 2004:

1. The misery index (inflation plus unemployment rate) is about the same today as it was when Clinton ran for reelection in 1996 (8.4 versus 8.5) as Democrats proclaimed boundless prosperity. The misery index has not been this low in a reelection year for any of Bush’s other predecessors back through LBJ.

2. The unemployment rate of 5.4% today is among the lowest of all our industrial competitors and compares favorably with a jobless rate of 8% on average in Europe. If we had an unemployment rate of 8%, it would mean 3 million more unemployed workers, which would be equivalent to putting every worker in the state of Colorado out of work.

3. Interest rates are still very low in historical terms–and that is despite high budget deficits. (Perhaps, just perhaps, the one does not cause the other.)

4. Our growth rate of 5.1% since the 2003 tax cuts were enacted is substantially higher than that of our competitors, and the standard projection of 4.5% growth for next year is almost twice the rate of growth that Europe is expected to achieve.

5. The stock market has risen at a brisk pace since the May 2003 tax cuts on capital gains, dividends, and income. Even though the 2004 stock market performance has been only so-so, the stock market has increased by more than 20% since the tax cut was signed into law.

6. Productivity rates have grown at a healthy pace of 4% since the tax cut was enacted.

7. Social statistics have also generally improved. Two are worth mentioning because they impact the economy. The violent crime rate has hit its lowest level in 40 years. The rate of births to unwedded mothers has finally started to decline after a 30-year surge in the wake of the Great Society welfare state.

8. Financial wealth is way up for average middle-income families, according to the U.S. Federal Reserve Board. Housing values have exploded since 2000.

Homeownership has risen to its highest levels ever and so has stock ownership. The boom in the stock market and housing market has helped improve mightily the balance sheet of the average household.

Bush’s major failing has been in converting the budget surpluses of the late 1990s into staggering levels of deficit spending. Bush inherited a $200 billion federal budget surplus. Now we have a $400 billion deficit. At most, 25% of that debt surge is a result of tax cuts. Most of the debt explosion results from a spending bonanza on both ends of Pennsylvania Avenue.

After four years, it is worth asking how Bush’s overall economic performance ranks among other recent Presidents. The chart on this page shows Bush has a record comparable to the two Presidents re-elected in recent times: Bill Clinton (whose good economic record was really the work of a Republican Congress, see coverbox story) and Ronald Reagan. His record is far superior to the one-termers: Ford, Carter, and Bush Sr.

While Bush does not lead in every category, there’s a lot here for him to be proud of. On the misery index, only Clinton had a comparable record among his six predecessors. On gas prices, Bush is not nearly as vulnerable as he might seem to the casual observer. Prices are about the same today as they were in 1984 when Reagan was re-elected. Mortgage rates are lower and homeownership is higher than in any of the other re-election years. Overall economic growth is running at a faster rate than in 1996 when Clinton was re-elected.

The most significant number of all is the federal tax burden, the lowest it has been since 1955. Bush’s tax policy is a success. The U.S. economy is now well into its recovery and is the engine driving global economic growth.

Not surprisingly, the media and John Kerry are hiding this good news. Republicans should trumpet it.

Bush Compares Favorably With Predecessors
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Bush I
Bush II
Inflation 5.8% 13.5% 4.3% 3.0% 3.0% 3.1%
Unemployment 7.7% 7.1% 7.5% 7.5% 5.4% 5.4%
Misery Index 13.5% 20.6% 11.8% 10.5% 8.4% 8.5%
Real Gas Price $1.65 $2.48 $1.94 $1.40 $1.40 $1.98
Mortgage Rates 8.9% 13.7% 13.9% 8.4% 7.8% 6.3%
Homeownership 64.6% 65.5% 64.6% 64.0% 65.1% 68.6%
Violent Crime Rate 467.8 596.6 539.2 757.5 636.6 474.8
Read GDP Growth 5.3% -0.2% 7.2% 3.3% 3.7% 4.4%
Real Stock Market Growth 9.4% 6.8% -3.1% -2.4% 11.0% 0.3%
Federal Tax Burden 19.4% 20.9% 19.4% 19.6% 21.3% 16.5%