By Alan Reynolds
Thursday, April 12, 2007
A recent Gallup poll found that only 41 percent of respondents approved of Bush's handling of the economy, compared to 55 percent who disapproved. Such a question would make sense, of course, only if the United States were a centrally planned dictatorship. In a free society, the less the president handles the economy the better off we are.
Because polls reflect perception rather than reality, the suspicion arises that many people wrongly believe the U.S. economy is in bad shape because that is what they keep hearing on TV or reading in the newspapers. And because there is a presidential election looming, partisans are sure to exaggerate the economic performance of the Clinton years in order to stir up discontent with the present.
Politics being what it is (a spectator sport), partisans can't resist attributing economic outcomes to the White House, rather than to the efforts of millions of business managers, workers and investors responding to incentives. In this spirit, Bill Sammon, a frequent guest on Fox News, set up a provocative duel at examiner.com between White House spokesman Tony Fratto and Gene Sperling, former economic adviser to President Bill Clinton and current adviser to Hillary Rodham Clinton. As might be expected, both contestants were not entirely candid.
Fratto plausibly complained that the mainstream media have displayed a "double standard" by ignoring or denying visible economic progress under Bush while puffing-up the economic conditions during Clinton's presidency. "If you go back to this point in the Clinton expansion," Fratto said, "they would have loved to have seen the numbers that we have right now. On the unemployment rate, we're a full percentage point below where they were at the same point in the expansion -- 60 or 61 months in."
"That's a rather absurd claim," replied Sperling. "In terms of job creation, in terms of wage growth, in terms of business investment, in terms of poverty, there's absolutely no comparison." There is a comparison, though he may not want it to be made.
The article listed "dueling data points" from the Bush Camp and Clinton Camp. The Bush Camp said: "Real wages rose 1.8 percent over the 12 months through February. This is substantially faster than the average rate of wage growth in the late 1990s." How does the past 12 months relate to some unspecified years during the late 1990s? Would it not be more honest to compare several years at a similar stage of the expansion?
What years should we compare? It would be dishonest to include the 2001 recession in this duel, because Clinton's first term began two years after a recession had ended. Yet the Clinton Camp does just that by boasting that "under Clinton, the economy created 3.5 times more jobs after 74 months than it did over the same period of time under Bush."
The umpire calls a foul. A recession that began in March 2001 had nothing to do with Bush taking office the previous month, but it had a lot to do with job growth in 2001 and 2002. President Clinton took office two years after the previous recession ended in February 1991. The economy grew 3.2 percent in 1992.
The Bush Camp boasts that "since the first quarter of 2001, productivity growth has averaged 2.8 percent." Starting with early 2001 is still unfair, regardless of which camp does it. Cyclical weakness in employment growth from 2001 through mid-2003 resulted in more output relative to the few hours worked, otherwise known as increased productivity.
Were it not for the political spin, it would be more reasonable to compare the first year of recovery in 2002 with the first year of recovery in 1992. Fratto thus compared "this point in the Clinton expansion" to a period that began 60 months ago -- in early 2002. But such a comparable starting point in the Clinton expansion would actually have begun in late 1991, when Clinton was not in office.
In terms of equivalent starting points, it makes sense to compare 1993-1996 with 2003-2006 -- two cyclically similar periods of equal duration.
Growth of real gross domestic product (GDP) in those periods was identical, at 3.23 percent a year. That's a tie. Nearly all other measures favor the past four years over Clinton's first term. Unemployment was 5.3 percent from 2003 to 2006, but 6 percent from 1993 to 1996. Sperling mentioned business investment to avoid mentioning housing investment. Yet business fixed investment was 10.9 percent of GDP from 2003 to 2006, compared with 9.2 percent of GDP from 1993 to 1996.
When it comes to inflation, Bush faced a huge increase in worldwide oil prices, but Clinton did not. In the consumer price index that excludes energy prices, inflation averaged 2.1 percent in the past four years, down from 2.9 percent in 1993-96.
When calculating real incomes, however, nominal increases in wage and benefits are reduced by total inflation, including higher energy prices. This would seem to put the past four years at a big disadvantage, given the spike in energy prices. Yet it turns out that "wage growth" in the first Clinton term was nothing to brag about.
Even after including benefits, real compensation per hour fell by 0.5 percent in 1993, by 0.4 percent in 1994 and by another 0.3 percent in 1995. Real hourly wages and benefits increased by 1.2 percent a year from 2003 to 2006, but fell by 0.1 percent a year from 1993 to 1996.
The Clinton Camp should be as reluctant to mention poverty rates as it was foolish to mention wage growth. Yet its dueling data point dares to say, "During the Bush years, the number of Americans below the poverty line has increased by 5.37 million, while under Clinton the number fell by 7.68 million." That blames Bush for the 2001 recession, compares eight years with six and measures poverty in terms of change rather than levels. Despite such tricks, it still doesn't work.
The percentage of families below the poverty line was reduced from 12.3 percent in 1993 to 11 percent in 1996, which was progress of sorts. Yet fewer than 10 percent of families were poor from 2002 to 2005 (the latest available). Unless more poverty is better than less, this was another masochistic debating point.
The economy during the Clinton years became much stronger after 1997, when Al Gore or Netscape invented the Internet and the president signed a cut in the capital gains tax. Trying to use Clinton's first four years to denigrate the past four years is a foolhardy game. People who live in glass houses should be more careful when tossing around big, bad economics statistics.
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