October 30, 2006

KUFM / KGPR

T. M. Power

Conservative Politicians Claiming Credit for the Economy

George W. Bush regularly tries, so far unsuccessfully, to shift the public focus in the upcoming election away from the things that are most on people’s minds: The growing deadly quagmire in Iraq, the stench of corruption in the Republican Congress, and the nuclear threats posed by North Korea and Iran. Bush keeps trying to come back to one of the messages his handlers want him to keep hammering home: The economy.

Some might doubt that that would be a strong suit for Bush to draw on: Six years into his administration, job growth continues anemic with regular high profile examples of massive job loss in the highest paid of our industries, inequality and poverty remain high, the work hours of Americans families continue to stress both working parents and their kids, and economic insecurity seems to lurk everywhere: When the stock market begins to recover, the housing market takes a dive; consumer debt and sky rocketing medical costs hang like swords over families facing job tenures of uncertain duration. To many families, things have not been great.

But Bush wants us to look beyond our individual experience at the bigger picture: We are not in a recession and have not been in one during most of his reign. Like all responsible politicians, he wants to take credit for any good economic news and deny any responsibility for any bad economic news. So he points to the fact that the economy, in fits and stalls, has been expanding for most of his time in office. Tax cuts, he says, are what have caused that magical expansion.

Interestingly, the last recession began on his watch, but the decline lasted only eight months and then the economy began growing again. Bush wants us to focus on that expansion, not on the contraction that preceded it.

But the economy always recovers from recessions. In the 20^th century we went through almost two dozen such business cycles and came out of each and every one. Of course Bush could point to fellow Republican Herbert Hoover to argue that it is possible for irrational economic policy to extend an economic collapse for years, but that was the startling exception, not the rule.

Actually that is the strange thing about listening to conservative politicians talking about the economy. They often sound like 19^th century Marxists, talking as if the natural condition of the economy is to collapse and stay in permanent depression. Apparently it is only ingenious federal or local government policies that can keep the economy expanding and out of depression. Somehow that does not sound very conservative. Where did the theme of minimal government involvement in the economy go?

Most contemporary economists believe that the economy tends, on its own, to expand. Imbalances can develop, famously from the “irrational exuberances” or “animal passions” of economic actors as an economic boom begins feeding on itself. But recessions, like all market fluctuations, tend to be self-correcting. Recently it does not appear that the political ideology of the President mattered very much. The longest expansion in our national history came during the Clinton years. The longest expansion previous to that came during the Kennedy and Johnson years. Bringing up third place in the economic expansion sweepstakes were Ronald Reagan’s years. Of course Richard Nixon and Jimmy Carter saw no sustained expansions at all. Apparently, we collectively are all engaged in a complex game of craps when it comes to the national economy.

This not to say that federal economic policy does not matter. Badly designed public policy can certainly burden the economy. Bush’s claims about the efficacy of his tax cuts in stimulating the economy are focused on the burden he and his fellow conservatives saw taxes placing on the economy. Although this nation of ours with its 50 states, over 300 metropolitan areas, and thousands of other local governments with taxing power provides a living laboratory to study the impact of taxes on economic activity and prosperity, economists have yet to find reliable evidence that differences in taxes, and the spending that those taxes fund, impact the economy one way or another.

That, of course, leaves people free to take whatever position their ideology draws them towards. The conservative can emphasize the burden of taxes, especially if the taxes squander resources that otherwise would have been used productively in the private sector. Liberals, on the other hand, can emphasize the obvious contribution that tax-funded public services make to the economy: education in boosting productivity, roads and highways in reducing transportation costs, the justice system in protecting people and property and enforcing contracts, public health and safety measures that can have dramatic impacts on our well being.

The political question about taxes is not whether they directly stimulate or retard economic growth. Rather the question is whether those taxes are being spent on important public needs that contribute to our individual and collective well being and whether or not there is a growing backlog of such important public needs that we are failing to meet because we have been so focused on increasing private disposable income. That is where the rubber of taxes meets the road of public policy and where we all have to make some important value judgments.