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Wednesday, December 21, 2005

Who Gets Credit or Blame for the Economy?

Robert Samuelson makes the point that presidents get both too much credit and too much blame for the economy, a point I'd have to agree with. He then asks a question Krugman has also addressed, why doesn't the White House get more credit for the strong economic numbers in recent months? And like Krugman, he believes that growing worker anxiety about the future is a primary cause. He also has considerable doubt about recent White House attempts to take credit for the recovery by attributing it to the dividend tax cut:

Presidential Prosperity Games, by Robert J. Samuelson, Washington Post: ...We Americans play the simplistic game of personalizing the economy's success or failure. The president is a hero or a bum. He creates or destroys prosperity. This, of course, is make-believe. ... Still, the game suits Republicans and Democrats, the press and the public. We constantly replay it, no matter how much ignorance and misinformation it generates. In the latest version, the White House wants you to believe that the economy's swell and that George Bush is responsible.

The pitch is half true. The economy is strong, but Bush isn't the cause... The White House's bubbly appraisal isn't just fluff. ... The trouble (for the White House, at least) is that many Americans don't seem impressed. ... Economic performance (now good) and economic psychology (now mediocre) have, to some extent, become disconnected. Why? ... Americans have developed perfectionist standards. We expect total prosperity and are disappointed by anything less. There should be no doubts or deficiencies. Today's include high energy prices, high health care costs, Hurricane Katrina's aftermath and a possible real estate "bubble."

Greater job insecurity also subverts Americans' sense of well-being. Since 1979 the research firm ISR has asked workers to react to this statement: "I am frequently concerned about being laid off." In 1982, when unemployment averaged 9.7 percent, 14 percent answered yes. ... This year (average unemployment: 5.1 percent), the anxiety level is 35 percent. Because workers feel more threatened, no given amount of income or wealth provides as much satisfaction as it once did. The explanation for this paradox ... is that corporate practices have changed. Twenty-five years ago, big companies fired career workers only as a last resort... Workers felt safe unless their company was desperate. Now executives routinely engage in "downsizing" and "outsourcing" to improve profitability. "They're more socially acceptable," ...

The White House's PR campaign ... doesn't deserve to succeed, because its main message is false. That message: Bush's tax cuts explain the economy's success. The 2001 and 2002 tax cuts probably cushioned the severity of the 2001 recession and its aftermath. But the White House is now arguing that its 2003 tax cut was critical in increasing economic growth. The centerpiece of that legislation was a cut in the maximum tax rate on corporate dividends to 15 percent. ... But a new study by staff economists at the Federal Reserve finds little independent effect of the dividend tax cut on stock prices.

Even economists who dispute the study think the White House exaggerates. "It's preposterous that the dividend tax cut created 4 million new jobs," says Kevin Hassett of the American Enterprise Institute. ... Every president seeks bragging rights for prosperity. If you substitute "deficit reduction" for "tax cuts," the Clinton administration made claims similar to the Bush administration's. "Deficit reduction" supposedly ignited spectacular economic growth. In truth, the economy's spectacular growth (and a surge in tax revenue) explained deficit reduction more than the reverse. ...

Presidents can't control the economy, because it's the complex consequence of the ambitions, hopes, fears, visions and talents of nearly 300 million people. ... To be sure, government policies matter, and presidents set some policies. But the long time lags from when presidents act to when the economy fully reacts often mean that the largest impact occurs after they've left office. On that score, the excessive federal spending and debt of the Bush years suggest a dubious legacy.

The next post argues that one aspect of worker insecurity, job tenure, has not changed much in recent decades contrary to what is often written in the press.

    Posted by on Wednesday, December 21, 2005 at 01:12 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (33)

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