Boom and Gloom

Voters say the recovery is dismal. Even Bush’s economic advisers agree.

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These days, everyone seems to be puzzling over the same question: Why aren’t people happy with President Bush’s economic record? After all, judging from recent growth and unemployment numbers, the U.S. economy seems to be steaming along towards a full recovery. Yet in numerous polls, such as the most recent CBS News / New York Times survey, Bush’s approval ratings on economic matters hover in the low-40s. Is there a perception gap? Pundits have drawn parallels to former president George H.W. Bush, who presided over a healthy economic recovery in 1992, but still lost his re-election bid because voters never quite caught on.

Of course, it’s easy to chalk up poll numbers to the supposed ignorance of the average voter. But in this case, the voters have it right: the recovery really hasn’t been all that swell.

For starters, wages are not keeping pace with inflation, and as a result, real wages are going down, as a cursory look at Bureau of Labor Statistics numbers shows. Yet only a month ago, major papers like The Washington Post were trying to argue that wages have been rising. Recently, however, the major media woke up, and Eduardo Porter in Sunday’s New York Times reported that, in real terms, hourly pay has lately been decreasing:

On Friday, the Bureau of Labor Statistics reported that hourly earnings of production workers – nonmanagement workers ranging from nurses and teachers to hamburger flippers and assembly-line workers – fell 1.1 percent in June, after accounting for inflation. The June drop, the steepest decline since the depths of recession in mid-1991, came after a 0.8 percent fall in real hourly earnings in May.

The article somewhat understates the case. As the Economic Policy Institute pointed out last week, real wages have declined in six of the last seven months. Porter goes on to suggest that the considerable supply of unemployed workers goes a long way toward explaining why paychecks aren’t rising:

[Workers’] woes are a product of supply and demand for labor. From 1996 through 2000 when employers were hiring hand over fist, real hourly wages of ordinary workers rose by 7.5 percent. Those for leisure and hospitality workers rose 9.6 percent, and retail workers’ climbed 8.9 percent. The raises continued even as the economy slipped into recession in 2001 and businesses began to shed workers.

From 2001 to 2003, 2.4 million jobs were eliminated, as businesses sharply reduced their work forces, refusing to hire back even as demand started picking up. Over a million of these jobs have been regained this year.

Yet with the lowest number of people employed as a share of the population since 1994, there is still a plentiful supply of unused laborers looking for jobs.

The key figure here is how many “unused laborers” there really are. John Kerry claims that the country has one million fewer jobs than when Bush took office. And the official unemployment rate counts 8.2 million people out of work. But as the Times‘ economic columnist Edmund Andrews notes there may be even more workers out of the labor force, if you include those workers not looking for jobs. Since 2000, when the Bureau of Labor Statistics began keeping this statistic, the number of such people has risen by 4.4 million. Although some of these workers have intentionally withdrawn from the labor force (to work, for example, as stay-at-home moms), many of these workers are simply discouraged. In that case, wages could continue to stagnate as millions of discouraged workers begin to look for work again.

Another debate surrounding the Bush recovery is over what kind of jobs are being created. In countless speeches, John Kerry has alleged that the bulk of new jobs have been created in low-wage sectors. Well, he would say that, wouldn’t he? But it turns out that prominent Wall Street economists share his view, including Stephen S. Roach of Morgan Stanley, and David A. Rosenberg of Merrill Lynch:

“The vast majority of net new jobs created have been in the low-wage sectors of the economy, and income growth has been disappointing,” David A. Rosenberg, chief North American economist at Merrill Lynch & Co., wrote July 9. Lagging incomes may cause “consumer spending to slow in coming quarters.”

Roach pointed out that “81 percent of the total job growth over the last year had been in lower-paying occupations like retail sales and transportation.” Although economists have yet to reach a consensus on this point, the data certainly offers a reasonable explanation as to why workers have yet to embrace the Bush recovery.

As a general trend, the profits reaped by businesses during the recovery have not trickled down proportionally to workers, as BusinessWeek noted last month:

Up to now, profits going to big corporations along with earnings for smaller proprietorships and rents to landowners, all of which represent less than one-fourth of national income, have accounted for 46% of the increase since the recovery began. Pay and benefits to workers, about two-thirds of the total, have contributed a less-than-proportional 44% of the increase. By the end of 2003, the share of national income going to workers had slipped to the lowest level in nearly four decades.

BusinessWeek expressed confidence that this trend would eventually correct itself. Others are not so sure. Thus Robert Reich in The American Prospect:

But there’s another, more disturbing possibility — and it seems somewhat more likely. The wage slice will stay historically low, and the profit slice high, because employees have permanently lost bargaining power. Unions now represent fewer than 8 percent of private-sector workers, a figure that’s been dropping steadily for many years.

Meanwhile, advances in telecommunications now enable many more companies to outsource to places like India and China, where wages are far lower. Or they can easily substitute computers and software for employees who might otherwise expect a raise. If these trends weren’t enough to keep wages down, consider that big corporations are bigger and more powerful than ever. Think of Wal-Mart, now employing more Americans than the entire U.S. auto industry. Employers with this kind of clout can keep wages low just by refusing to raise them.

Much of Reich’s analysis remains speculative — at the moment, outsourcing does not appear to have had a tremendous impact on either employment or wages. But Reich may be right that the economy is suffering from structural problems that go beyond the usual cyclical ups and downs. Federal Reserve Chairman Alan Greenspan has also expressed similar concerns, noting that the country may be producing a shortage of high-skill workers and a surplus of low-skill ones. If this is the case, the country will need to see a drastic increase in worker training over the next few years.

But whatever the problems, it seems clear that the current administration is paying little attention. With voters restless over stagnant wages and poor job creation, it’s no wonder they have little patience for Bush’s willfully obtuse message: “We cut taxes! Everything will be fine!” Indeed, as Stan Collender noted in National Journal, not even Bush’s own economic team is willing to defend the administration’s dismal policies anymore:

Has anyone seen or heard from the Bush administration’s economic and budget team?… National Economic Council Chairman Stephen Friedman has been practically invisible…. Greg Mankiw hasn’t been heard from since he made a politically incorrect statement back in February about… outsourcing…. Joshua Bolten… has been one of the least visible OMB directors…. John Snow… seems to be perceived more as a cheerleader than as a policymaker…

Indeed, when even the experts are fleeing the scene, it’s hard to maintain the illusion that everything is fine. It looks like those skeptical voters aren’t so ignorant after all.


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