Saturday, October 28, 2006

Why do the Republicans Keep Telling Their Candidates to Run on the Economy?

Huffington Post
Jeff Madrick
Why do the Republicans Keep Telling Their Candidates to Run on the Economy?

You have to wonder why the Republicans keep telling their candidates to run on the economy. Bill Frist earlier this week talked about drawing attention away from the Iraq War and stressing the strong economy. President Bush keeps talking up a strong economy. Why do the surveys say people are worried about the economy when Gross Domestic Product is up and unemployment is down, they ask.
Must be the media. If anything, the media have been telling it the Republican way.

Well, one of those favorite headline stats came up bad today, reflecting long-simmering concerns among the allegedly misled public. GDP, the government estimates, grew at an annual pace of only 1.2 percent between July and September. It hasn't grown that slowly in a few years. A main reason was the big drop in home buying, which means less spending on construction and the sinking housing market may subdue consumer buying power a lot because so much spending depends on borrowing against the value of the house.

But the key point is that economy's problems started long before this. The two headline stats--GDP and the unemployment rate-- don't tell the real story. This five years expansion has been crummy for anyone but assorted business owners and hedge fund operators. The confusion is that we keep thinking the GDP is, well, the economy. In fact, GDP is a useful but arbitrary construction of economists, going back before Adam Smith but only formalized seventy or so years ago. It measures the final goods and service a nation produces. The flip side of GDP is that this production creates the nation's income: its salaries, wages, business profits, interest, rent.

So the economy in modern usage is the income the nation generates each year. A rising GDP, as America has enjoyed fairly consistently since 2002, means there's more income to go around. But this doesn't tell us anything about who gets the money.

Similarly, a low unemployment rate doesn't tell us anything about whether everyone who wants a job is really looking for one. And it sure doesn't tell us what wages they are getting when they get that job.

GDP has been expanding nicely, sure, but the income is going to business profits, not working Americans, who by the way includes almost all of us.

Nikolaos Papanikolaou, a grad student at our think tank at The New School, the Schwartz Center for Economic Policy Analysis, calculated the follow data on family incomes. In 2000, the typical family--the median family right in the middle of the pack-- earned $57,715 adjusted for inflation. In 2005, the median family earned less, $56,194. Meantime, business profits boomed, the stock market went back up, and hedge fund operators are spending their fortunes on the world's best art, biggest yachts, and fastest polo ponies.

So think what's happened to Americans during the Bush economy. Rising gas prices first scared Americans, who after all hadn't gotten a raise for five years. Gas price relief earlier this year wasn't going to mollify them. Add to this rising healthcare costs, college tuitions, rents, and mortgage rates--and a whole lot of talk about collapsing home prices. Meantime, many Americans are looking at a pile of debt, wondering how they can work even more hours than they do and take care of the kids, and scared that if they lose a job, they won't only lose a salary but also healthcare insurance for the family. The pride of the Bush administration, the tax cuts, largely went to the very rich, and weren't enough for middle income Americans to allay deeper concerns about their future standard of living.

One last point. Economists are mostly mystified about why family income and wages haven't been rising. No one puts much stock in the knowledge of economists, granted. But the collective confusion is offputting. Democrats are increasingly united around demanding an increase in the minimum wage. But if Democrats take a Congressional house or two in a couple of weeks, some much more serious thinking ought to be done about what's happened to an economy that economic theory maintains should lift all boats. Some subjects for discussion: a government-supported living wage; vigorously protecting the right to form unions; raising taxes on the well-off to support needed social programs; a renewed effort to end racial and gender discrimination on the job; and serious, courageous thinking about how to get healthcare costs under control and get everyone covered by insurance, whether or not they have a great job.