- The Washington Times - Monday, January 9, 2006

For more than two years now, important economy-wide indicators, such as the growth rate of gross domestic product (GDP) and employment expansion, have been steadily increasing. Indeed, over the last 10 quarters, the economy’s annualized growth rate has exceeded 4 percent. The unemployment rate, which reached its cyclical peak of 6.3 percent two and a half years ago, ended 2005 below 5 percent. Even consumer-price inflation, despite accelerating over the last two years in response to soaring energy prices, has been held below 3.5 percent over the latest 12 months.

Concerned that his administration had not been receiving its due credit for these economic accomplishments, President Bush delivered a major economic-policy address in Chicago on Friday. That morning, the Labor Department reported that more than 400,000 jobs were created during the last two months of 2005, bringing the annual total to more than 2 million for the second year in a row. Near the beginning of the fifth year of the economic expansion, which began in November 2001, the president could truthfully report that “[t]he American economy heads into 2006 with a full head of steam.”

The president’s assessment of America’s economic performance relative to that of other industrialized nations was equally accurate when he declared that the U.S. economy was “the envy of the industrialized world” in 2005. During the four quarters ending in September, U.S. GDP increased by 3.6 percent. That compares to 0.1 percent (Italy), 1.4 percent (Germany), 1.7 percent (Britain), 1.8 percent (France) and 2.9 percent (Japan). Meanwhile, the unemployment rate in the eurozone is 8.3 percent, which is 3.4 percentage points above America’s.

Mr. Bush also emphasized America’s impressive productivity statistics. Observing that U.S. “productivity has been growing at 3.5 percent for the last five years,” the president reported that “American workers are now more than 17 percent more productive than they were in 2001.” He was correct to assert that “[p]roductivity is important because it helps people live a better life.” That has certainly been the case in the past. And it is also true, as outgoing Federal Reserve Chairman Alan Greenspan has lectured throughout his 18-plus years at the Fed, that no substantive increase in living standards can be achieved in the future without increases in productivity.

However, it is also true that the recent increases in productivity, or output per hour of work, have not yet been matched by increases in wages for the majority of workers. Indeed, despite annual productivity increases averaging 3.5 percent, the inflation-adjusted hourly wage for production and non-supervisory workers in the private sector was less in November 2005 (the latest data available) than it was in November 2001, which represented the trough of the last recession. Moreover, despite the productivity revolution, which actually began during the second half of the 1990s, the inflation-adjusted median household income declined five years in a row after peaking in 1999 and probably declined last year as well, given that wages fell again. These negative income trends no doubt contribute to the public’s less-than-robust views about the otherwise robust economy.

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