- The Washington Times - Tuesday, February 18, 2003

In recent days, this page has been aggressively encouraging the White House to significantly front-load its commendable tax-relief stimulus package. We were troubled to learn that the 2004 budget allocates tax relief of only $31 billion for fiscal 2003, which ends Sept. 30. We have based our arguments an analysis of the slumbering economy, among other things. Perhaps an historical review of the nation's political economy over the past dozen years will make the point.
A recent confluence of economic reports should have been received in the White House with an eerie sense of deja vu. Perusing the latest data on economic growth, productivity and employment, policymakers and political strategists alike should be forgiven if they thought they were merely dreaming about reliving the final 18, politically troubling months of the first Bush administration.
But this is no dream. On the economic front, the similarities between the final year and a half of Bush I and the past four quarters of Bush II are uncanny. Given how the politics played out during the 1992 presidential election campaign, the current Bush administration should understand better than anybody else how imperative it is to restart the U.S. economic engine.
Consider how the economic data played out in 2002. The Commerce Department reported late last month that gross domestic product (GDP) measured on a fourth-quarter-over-fourth-quarter basis expanded by 2.8 percent between the 2001 fourth quarter and the 2002 fourth quarter. (GDP represents the nation's total economic output.) During last year's fourth quarter, however, GDP sharply decelerated, growing at an annual rate of 0.7 percent.
The Labor Department recently reported that productivity (output per hour of labor) in the nonfarm business sector grew by 3.9 percent in 2002, also measured on a fourth-quarter-over-fourth-quarter basis.
Now, with nonfarm productivity rising significantly faster than overall economic growth, it should not be too surprising that nonfarm payrolls actually declined during this same period. Indeed, monthly employment during the fourth quarter of 2001 averaged 131.13 million workers. Monthly employment during the fourth quarter of 2002 averaged 130.792 million workers. In other words, despite expanding by nearly 3 percent, the economy shed more than 333,000 jobs in the nonfarm sector between 2001's fourth quarter and 2002's. Meanwhile, the quarterly unemployment rate increased from 5.6 percent to 5.9 percent.
What this means is that the economy over the past year has been growing at an insufficient rate to reduce unemployment and increase jobs. This is precisely what happened during the latter part of the first Bush administration, spelling political doom. In fact, for good reasons the 1991-92 experience became known as "the jobless recovery," leading Democrats to campaign on the well-received slogan, "It's the economy, stupid."
Two crucial four-quarter periods illustrate this phenomenon. The first covers the time between the second quarter of 1991 and the second quarter of 1992, at the end of which political scientists who study the so-called political business cycle believe many voters made their decisions. The second crucial period encompasses all of 1992. It offers even more striking comparisons, given the widespread contemporary and erroneous belief that economic output in 1992 was growing at a moribund pace.
The 1990-91 recession ended in March 1991. But the recovery was truly lackluster, partly because the recession was relatively shallow. Between the 1991 second quarter and the 1992 second quarter, the economy grew by 2.7 percent. With productivity rising by 3.4 percent during the same period, however, total nonfarm employment expanded by only 0.2 percent. But the labor force, including those seeking work, was growing much faster. That meant that the quarterly unemployment rate increased from 6.7 percent during 1991's second quarter to 7.5 percent during the 1992 second quarter. The 1992 unemployment rate inconveniently peaked at 7.7 percent in June, nearly a full percentage point above the 6.8 percent rate that prevailed at the recession's trough in March 1991.
For 1992 as a whole, the economy grew by 4 percent, measured on a fourth-quarter-over-fourth-quarter basis. With nonfarm productivity expanding at a healthy 4.2 percent clip during this period, however, total nonfarm employment increased by only 0.7 percent, or by nearly 750,000 jobs. Thus, despite a solid growth rate of 4 percent, the unemployment rate actually increased between the last quarter of 1991 and the comparable (election) quarter of 1992, rising from 7 percent to 7.3 percent. While total employment increased by nearly 750,000, unemployment increased by more than 500,000 to nearly 9.5 million.
The Labor Department estimated last month that unemployment totaled 8.7 million in December, representing an increase of 3 million, from the 5.7 million who were unemployed in December 2000. If these numbers do not encourage the White House to change its strategy and fight harder for a tax-relief stimulus package fully retroactive to Jan. 1, nothing will.

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