For all the talk coming from the Democrats about Herbert Hoover, a careful review of the economic situation confirms that Vice President Cheney and President Bush will have much to celebrate during their respective debates tonight and Friday:
Last week the Commerce Department upwardly revised the annual growth rate of gross domestic product (GDP) for the second quarter to 3.3 percent. Over the past four quarters, the U.S. economy has expanded by 4.8 percent. That’s not bad, either, considering comparable four-quarter growth rates of 1.2 percent (Italy), 2 percent (Germany), 2.8 percent (France), 3.6 percent (Britain) and 4.2 percent (Japan). The U.S. growth rate over the past year, moreover, was nearly a full percentage point above the 3.9 percent growth registered over a comparable period when President Clinton sought re-election.
August’s unemployment rate of 5.4 percent was not much different from the August 1996 rate of 5.1 percent. Also, the latest unemployment rate is well below the average rates for the 1970s (6.2 percent), the 1980s (7.3 percent) and the 1990s (5.75 percent). And today’s unemployment rate would be much lower if it were not for the recently spectacular increases in nonfarm business sector productivity which have averaged 4.6 percent per year from the beginning of 2002 through the second quarter of this year. Unprecedented in the post-World War II period, including the halcyon 1950s and 1960s, the annualized productivity increases since early 2002 have been nearly three times the average annual rate (1.6 percent) that prevailed from 1994 through 1996.
Consumer price inflation (December over December) was 3.4 percent in 2000. Since then, it has averaged 2.4 percent (2001, 2002, 2003 and annualized January-August 2004).
After inheriting an economy that grew by more than 4 percent during the previous year, the Clinton-Gore administration bequeathed an economy on the verge of recession, which began in March 2001, less than two months into the new administration. Indeed, during the first quarter of 2001, business investment declined; thus began the first of nine consecutive quarters of falling capital spending, largely a response to the telecom and stock-market bubbles that developed during the last years of the Clinton administration. With average annual rates exceeding 11 percent, the last five quarters have registered truly impressive gains in business investment. In the second quarter alone, business investment increased at an annual rate of 12.5 percent and has shown no sign of abating.
Meanwhile, residential investment continues to soar, powered by low mortgage rates. Real (i.e., inflation-adjusted) long-term interest rates have remained subdued largely due to the Fed’s exemplary monetary policy, which has apparently vanquished inflationary expectations.
Considering the faltering economy they inherited — including the burgeoning corporate accounting scandals, and the ensuing September 11 terrorist attacks that occurred in the middle of a recession — Messrs. Cheney and Bush have solid economic arguments to present to the voters during the upcoming debates.