- The Washington Times - Thursday, August 18, 2005

Why President Bush seemingly gets no credit for the strong economy is one of the enduring political mysteries of our time. Some call it the “Goldilocks economy” — a term widely used to describe the low-inflation growth of the second half of the 1990s. More accurately, it’s a noninflationary boom where the economy is hitting on all cylinders and the outlook is bright for the coming years.

In view of the 2000-02 stock market plunge, the September 11, 2001, terrorist attacks, and skyrocketing energy prices, the Bush boom is as even greater achievement.

But still he gets no credit. Most polls show the president’s economic approval rating around 40 percent or even less. Scott Rasmussen, who does extensive consumer and investor polling, shows that the confidence ratings of both are about 15 percent lower than in late 2003.

Meanwhile, a splendid group of economic data show clearly the effectiveness of the president’s marginal tax-rate reductions of two years ago. The tax-cut package was largely directed at stock market and business capital formation, both hard hit a few years back. This was the correct target. Share prices have recovered about 70 percent in recent years, with a number of widely tracked indexes, like the New York Stock Exchange and the Standard and Poor’s small- and mid-cap indexes, now trading at all-time highs. The economy itself is growing at about 4 percent per annum since the tax cuts, with business investment leading the surge.

Breaking down major components of the economy, business spending on equipment and software now contributes nearly 30 percent of the increase in gross domestic product (GDP). (Prior to the Bush tax cuts on capital gains, dividends and personal incomes, cap-ex was a net drag on economic growth.) The business surge has increased industrial production nearly 9 percent in the last couple of years, or 4.1 percent annually.

In this supply-side model, investment and production create jobs. Unsurprisingly, total U.S. employment of 142 million workers is an all-time high. Since May 2003, nonfarm payrolls have grown 4 million, while the Labor Department’s household survey (which includes the self-employed) has surged by 4.5 million. The unemployment rate is 5 percent with real worker compensation growing nearly 4 percent. Interest rates and core inflation are running at four-decade lows.

Liberal economists like Paul Krugman ridicule the Bush boom as nothing more than a housing bubble destined to burst. But if the numbers-challenged Mr. Krugman did some homework, he would find that the GDP contribution of residential investment has dropped from 15 percent to 8 percent in the last two years. For that matter, the consumer contribution to GDP has slowed from 90 percent to 75 percent. By taxing investment less, the economy generates more of it.

With comparable economic numbers in 1983 and 1984, President Reagan enjoyed a tremendous “morning in America” popularity that won him a 49-state landslide. Similarly, the economic boom of the late 1990s helped President Clinton withstand the political slings and arrows of impeachment. But for some reason this economy is not working for Mr. Bush.

Most pundits blame rising gasoline prices and Iraqi war woes for Mr. Bush’s slump. These are involved but they’re not the whole story. The Bushies’ unwillingness to communicate and market an economic-recovery message is also to blame.

Politics is a lot like 12-step programs, where recovery comes through daily repetition. But on the Friday of an unexpected 207,000 jobs increase, President Bush was nowhere to be seen. Instead of a 10 a.m. news briefing in Crawford, Texas, the news vacuum was filled by blathering Wall Street pundits who turned good news on jobs into bad news on rate increases from the Fed. Mr. Bush did mention jobs in his radio address the next day, but who in steamy mid-August was listening? This is the basic marketing problem of our MBA president.

Another possible sub-rosa problem plaguing the administration is the growing public distaste for wasteful federal spending. While the highway and energy bills both had positive elements, both the mainstream and conservative media used each as examples of pork-barrel politics. Adding to this, two-thirds of respondents to a recent CNBC poll favored lower spending and taxing. Only 4 percent approved of tax cuts alone. Another 30 percent favored government budget cuts alone.

The 2003 tax cuts were clearly an economic elixir, but the American public may well be growing uneasy with Washington’s failure to better manage taxpayer money. The drumbeat of the media economic pessimists may only exacerbate the problem.

Mr. Bush has a good story, but he must tell it. Then he must add a chapter on new spending restraint. If the president and his high command can make these kinds of adjustments, they can move the economic polls up where they belong.

Lawrence Kudlow is host of CNBC’s “Kudlow & Company” and is a nationally syndicated columnist.

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