ECONOMISTS ARE ADMITTING TO CONFUSION, ALWAYS A bad sign. The American economy has entered "a baffling twilight zone," writes Robert J. Samuelson. "People yearn for clarity and confidence, while the new stagnation provides mainly uncertainty and contradiction."
The Federal Reserve seems particularly vexed. Profits and productivity are up, but growth is negligible and employment is down. The Fed's governors have been cutting interest rates since January 2001--12 separate cuts, taking interest rates on overnight bank loans from 6.5 percent down to 1.25 percent, the lowest level in 40 years--yet the layoffs keep coming. Fed Chairman Alan Greenspan has been predicting recovery, but recovery hasn't appeared. Testifying before Congress in late April, Greenspan prophesied a better second half of 2003. "I think it includes jobs," he said.
Companies, the Fed complains, aren't expanding as they should. "An undercurrent of pessimism has persisted among business leaders for some time now," Fed governor Ben Bernanke recently grumped, "more so than can be accounted for by what seem to be the generally good fundamentals of the U.S. economy."
Official unemployment now stands at 6 percent; 8.8 million Americans are unemployed, an increase of 3 million since October 2000. The specter stalking the Fed is that of deflation, something that our central bank has not concerned itself with since the Great Depression. The Fed's most recent report warns, in ever-cloudy Fedspeak, of an "unwelcome substantial fall in inflation." No one is anticipating a 1930s-style collapse of prices, wages and employment, but the threat of prolonged stagnation, with all its quiet human disasters, is very real.
Several decades ago, French social commentator Alain Minc wrote evocatively of a "slow 1929," in which the economy, bolstered by the safety nets put in place in response to the real 1929, does not crash; it sags. We seem to be in a slow 1929 right now: Wages decline slightly (by 1.5 percent over the past year for workers at the median income level), workweeks grow shorter (to 34 hours, the lowest level since the government started measuring workweeks in 1964), health-insurance premiums and co-payments grow more costly, and factories don't run at full speed. (In fact, they're running at the lowest level of capacity since 1983.) Growth creeps along (rising at a 1.6 percent annual rate in the first three months of 2003) but productivity grows faster (at nearly 2.5 percent). America can increase its output by 2.5 percent, therefore, without hiring more workers. To hire more workers, growth has to outpace productivity. It's not.
Disasters occur, but discretely and discreetly: Medicaid is cut, and seniors can no longer afford their medication; college tuitions are raised, and students have to leave school.
And jobs are lost: The private sector has shrunk by more than 2.6 million jobs since George W. Bush became president. That is, by any standard, quite a record: No American president has presided over a net loss of jobs during his term in office since Herbert Hoover grappled so disastrously with the real 1929. When Bill Clinton was in the White House, America gained an average of 239,000 jobs per month. Since Bush took office, the number of jobs has declined at a monthly clip of 69,000.
On the basis of no credible evidence whatsoever, the White House boasts that Bush's proposed tax cut would create 1.4 million jobs by the end of 2004. Even if it did, Bush would still have presided over a net loss of 1.3 million jobs during the 2001-2005 presidential term.
PRESIDENTS DO NOT REALLY PAY A PENALTY FOR HOLDING office when the economy first implodes. Americans did not turn against Hoover because the market crashed; they turned against him because his recovery program, such as it was, failed to produce a recovery, because the economy cascaded downward for three and a half years while he rejected one plausible remedy after another. …