Whose Economy Is It, Anyway?

12/25/2005

NY Times Editorial

Published: December 25, 2005

As polls registered public discontent with the economy earlier this month, back-to-back government reports showed strong economic growth and respectable job creation. To explain the discrepancy, Allan Hubbard, one of President Bush’s top economic advisers, said that hurricanes and high gas prices had temporarily darkened Americans’ collective mood, but that the president was pleased with the economy. “He’s more concerned with results than he is about polls,” Mr. Hubbard said.

No wonder the president seems out of touch. Headline statistics - the “results” Mr. Hubbard referred to - can mask as much as they reveal.

Take, for instance, the solid 4.1 percent economic expansion in this year’s third quarter and the 215,000 jobs created last month. In the past four years, similar jolts of positive data have never lasted long enough to result in consistently strong hiring and rising wages. There is little reason to believe things will be different this time. Already, analysts are slashing their fourth-quarter growth estimates to reflect the drag of America’s huge trade deficit.

Administration officials also love to cite the economy’s low unemployment rate, recently 5 percent. But more than one million people have left the work force since 2001 and are not counted as unemployed, although a big reason for leaving is a lack of good jobs. Add to that the 4.2 million part-timers who want full-time jobs, and employment is weaker than the administration would have you believe.

The administration also wants you to think that wages are on an upswing. But during the current recovery, wages have lagged inflation by 0.3 percent for 80 percent of the work force, generally defined as nonmanagers. To add insult to injury, the decline has occurred even as Americans have set records for productivity. That means Americans are working harder, but taking home less.

And yet, Treasury Secretary John Snow recently lauded the wage picture in a message of “good cheer in this holiday season.” He noted that wages were up 1.1 percent from the previous business cycle peak in 2001. At the same point in the cycle of the 1990’s, he noted, wages were down 2.1 percent.

That’s all true - as far as it goes. But by choosing to measure from the peak of the last cycle, Mr. Snow takes credit for the tail end of a wage boom that developed circa 1995. And he fails to mention that at this point in the 1990’s, falling wages were about to turn up sharply.

No one believes that is about to happen now. Corporate profits have been phenomenal during the recovery, but are mostly being used to enrich shareholders, not to create jobs and pay higher wages - or to lay the foundation for robust employment by investing in plants and equipment.

Mr. Hubbard, the president’s adviser, is partly right when he says that people are gloomy about high gas prices. But more to the point, would they be so gloomy if they were making some real money?