Manipulating the GNP

I suppose it's proper for the Bush administration to take full credit for the 7.2 percent rise in the Gross National Product (GNP) for the third quarter. The Clinton administration, after all, took full credit for the economic prosperity of its two terms in office.

But GNP is a questionable indicator to measure the health of the economy. The sum total of all goods and services, the GNP measures current spending without regard to social efficacy, purpose or morality. The GNP values money spent on Internet pornography on a par with money spent investing in education, housing, health care, infrastructure and national security.

Even as proof of political accomplishment, GNP statistics do not cut it. As day becomes night, the economic cycle goes through periods of expansion and contraction. Prudent government policy can flatten the cycle and, perhaps, speed a recovery, but the cycle is inevitable.

President Clinton's tax policies may have contributed to the prosperity of the 1990s but they didn't, in and of themselves, create it. Clinton raised the marginal tax rate on upper-income Americans while lowering it (with the earned income credit) for low-income working Americans. Federal tax policy became fairer and perennial budget deficits were turned into record-breaking budget surpluses -- good fiscal policy.

But the prosperity of the Clinton years rode on the revolution in information technology. And the predictability of capitalism's boom and bust economic cycle ultimately trumped the Pollyannaish punditry of Wall Street analysts who believed that the high-tech boom would last forever.

There's very little evidence to support the Republican boast that the Bush tax cuts have turned around the economy. A more likely rationale is that the economic cycle simply righted itself. After more than two years of under-consumption, data indicate the public is starting to purchase basic necessities -- cars, clothing, home appliances and furnishings.

The Bush administration cut taxes on high incomes. Phasing out the inheritance tax and cutting taxes on dividends has had no impact on most people. As W. Michael Cox, chief economist of the Federal Reserve Bank in Dallas, was quoted in the 11/2/03 New York Times, "The rich don't have to put off their purchases." The third quarter economic growth represents "the consumption of the masses driving the economy."

Some middle and low-income earners received tax rebates as a result of an increase in the child tax credit and an adjustment in the tax rate for certain married couples, and these tax cuts likely encouraged consumer spending. But these tax breaks always enjoyed bipartisan support independent of Bush supply-side tax-cutting proposals.

Granted, a rising GNP is better than a stagnant economy mired in recession, but the last quarter spike did not affect the appallingly high rate of unemployment. 2.7 million jobs have been lost since March 2001 and the beginning of the recession, a disaster unmatched since the era of the Great Depression. Leonard Michael of the Economic Policy Institute (www.epinet.org) reminds us that the Bush administration "sold its tax cut plan to Congress based on very specific claims about how many jobs it would create." It has not only failed to come close to its goals, it has continued to lose jobs. And low-wage job gains in the service economy are no substitute for lost high-wage jobs in the unionized manufacturing sector.

To be sure, George Bush is not entirely responsible for the high rate of unemployment. For that, blame the Clinton administration and those Republicans and Democrats who support unconditional principals of free-markets and free trade without regard for its effect on American workers and farmers. The Bush administration has done nothing to stop corporate America's downsizing of jobs and outsourcing of products. And the record-breaking budget deficits that resulted from its tax-cutting policies have made ameliorative job-retraining measures unaffordable.