Stop Talking 'Economy,' Stupid

By Matthew Yglesias, The American Prospect. Posted June 30, 2004.

The near simultaneous release of Bill Clinton's memoirs and some good news on the job front have afflicted the right with a case of cognitive dissonance. Clinton, as you'll recall from the nineties and today's commentary, was lucky rather than good. Presidents don't really have all that much influence over short-term economic trends, which are mostly in the hands of the Federal Reserve and the business community. Bush, however, deserves full credit for the current growth spurt though not, of course, the blame for the recession that followed his inauguration or the long jobless recovery that followed. In reality, they were closer to right the first time.

Liberals, meanwhile, have taken to arguing that the economy isn't really very good. The job growth comes in the context of a long period of labor market weakness that's nearly without precedent. Most of the gains, meanwhile, have been captured by higher corporate profits, while wages continue to lag behind inflation. This is all true, but as a political argument it's rather weak. Not only does it hand the GOP fodder in the insipid debate over which party is more optimistic, but it's really not clear how much of it is really Bush's fault. He didn't create the rapid productivity increase that's allowed the economy to grow much faster than the employment rate, and though he has done many terrible things, he hasn't signed a law mandating an increase in profitability at the expense of labor compensation (at least not yet; who knows what a second term might hold).

Worse, this is a situation that could change at a moment's notice without John Kerry being able to do anything about it. The economy really is better than it was six or twelve months ago, and may well be better still on Election Day. Relying on an argument that might vanish at any time is a losing strategy, and somewhat dishonest as well. Democrats won't turn into Bush supporters if wages go up this summer, nor would Kerry have been endorsing Bush's re-election if the economy had been growing faster for these past three years.

The real lesson of the Clinton era isn't that Democratic policies made the economy boom, but that these policies – higher taxes on the wealthy, higher spending on the poor, more regulation to protect labor and the environment, a higher minimum wage, and a budget aimed at sustaining Social Security for the long-term – were perfectly compatible with the longest economic expansion of American history. Conversely, nothing Bush has done or is proposing – tax cuts for the wealthy piled upon tax cuts for the wealthy, and giveaway after giveaway to corporate lobbyists – is either necessary or sufficient to bring about economic growth. Taken to extremes, interventions could do real harm: A $70 per hour minimum wage or a total ban on burning coal would shut the economy down, but this isn't what we're talking about. The minimum wage has been much higher in real terms in the past and the economy grew steadily, while we were enforcing clean air standards properly just a few years ago with no visible ill-effects.

Matthew Yglesias is a Prospect writing fellow

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