Why the American Public Rejects the Bush Economic "Plan" (Part I)

There was bad news for the White House and the Republican Party in the Associated Press-Ipsos poll on public attitudes conducted Feb. 6-8. By a 61-35 percent margin, respondents said that the country was on the "wrong track," and by 57-40 percent disapproved of the way President George W. Bush is running the country. Those surveyed also disapproved by a margin of 61-35 of how the Republican-controlled Congress was handling its duties, with a plurality of 47 percent saying things would be better if the Democrats were in charge. With Congressional elections only nine months away, the public could make that change if their dim view of the GOP persists.

Perhaps most perplexing to Republican leaders is that by 58-40 percent, those polled disapproved of how the Bush administration is handling the economy. A Gallup Poll conducted during this same time period also found a 56-40 percent disapproval score for economic policy.

The White House trumpets low unemployment (4.7 percent), rising real per capita after-tax income (up 7.9 percent since January 2001), booming housing construction, and low inflation. According to the 2006 Economic Report of the President, released Feb. 13, the future never looked brighter. How can people not be happy? Perhaps because the selective reciting of statistics in Washington does not pay the bills in Peoria.

Part of the problem with Bush administration stats is that they measure from the bottom of the 2001 recession rather than from the state of the economy before the recession. The recovery from the recession has actually been very slow, even though the recession was shallow. This is because the recession has masked some very negative structural changes in the economy which counter-cyclical policy – tax cuts, increases in government spending, and money creation by the Federal Reserve – is not designed to remedy.

Only 2,093,000 total jobs were added over the five years (2000-2004), a gain of only 1.58%, the weakest five-year increase on record. Only half of these net jobs were in the private sector, that part of the economy supposedly subject to the most stimulus in the Bush program (tax cuts and low interest rates). The other half came from increased government employment, not exactly where a conservative Republican administration would want it. Though the Labor Department hailed the creation of 193,000 payroll jobs in January, this was 40,000 less than most private sector economists had predicted and an indication that the economy is slowing.

Manufacturing has lost 2.9 million jobs, with losses slightly worse in durable than non-durable goods. There have been job losses in every major industry. A housing boom should boost durable goods production, except that too many of these items are now imported from overseas. And much of the construction work is done by illegal immigrants, who will work for much less than skilled American craftsmen.

There has also been a lost of 209,000 private-sector white-collar supervisory positions in line with the loss of blue collar workers. These well-paying jobs have been replaced by lower-paying service sector jobs in health care, social work, education, and restaurants. Unemployment is low because people have to work to eat, so they take whatever jobs are available. Even so, since Labor Dept. stats do not count people who have been out of work for more than six months, the kind of unemployment that affects how people and families actually live is still high. The Labor Department reports there are NOW over 5 million of these "discouraged workers" no longer counted as being in the labor force, but who still want a job. The editors of The Economist magazine of London, whose views on policy do not differ fundamentally from Bush's, have calculated that real unemployment in the United States is closer to 8 percent. Adults are not participating in the job market at 2000 levels (67.4 percent then versus 65.5 percent now), and total hours worked in 2005 were still less than in 2000. Additionally, the stagnation of wage and salary levels for most Americans does not indicate a tight labor market.

Another disturbing fact, which undoubtedly underlies the negative Bush poll numbers, is that households drew down their net savings last year. This has not happened since the Depression year of 1933 and indicates that the American people are trying to maintain their living standards without adequate income. The Bush approach of trying to boost "after tax income" by cutting taxes, rather than raising base income by creating better jobs, is a losing proposition.

In presenting the FY 2007 Budget to the Senate Finance Committee Feb. 7, Treasury Secretary John Snow argued for making the tax cuts enacted during President Bush's first term permanent, despite an estimated budget deficit for 2007 of $354.2 billion. Though he claimed that the economic recovery is strong and deep, he still said, "Tax increases carry an enormous risk of economic damage." This statement implies that the economy is not on a self-sustaining upward course, but is still dependent on heavy fiscal stimulus from the government.

Back when I was teaching economics at the University of Tennessee, the textbook used for the introductory sequence was the top-selling work of Campbell R. McConnell. McConnell was a follower of Abba Lerner, who had taken the Depression era doctrines of John Maynard Keynes to the extreme. Whereas Keynes believed in running deficits during a downturn to stimulate the economy, he also favored paying down debts when times were good, thus balancing accounts over the course of the business cycle. Lerner and McConnell believed deficits should be run all the time, without concern for any mounting debts. Indeed, they feared the accumulation of personal savings. They called their theory "functional finance," the function being to continually stimulate an economy they did not believe could ever run reliably on its own.

This outlook was popular among liberal-left academics (like those who ran my department and made the textbook decisions) because it fit their notion that capitalism was an inherently flawed system whose internal contradictions required government management to overcome. Their view now seems to have been adopted by the Bush administration.

Putative conservatives cannot acknowledge the liberal lineage of their ideas, so they invented the new school of "supply side" economics. But the only real difference is that while liberals favor creating deficits by boosting government spending on programs for their constituents, supply-siders want to create deficits by cutting taxes for their constituents. But it is the same political game – one based on a dismal view of the underlying economy.

Snow fell back on supply-side rhetoric, claiming "lower tax rates are good for the economy and a growing economy is good for Treasury receipts. Indeed, our rate of economic growth led to record levels of Treasury receipts in 2005." But a closer look at the composition of tax receipts disproves his claim. According to the administration's Office of Management and Budget, individual income tax receipts for 2005 were $77.3 billion less than in 2000. The increase in overall tax receipts from individuals came mainly from social security taxes, which were not cut. These fall mainly on middle and working class families, whereas income tax cuts help those in the upper income levels. Individual income tax collection is not expected to reach the 2000 level again until 2007.

Corporation income tax receipts have gone up, indicating where in the economy the real money is being made. Indeed, the Bush administration seems to think mainly in terms of how the corporate sector is doing. The new Economic Report, for example, downplays the negative household savings rate, arguing, "Personal saving is only one part of national saving. The personal saving rate does not include corporate saving in the form of retained earnings; but corporate saving adds to the wealth of corporate shareholders and supplies funds for investment."

Snow himself acknowledged the flaw in his supply-side reasoning (inadvertently) when he told Senators, "In 2011 we will again reach, as a percentage of GDP, the levels we've seen over the average of the last 40 years." Thus, it will not be until three years after Bush leaves office that fiscal behavior will get back to normal. And even then, Snow defines downward what is considered normal.

OMB projections for 2011 have tax receipts at 17.9 percent of GDP. Forty years ago was 1966. The average share of GDP collected in Federal taxes from 1966 to 2001 – the 36 years before the Bush tax cuts went into effect – was 18.3 percent. Almost all the cases where the tax share was significantly lower were during recessions, when tax receipts declined due to reduced economic activity and high unemployment. One suspects that Snow wanted to go back 40 years so as to be able to average in the period of "malaise" during 1973-1979, when the tax ratio averaged 17.9 percent. Tax receipts naturally jump when times are good and people are making money. The tax share of GDP averaged 18.5 percent during the vibrant 20 years from Presidents Reagan to Clinton. But during the 2002-2005 period, tax receipts as a share of GDP have averaged only 17.1 percent. This fact reflects the extreme nature of the Bush tax cuts, and the weakening tax base.

Government spending during this period has not been historically high as a percentage of GDP despite the Iraq and Afghan wars. Indeed, it has run slightly less than the average of the 1990s – 19.6 percent versus 20.7 percent during 1990-2000. What has caused the budget deficits has been the drop in tax revenues. Thus, in the Bush plan, budget deficits will continue out to 2011, and beyond. This is another source of dissavings in the economy, as budget deficits destroy capital, decrease investment, and prevent Americans from reaching their full potential as producers of wealth. The winners are those rival economies overseas where people do save, invest, and produce to wipe out American industries in cutthroat competition.

Can you knock down a wall and add rooms without the bank's or the town's permission?

Yes and probably not.

Could you make the home smaller if you thought the heating bills were too high?

As long as I'm paying the mortgage I can do anything I want to the house provided I get the permits. But how many people would spend money to reduce the value of their home just to cut energy costs? That's a ridiculous scenario.

Have a major sickness in the family that causes the loss of the house due to forclosure. See what amount of that equity you get.

What percent of all homes in this country are foreclosed on every year for this reason? It still doesn't counter the fact that the average household owns 57% equity in their home and home ownership is at an all time high.

Are there tax advantages to living in a home as opposed to renting? Does the lender or the homeowner realize those benefits?

Obviously the American people see the reality of their lives more clearly than the globalism boosters on this board. Are you going to argue with the American people and tell them that they are stupid ?

Wouldn't a more intelligent response be to accept that once again, the man in the street sees things a lot more clearly than the so-called expert ?

Reagan Man, this economy is great for people who live off of returns on investment and equity. Lousy for people who live off of paychecks.

"Personal saving is only one part of national saving. The personal saving rate does not include corporate saving in the form of retained earnings; but corporate saving adds to the wealth of corporate shareholders and supplies funds for investment."

So in other words we are seeing a massive transfer of wealth from people who live off of paychecks to people who benefit from cheap labor.

I can imagine that these are the kind of pessimists who if the Dow hits twelve thousand sometime this year, they'll say that it should have hit fifteen thousand. People "reject" the Bush economic policies because they're told it's awful by Big Media...who lie through their teeth.

If you live off of financial services and returns on investment then globalist cheap labor is just peachy. Problem is, most people live off of paychecks and cheap labor means lower paychecks for them. Your focus on the Dow is entirely on what benefits people who live off of returns on investment. People who live off of paychecks know that their circumstances are worse than 1998. Give the American people credit for having the common sense to know what their household economic circumstances are.

It may be but the fact that you have to get permission to do so means you don't "own" a home that's under a mortgaga.

It still doesn't counter the fact that the average household owns 57% equity in their home and home ownership is at an all time high.

You don't "own" the home outright if there is a mortgage. It doesn't matter who the profits a sale go to. You can't sell the house or do anything you want to it without the banks permission. I can do anything I want to my cars but not to my home. I must get approval either from the town or the bank. How can that be if I own it?

Equity is a meaningless number. It's a value that can't be realized without giving up the home. Even equity loans further consolidate the bank's ownwership of the property.

If the house burns to the ground or is destroyed by a tornado who gets the money? The bank does.

It may be but the fact that you have to get permission to do so means you don't "own" a home that's under a mortgaga.

Do you mean that if I have a home without a mortgage I don't have to get permits from the city/county to remodel or expand? The bank doesn't care what I do to the house as long as I make my payments on time.

You can't sell the house or do anything you want to it without the banks permission. I can do anything I want to my cars but not to my home. I must get approval either from the town or the bank. How can that be if I own it?

I don't have any idea what you're talking about. I have to get the banks permission to sell my house? What? I've sold two houses in the last 10 years and I never asked for permission from my lender. Last year I gutted my current home, remodeled and even added additional square footage. My contractor had to pull all sorts of permits from the county. I never had to get permission of any kind from my mortgage company.

Equity is a meaningless number.

Is that why the fed counts it as an asset? If it's meaningless, why is it I can borrow money against it and use the interest paid as a tax deduction?

If the house burns to the ground or is destroyed by a tornado who gets the money?

I'm well insured so the bank would be paid the remaining amount outstanding and I'd get the rest. Other than my deductible, it wouldn't make a bit of difference, at this time, if it burned to the ground or was sold at market value.

almost every poll show american's opinion of the economy, is much lower then the president's personal approval rating, or his handling of war on terror issues, etc.

The average American is economically illiterate and has only his own personal state of wellbeing to use as a gauge. He couldn't tell you the President's "Plan" to save his life. If he's feeling good then the president is doing fine. If he feels strapped, then the president is failing, even if his strapped feeling is because of his own foolish financial mismanagement. He gets this concept of blame shifting from the MSM, who feed him what they want him to think.

Is that why the fed counts it as an asset? If it's meaningless, why is it I can borrow money against it and use the interest paid as a tax deduction?

Are you taxed on equity? No? That should tell you all you need to know about its value and worth to you as a tangible asset. The reason the fed uses it as an asset is because they want to boost their numbers to make the economy look better.

We disagree on home ownership under a mortgage. I do no own my home. Yes, there are advantages to having a mortgage but it is not outright ownership. Saying that more Americans "own" their homes than ever before is a numbers game.

Unless, of course, you are an engineer.

I am an engineer. I work for Westinghouse and we are severely short of engineers. We're looking to hire hundreds in the Pittsburgh and Hartford areas. Mechanical, Chemical and some Civil and Electrical. I get $1000 if a refer someone who is hired. If you're looking for work, let me know by private reply and I'll let you know what info needs to be sent and where.

Are you taxed on equity? No? That should tell you all you need to know about its value and worth to you as a tangible asset.

Our homes are regularly reassessed by the county taxing authority. When they do this, they value your home based on the new market value and your taxes are raised accordingly. Try again?

The reason the fed uses it as an asset is because they want to boost their numbers to make the economy look better.

I knew the tin foil would come out eventually. My house has doubled in value since I purchased it according to my Realtor. If I sell it tomorrow at twice the price I paid for it I get to keep the equity and the fed would have been correct. Right? The annual aggregate value of real estate has increased in this country every year since before WWII. I think it's pretty safe to say that the equity in a home is real and can be valued as an asset.

Yes, there are advantages to having a mortgage but it is not outright ownership.

Earlier, you said they did not own their home. Now you've had to qualify it by saying they do not own it outright. Nice back peddle.

Saying that more Americans "own" their homes than ever before is a numbers game

So those people would be better off renting? Admit it, those numbers show that the average American is doing damn well in this economy and that fact makes it much harder for you to sell your doom and gloom.

Why the American Public Rejects the Bush Economic "Plan" (Part I)

Come on, WG - you know the American Public isn't literate enough to know what an economic plan IS, let alone "reject" it.

They're getting enough ejicaishun in the skools to feel like they shud conserve nacheral reesorses and pertekt Bambi & Thumper, but they'll let the other guy do that - maybe those smart men in charge of the government will take care of it for them.

Come on, WG - you know the American Public isn't literate enough to know what an economic plan IS, let alone "reject" it.

Well, as Sam said back in reply #65:

Obviously the American people see the reality of their lives more clearly than the globalism boosters on this board. Are you going to argue with the American people and tell them that they are stupid ?

People vote their pocketbooks.
And if Dubya's economic media hype doesn't coincide with their perception of reality, his credibility will continue to suffer.

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