QandO

August 30, 2004

The President: Economic Czar?
Posted by Dale Franks

Robert Samuelson tries to deflate a myth that has always irked me, too: The idea that the president has some kind of effective control over the economy.

Politicians, the press and the public all buy into this notion. Unfortunately, it isn't even a half-truth. More like a sixteenth. A president's policies do affect the economy. But they're just one of many influences. The others (including the business cycle, technology and the Federal Reserve) usually dominate.

You'd think this would be common knowledge, but it's not. The president has become a totemic figure, in whom resides all our hopes and fears, even our economic ones. Hence, if job growth isn't fast enough, it's because the president is at fault.

As Samuelson demonstrates, though, much of what happens in the economy is completely outside of the control of the president, or, for that matter, anyone else in government.

Over the long term, budgets should be balanced. But in an economic downturn, they should move toward deficit to stimulate private spending. Well, you can't fault Bush there. In fiscal 2000, the surplus was $236 billion; for fiscal 2004, the Congressional Budget Office projects a $422 billion deficit. It's possible to condemn (as many Democrats do) Bush's pro-rich tax cuts. A more middle-class tilt might have translated into more consumer spending. It's also possible to retort (as many Republicans do) that Democrats would have moved more slowly toward deficits. Regardless, the tax cuts bolstered private spending. But the resulting economic growth produced fewer jobs than expected. Why?

Although outsourcing could be the reason, it probably isn't. The stories about software jobs and call centers moving to India aren't make-believe. But the numbers are small. Charles Schultze of the Brookings Institution concludes that perhaps 155,000 to 215,000 U.S. service jobs shifted abroad between late 2000 and 2003. Similarly, Schultze reports that government surveys attribute only about 4 percent of mass layoffs in the past two years to "import competition" and "relocation overseas." Even if these estimates are too low, they suggest that the impact of job loss abroad is exaggerated, writes Schultze.

The bigger cause of slow job growth, he contends, is higher productivity. Companies and workers got more efficient. That's ultimately good; it raises living standards. But higher productivity can temporarily lower employment. Fewer people are needed to do the same work, and new jobs don't instantly materialize. From late 1995 to late 2000, productivity (output per hour worked) grew 2.6 percent annually. During the next three years, annual growth averaged 4.1 percent. If it had stayed at the lower level, there'd be 2 million more jobs, estimates Schultze. Unemployment would be about 5 percent.

Of course, if there is a good unemployment report for August, the truth won't stop Bush from taking credit for it. Or for Kerry to blame Bush for it if the numbers are bad.

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