Will the economy be a big liability for President Bush's reelection campaign, as it was for his father in 1992? Or will it turn up just in time, as it did for Ronald Reagan in 1984? And will the economy matter?
First, the optimists' case. The stock market, which enjoyed a good quarter, often leads recoveries. The unemployment rate of 6.4 percent -- the worst in nine years -- looks bad. But if you take a closer look, say the bulls, the economy has stopped shedding jobs; the unemployment rate keeps rising because more people are looking for work.
And those tax cuts, now totaling more than $4 trillion, have to produce economic stimulus sometime soon. The Federal Reserve is helping by lowering interest rates to the lowest level since 1958. That keeps the housing boom going and saves consumers money on everything from refinancings to car payments.
So the economy may not be spectacular, say the Bushies and their allies, but it will be good enough. And in any case, the economy remains Topic B. National security is still Topic A.
Well, this writer thinks the administration is whistling past the graveyard. Here's why the economy is likely to rain on George Bush's 2004 election parade: For starters, the unemployment numbers are truly awful. Since Bush took office the economy has shed almost 2.5 million jobs, the worst performance since the administration of Herbert Hoover. A weak job market also means flat or declining wages and benefits for those employed.
Most people are not moved by statistics. They pay attention to their own economic condition. The same problem afflicted Bush I. The economic numbers really weren't all that bad -- the official recession was fairly shallow -- but people felt terrible.
This time people are not likely to feel great in the fall of 2004. Few economists expect a dramatic turnaround either in the stock market or in the unemployment numbers. Stocks have rebounded slightly, but corporate profits have not gained enough ground to justify the kind of stock market growth that people took for granted in the booming 1990s. And businesses are trying to rebuild profits by shedding labor -- which means less new job creation and flat wages.
Consider different key voting groups. It's a dismal economy for seniors. Interest rates are very low, which means that older people living on savings are earning practically nothing on bank CDs or bonds. Fewer stocks pay dividends than did a generation ago. Private pensions are dwindling. The official rate of inflation is low, which means minuscule annual inflation adjustments in Social Security, but try explaining that to an older American coping with escalating drug prices and rising out-of-pocket payments for medical care.
The young are likely to be as frustrated as the old. This summer is the worst job market in at least a decade for recent college grads and even worse for high school graduates not going on to college. Unemployment for minorities is soaring.
Working families, like seniors, can read the low inflation statistics -- and wonder at their own personal experience. Mortgages are a good deal, but rental housing is scarce and sky-high. Health costs keep soaring as employers shift costs to their workers. As cities and states face reduced federal aid, property taxes are rising while services are being cut.
Bush can rightly claim that he inherited the aftermath of the Internet bubble. But the fair rejoinder is to ask what he did about it.
What he did, of course, was to bestow an immense tax cut tilted to the very affluent. This was advertised as pro-jobs. But as anti-recession medicine, it's about the weakest remedy available. The very rich don't spend most of that money. And in a soft economy, neither do they invest it entrepreneurially. The venture capital boom has still not recovered from the Internet bust.
It would have been much more tonic to deliver that money to the hard pressed states and cities, something that presidents of both parties have done in previous downturns; to spend it on services like health and education and child care; and to tilt the tax cut downwards, putting buying power in the pockets of working families. So Bush will be rightly held accountable for economic policies since January 2001.
But what about Topic A, national security? The Bush team mounted a successful invasion of Baghdad, but it's no better at rebuilding Iraq's economy, society and security than at reviving our own. And its foolish economic policy of starve-the-states also hurts homeland security.
Count this president increasingly vulnerable on both fronts.
Robert Kuttner is co-editor of the Prospect.
This column originally appeared in yesterday's Boston Globe.