August 26, 2004,
In campaign speeches and on his website, John Kerry tells us that President Bush has “the worst economic record since the Hoover administration.” Herbert Hoover, of course, presided over the start of the Great Depression in 1929. There have been eight post-1945 recessions. How many do you suppose were worse than the 2001 recession?
All of them.
In fact, the Commerce Department’s newest data on gross domestic product reveal that the last downturn wasn’t a textbook recession, since no two quarters of contraction were consecutive. That’s because the downturn Bush inherited was stopped in its tracks before 1,000 days passed, with red-hot growth rates and low unemployment.
Naming the most severe post-World War II recession is not a serious challenge for serious economists. It was Ronald Reagan’s. The double 1980-82 contraction involved six quarters of shrinking economic output, largely a result of a successful but painful assault on inflation by Paul Volcker’s Federal Reserve. The inflationary storm these men faced was nourished by policies during the 1960s and 1970s that aimed to control aggregate demand.
Were Reagan and Volcker to blame for the worst recession since Hoover? No more than aspirin is to blame for a hangover. The point is, business cycles happen. Americans judge a president not by the natural downturns that occur on his watch, but by how he responds.
Whether Kerry likes it or not, the U.S. economy has expanded for 11 straight quarters since 2001, and payroll jobs have expanded for 11 straight months. By any measure, the Hoover comparison is absurd. But let’s take a closer look:
Inflation. When prices rise, everyone’s buying power erodes. That’s not an issue today when average real hourly earnings for working Americans are 2 percent higher than they were three years ago. Compare that to the 1.95 percent loss in real earnings that came three years after the 1990-91 recession began. The worst experience was when annualized inflation peaked at 18.6 percent in January 1980, during Jimmy Carter’s final year as president.
Productivity. Over the last half-century, only three episodes of shrinking productivity occurred, and the mild recession of recent years was not one of them. Remarkably, American productivity growth has been a full percentage point above trend for nearly a decade, and actually accelerated during the Bush presidency.
Employment. Hoover’s economy lost 6.4 million jobs in four years. Most were lost during his last years in office, when Democrats controlled Congress. By comparison, payrolls jobs are down 1.14 million since Bush took office, but total employment is up by 1.31 million. Most important, the rate of unemployment is 5.5 percent today, compared to 24.9 percent during Hoover’s last year.
Those are the facts, but what are the lessons? History reminds us that presidents cannot control the economic winds. But they can change the direction of the sails.
What were Hoover’s policy responses to the Great Depression? He persuaded Congress to raise the top income-tax rate from 25 percent to 63 percent. Hoover also signed the Smoot-Hawley tariff, a 40 percent tax on imports. But aren’t higher taxes on the rich and protectionism against outsourcing Kerry’s signature issues? Every time outsourcing is mentioned in this campaign, voters should recognize Hoover’s fingerprints on the Kerry economic agenda.
There are valid criticisms one can make of the Bush domestic plan. But by denying reality, Kerry is missing an opportunity and cheapening the current economic debate. America would be better served by a sincere discussion on free trade, hitting at Republican inconsistencies on steel, sugar, and immigration. Democrats should also be attacking the rising complexity of income taxes and the corporate-interest loopholes, rather than engaging in inane class warfare.
“Gentlemen, you have come 60 days too late,” Hoover told banking officials visiting the White House in June 1930. “The depression is over.” This time around, the depression never happened. If Kerry’s theme of personal integrity is more than a slogan, he will face up to the strength of our economy and develop an honest economic agenda.
Timothy Kane, Ph.D., is a research fellow in macroeconomics in the Center for Data Analysis at the Heritage Foundation.