Republicans in a bind over the economy
By James K. Glassman
With the general election a little more than a year away, polls show Republican front-runner George W. Bush with a big lead over Democratic Vice President Al Gore. But do not be deceived. Whoever wins the Republican nomination will have a tough job winning next November.
The reason: the economy, stupid. It is very, very strong, and, by a rule I call "Being There," the incumbent gets the credit for good economic times, whether he had anything to do with them or not.
Of course, Gore is not exactly the incumbent. Bill Clinton is. But Gore comes close enough. If the economy remains strong next year, Americans probably will be reluctant to turn over the reins to Bush. Why run the risk if times are good?
And times, at least right now, truly are good. For the past three years, the gross domestic product -- the measure of all the goods and services the United States produces -- has risen at a consistent rate of 4 per cent annually. That is nearly twice the average growth rate since World War II.
Unemployment is down to 4.2 per cent -- a figure that economists only a few years ago called impossibly low without igniting inflation. And where is inflation? Nowhere to be found. Yes, the price of oil and some other commodities has risen, but the overall price level has been increasing at just 1.5 per cent to 2 per cent, according to the Consumer Price Index, which almost certainly overstates true inflation.
More remarkably, the gains since Clinton and Gore took office in January 1993 have been shared widely. Since 1993, the unemployment rate for blacks has dropped from 14.1 per cent to 7.8 per cent and for Hispanics from 11.3 per cent to 6.5 per cent. Even unemployment among black teenagers, once thought intractable, has dropped from 40.5 per cent to 28.6 per cent.
Meanwhile, the boom in the stock market is being shared broadly. Half of Americans now own stocks, up from one-tenth in 1965 and one-fifth in 1990. More than half of America's shareholders have less than $50,000 in family income.
Should the Clinton administration get the credit for this prosperity? I would ascribe most of the credit to the restructuring of U.S. businesses, to free trade and to technology; some to the tax-cutting of the Reagan administration, and the deregulation of the past two decades in transportation, energy and telecommunications; and much to the monetary regime of Paul Volcker and Alan Greenspan.
Still, in the last two elections (presidential, then congressional), there is not the slightest doubt that the public re-elected Democrats as a reward for a strong economy. Now, if anything, the economy is stronger.
So, what are the Republicans to do? They are clearly in a bind. Americans are so happy with the economy as it stands that they are wary even of cutting taxes! And Republicans are so desperate that they have begun attacking not Clinton and Gore, but Greenspan!
The path to GOP electoral success
One approach for the GOP nominee would be to warn that the economy is headed for trouble because of poor Democratic stewardship. This is a dangerous tack first because Americans are largely optimists and do not want to hear tales of gloom and doom (or "malaise," as President Jimmy Carter called it) and second because voters will not believe the warning when they can see boom times.
Another approach would be to concentrate on the economic soft spots -- in agriculture, for example, where prices have plummeted. Nearly all the candidates have been harping on this subject in Iowa, home of those famous caucuses, but again, the argument that the economy is terrible because of low farm prices (which are a good thing for 95 per cent of Americans) also is unbelievable.
A third approach would be to contend that Republicans, not Democrats, should get the credit for prosperity. While this argument has the merit of being true -- the stock and bond markets both turned around in November 1994 with the election of a GOP Congress, and Clinton certainly would have taxed and spent much more without Republican opposition -- it, too, is unlikely to be believed by most Americans, who tend to identify government with the White House.
My own recipe for Republican success is to steal a Democratic theme -- just as Clinton and Gore have stolen Republican themes like welfare reform, a strong defense and fiscal discipline. The theme I have in mind is spreading the wealth, letting the poor share in the prosperity. The argument, in the words of a GOP candidate, would go like this:
"The years since the election of a Republican Congress have been among the most prosperous in our history. The parties have learned, in many ways, to work together. But not all Americans have shared in the prosperity. The key to the good life in this country is wealth: a bank account, ownership of stocks and bonds, and a home -- a nest egg for later years and money to pass on to children or to beneficiaries such as religious organizations and charities.
"But the shame is that one-half of Americans have no wealth at all. How can they, when high taxes, especially payroll taxes, rob them of the chance to build up assets? I propose that we immediately reduce those taxes and allow citizens to direct that money to savings and investment accounts. These accounts would serve two purposes: They would allow all Americans to build wealth, and they would help boost a low savings rate that threatens, perhaps soon, to derail our strong economy."
'Wealth for all'
In other words, concede that the economy is good, hint that it might get off track, talk about the disadvantaged and stress wealth creation.
The long-term hope for Republicans lies in the burgeoning "investor class" -- Americans who own stock and, therefore, have a stake in businesses free from heavy taxation and regulation. Many Democrats would rather see Americans dependent on government for their security, but "wealth for all" is a much stronger rallying cry. Voters are skeptical that government can accomplish much of anything.
What does "wealth for all" mean in concrete terms: payroll-tax cuts, expanded (unlimited) individual retirement accounts, and movement toward personal savings and investment accounts to replace Social Security. But details are not necessary in this election; a general philosophy and direction are. It is difficult to see how those can be formulated in any way other than what I have outlined here.
James K. Glassman, a fellow at the American Enterprise Institute, is the author, with Kevin A. Hassett, of Dow 36,000, just out from Times Books. He is a contributing editor to IntellectualCapital.com. Reprinted by the kind permission of IntellectualCapital.com
© 1996-2013, Enter Stage Right and/or its creators. All rights reserved.