Jewish World Review Oct. 22, 2003 / 26 Tishrei, 5764
Peter A. Brown
Bet on Bush and the economy
http://www.jewishworldreview.com | I have a close friend, who along with many Democratic dreamers, predicts the economy will sink President Bush' re-election.
I disagree, so I put my money where my mouth is. I offered to make up the difference if his stock account doesn't rise 3 percent during the next six months (triple what banks and bonds are paying), but I would get any return over that amount.
He may be misguided, but he's no idiot and declined my offer. At heart, he understands that the economy may not be great, but it is OK and surely getting better - which bodes well for Bush's political future.
Granted, the economy is about much more than the stock market, but historically Wall Street has accurately predicted the economy better than the unemployment data.
Not surprisingly, Bush's critics use the jobless numbers to argue the sky is falling. It's all they have, even though the latest reports also show job growth.
It is hard for people to understand the confusing economic data that have shown more Americans out of work even while sales and company profits are rising.
However, remember this: Sales and profits are actually counted. Joblessness, on the other hand, is measured by estimates based on tiny fractions of the work force.
The politically correct answer is that everyone who wants to work should have a job, but 4 percent is considered full employment. Even during the booming late '90s, unemployment only dipped to 3.9 percent compared with 6.1 percent today.
By comparison, during the 1990-91 and 1981-82 recessions, joblessness hit 7.8 percent and 10.8 percent, respectively.
Moreover, there are reasons to question current unemployment statistics: The economy has changed, but the ways of measuring joblessness may not have kept pace.
It is not, as some argue, that joblessness is higher than the government says, although some factors could lead to that conclusion.
The U.S. Department of Labor conducts two surveys to gauge joblessness. The employment measure that the media reports regularly may overstate joblessness.
The one upon which most media reports are based polls 400,000 non-small businesses. The other surveys 60,000 U.S. households.
Historically, those two surveys have shown similar readings. But for the last two years, the household survey has shown more employment than the poll of businesses.
That may be because, when people are laid off, some start their own firms, in traditional storefronts or as home-office contractors.
These people are not counted in the survey of companies.
The economy has changed dramatically as technology has redefined both how and where people work.
No longer do big firms fuel the economy. Job growth is in small businesses, many of which benefit from the "outsourcing" of nonessential duties that big companies once did themselves. Take the manufacturing firm that fires its security staff and hires a company (which often rehires the same workers) to do that same job.
Often, these workers' wages drop, but it is part of the creative destruction of capitalism. In the end, the bigger firm that cut costs will take the money saved by outsourcing and hire more people to expand its core functions.
It's a messy process, but it's one that provides Americans overall such a high standard of living.
Because such smaller firms spring up quickly, the government often does not know they exist. The household survey, therefore, might be more accurate.
Some argue unemployment is understated because the numbers do not count those who've stopped looking. Doubtless those people exist, but one wonders, how many people who need work really give up?
Clearly, many work for themselves as contractors, not just high-tech types, but also tradesmen or service providers. The survey of businesses does not count the self-employed.
Perhaps more importantly, the survey of businesses can't count the millions who work in the difficult-to-measure underground economy. The International Monetary Fund recently estimated 8.6 percent of the U.S. gross domestic product comes from those who work off the books.
Furthermore, if the IMF figure is close to accurate that means about one out of every 12 workers is not reflected in the government figures.
Contractors or underground-economy workers may earn less than Fortune 500 employees and enjoy fewer benefits, but they pay less taxes and keep more of what they earn.
This is not to argue that the economy is booming as it was in the late 1990s. Clearly, it is not.
Some people are hurting. But, beware of the anecdotes, and think about the comparative data.
And the next time you hear a politician calling the economy the worst since the Great Depression, you might want to ask him to put his money where his mouth is.
09/23/03: France's time to decide: Friend or foe