Features > February 10, 2004

Buy In Now, Pay Later

By Dean Baker

Anyone hoping that President Bush would produce a plan to help the nation’s workers through difficult times was sure to be disappointed by his State of the Union address. Not only did he fail to present any solutions, he doesn’t even seem to realize that we have a problem. He boasted about low inflation at a time when the Federal Reserve Board has expressed concerns that the economy risks deflation. He touted the current low interest rates, which the Fed has quite explicitly maintained because of the extraordinarily weak state of the economy.

It is understandable that the president wouldn’t dwell on bad news in his speech, but it seems only reasonable to acknowledge the obvious. For the first time since the Great Depression, the United States has gone three years without creating any jobs. Since the job loss also has been accompanied by a shortening of workweeks, the total number of hours worked in the economy is back to its November 1998 level. While the current 5.7 percent unemployment rate is not very high by historic standards, the ratio of employed workers to population (which economists recognize as a more meaningful measure of the labor market’s strength) is down more than 2 full percentage points from its 2000 peak. This corresponds to a drop in employment of more than 4 million people. Not surprisingly, the weakness in the labor market also brought an end to the strong wage growth of the late ’90s.

Unfortunately, the outlook for the near future in a Bush administration doesn’t look much brighter. His top priority is more tax cuts for the wealthy. More tax breaks, coupled with more military spending, will divert money from productive uses while providing little stimulus to the economy. The president’s biggest hope is that the current housing bubble can continue to sustain the economy through the election; the damage that will result when it bursts can be dealt with later.

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• Reader Comments

  I agree that President Bush has not done a fair job in boosting the economy.  People are afraid to spend hard-earned money on anything that does not hold a permanent value, such as housing.  The fact that the Federal Reserve has kept interest rates low is the only hope most middle-income, blue collar workers have for their future and that is a home over their heads.  With the employment rates as high as they are and companies and factories closing at a tremendous rate, job security is no longer feasible.  Therefore, people are not feeding our economy by spending as we had in the past.  With Bush’s plans to continue tax breaks to the wealthy and feed more into war efforts, it is frightening to think where the middle class will be, should he be elected for another term.

  Posted by Jessica Panos on Feb 11, 2004 at 9:31 PM

  In your opinion, will the middle class eventually be eliminated?

  Posted by Jessica Panos on Feb 11, 2004 at 9:32 PM

  The ratio of employed workers to population is a statistic of very questionable value.  At the time when Social Security was enacted, the actuarially-estimated life span of a person 65 years old was 4 years.  Today, it would be closer to 15 years.

  Assuming that the average person who had previously been in the work force retires at age 65, then it would be very relevant to know how this age group’s percentage of the population has increased over the years.

  Other factors will also alter the ratio of employed workers to the general population.  During the baby boom, when there was a higher percentage of children in our population, the ratio of employed persons to population would have been lower.  Women’s entry into the labor market would have increased the ratio.

  Without disputing your basic point that the Bush Administration has had a poor record on job creation, I question the value of the particular statistic you have cited to make your point.

  Sincerely,

  John F. Bradley

  Posted by John F. Bradley on Feb 12, 2004 at 4:40 PM

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