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Behind the "good news" economy

By Lance Selfa | February 27, 2004 | Page 9

IN THE midst of so much high-profile White House crow-eating these days, it was easy to miss President Bush's repudiation of his own budget's prediction that the U.S. economy would recover in 2004 all the jobs it has lost since 2001. This faith-based estimate assumed that the economy would create an average of 300,000 new jobs each month between November 2003 and December 2004--a total of 3.6 million new jobs.

In reality, the economy added 211,000 jobs in November, December and January--about 689,000 fewer than Bush's economic advisers predicted. So it was understandable that Treasury Secretary John Snow, Commerce Secretary Donald Evans and Bush himself backed off the Council of Economic Advisers' rosy predictions earlier this month. Apparently, they felt a hard-number prediction of jobs created in an election year would be too easy a target for Bush critics to aim at.

One of the standard truisms of U.S. politics is that a growing economy is a recipe for re-election. In fact, political scientists have created elaborate computer models that claim to predict--based on statistics like per capita growth in the gross domestic product--the results of presidential elections months ahead of the actual voting.

These models are fairly reliable--except when they're not. Most of them failed to predict Bill Clinton's victory in 1992 or Al Gore's "loss" in 2000.

Today, the political scientists are predicting a landslide Bush victory in November. Look, they say, at the robust economic recovery, the run-up in the stock market, the booming housing market and declining unemployment rates.

But these "good news" figures hide other realities that are just as important to understanding the true state of the economy as real people experience it. Almost two years into the official recovery from the 2001 recession, the economy still operates with about 2.5 million fewer jobs than it had before the recession. Massive increases in productivity that have become a feature of the economy in the last five to seven years have allowed employers to drive fewer workers harder.

Employer attacks on benefits, attacks on unions, offshoring of jobs and other stratagems have all served to line employers' pockets further. "There is a simple explanation for the disconnect between what aggregate gross domestic product (GDP) numbers are telling us and what many working families feel: this is the most profit-based recovery since World War II. While corporate profits have soared, growth in labor compensation (the paychecks that families live on) has been historically sluggish," the Economic Policy Institute (EPI) reported January 30.

Seven quarters after the end of all post-Second World War recessions, wages and benefits for workers accounted for 75 percent, on average, of all growth in national income during the recovery. Never has labor's share of the increase in national output gone below 65 percent.

But in the fall of 2003--the seventh quarter since the official end of the recession--workers' wages, salary and benefits account for only 40 percent of the growth in national income. That means 60 percent of national income generated since the end of the recession has gone to corporate profits.

Not only is this recovery the most profit-heavy in 50 years, its benefits for the bosses have actually increased the longer it has lasted. "Corporate profits continue to rise as a share of income growth, while labor compensation continues to decline," the EPI reports.

This massive shift in wealth from labor to capital underpins the class polarization that reveals itself in many ways--from the southern California grocery workers' strike to opinion polls showing majorities of Americans condemning Bush's record on the economy.

"I'm not a statistician," Bush said when he trashed his own economic advisers' jobs predictions. If the current economic recovery continues on its current trend, a year from now, Bush might not be a president anymore either.

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