The Expectations Game

During the third quarter of this year, the nation's economy grew at the fastest pace in nearly 20 years. So where are the jobs?

The second President Bush knows what happened to the first President Bush. The economy started to recover in early 1991, but job growth didn't pick up for two years. That doomed the elder Bush's re-election bid in 1992. The current president said at his October 28 news conference, "I will not be satisfied until every American who's looking for work can find a job. So I proposed additional measures to keep the economy on the path to greater job creation."

The problem is, there's not a whole lot more the Bush administration can do. Cut taxes? Done that. New public spending? Not with this deficit. Cut interest rates? They're at record lows. Health care, regulatory, and legal reforms? None of those things would work in time for next year's election. Leaning on China to allow its currency to rise in value would help keep jobs in the United States, but it would hurt U.S. consumers and companies that rely on cheap Chinese products.

Consumers have certainly been doing their part to turn the economy around. Americans have been on a buying spree, driven by tax cuts, mortgage refinancings, and a stock market comeback.

But businesses have been reluctant to invest—or hire. Companies came out of the 1990s boom with too much inventory and capacity. When the bubble burst, they became wary of new capital spending. Instead, companies have gotten more work out of existing workers. As a result, productivity has increased and wages have gone up—for those workers with jobs.

But new hiring has been slow. "Companies are continuing to operate on the basis of 'Let's get the work out any way we can, but let's not go out and hire new people,' " observes John Challenger, chief executive of a leading employment-consulting firm.

Until that attitude changes, Democrats may have their issue. House Minority Leader Nancy Pelosi, D-Calif., declared last week, "Mr. President, on your watch we have lost more than 3.2 million private-sector jobs. You have the worst record of job performance since Herbert Hoover. Mr. President, where are the jobs?"

Pelosi has the history right. When Hoover was president during the Great Depression, more than 20 percent of the nation's jobs disappeared. Decade after decade, every president following Hoover saw the number of employed grow, even after the economy started going sour in the 1970s. Presidents who couldn't get re-elected still saw job growth—Gerald Ford (3 percent), Jimmy Carter (12 percent), and the first Bush (2 percent). George W. Bush is the first president in more than 70 years to oversee a net job loss (minus 2 percent).

How can the current president defend himself? He can say, "It's not my fault, and things are looking up." Bush made both points in one sentence at his recent news conference: "With the shocks of the stock market decline, recession, terrorist attack, and corporate scandals, our economy is showing signs of broad and gathering strength."

And those signs are coming at a far more opportune time for this president than they did for his father—a year before the election, rather than two months after. What should really be encouraging for Bush is that the new economic figures show business investment picking up. That could mean new hiring is just around the corner. It's especially important that business pick up the slack: Economic analysts doubt that consumers can keep the recovery going much longer, since another wave of tax cuts or mortgage refinancing seems unlikely as long as the deficit remains high and interest rates remain low.

The good numbers involving the gross domestic product also generate optimism about the economy. A Gallup Poll taken late last month showed three-quarters of Americans continuing to hold a negative view of economic conditions in the country. That assessment has held fairly steady for the past six months.

But the same poll shows that a growing number of people think that economic conditions are "getting better." The figure was 40 percent in September, 45 percent in early October, and 47 percent in late October, before the latest GDP growth figures were released.

Does the expectation that things will get better affect the way people vote? You bet it does. Take registered voters who think the economy is not good but is improving. By more than 2-to-1 (59 percent to 27 percent), those polled said they will vote for Bush over "the Democratic Party's candidate" next year. Bush might not need good times to win re-election. He may need only the expectation of good times. And that's growing.

Great expectations enable Bush to make the argument that President Reagan made going into his re-election campaign: "Stay the course." The first President Bush could not make that argument because he had abandoned his original course ("Read my lips—no new taxes!") and because job growth rebounded too late.

This President Bush needs to be in a position to argue "Stay the course," because Democrats are in a good position to say, "Try another course—our course." As Rep. Dick Gephardt, D-Mo., said at the Democratic presidential candidates' debate on October 9, "I led the fight for the Clinton economic program in 1993. It created 22 million new jobs.... We know how to do this. They do not."