Woes For Dubya
New York Post
Sunday 4 May 2003
May 4, 2003 -- If history is a lesson, President Bush's re-election bid has already been ambushed by rising unemployment, weak economic growth and the bear market.
"Unless the economy stages some sort of miracle comeback, the outlook for the president is grim indeed," said Donald Straszheim, head of independent research boutique Straszheim Global Advisors.
According Straszheim's research, which goes back 40 years, no incumbent president or his party has been returned to office if jobs growth was under 3 percent in the third and fourth years of his term. So with unemployment at 6 percent and headed higher, a dramatic reversal before the 2004 election is unlikely.
On the other hand, employment growth of more than 5 percent in the second half of a president's term has assured victory in every case but one - in 1968 when the Vietnam war was the major issue. Jobs growth between 3 and 5 percent has not been a decisive factor.
With the dismal economic picture overshadowing the U.S. victory in Iraq, it's natural to compare Bush to his father, whose jobless recovery cost him re-election, despite success in the first Persian Gulf War.
A better comparison might be to Herbert Hoover, who presided over the Great Depression, suggested Lawrence Mishel, president of the Economic Policy Institute think tank.
Bush is on his way to becoming the first president since Hoover to lead an actual decline in employment, said Mishel. He estimates the economy would have to add 140,000 jobs a month to make up for more than the 2 million lost since Bush took office.
Meanwhile, gross domestic product - up just 1.6 percent in the first quarter - is widely expected to grow just 2 percent this year. Growth topping 3.5 percent is needed to put a dent in unemployment, Mishel said.
Yet unemployment "is not a disaster yet," according to Joel Mokyr, a professor of economics and history at Northwestern University. More troubling to him is stocks' vicious bear market, now in its fourth year.
"A lot of people have taken very big stock market hits," he said. "The real question is, are they going to blame the administration for that?"
The Dow Jones industrial average is down about 20 percent since Bush took over. But that's not how it's supposed to be, pointed out Sung Won Sohn, chief economist at Wells Fargo.
Stocks have risen an average 5.2 percent in the first year of a president's term, 2.3 percent in the second, a whopping 12.4 percent in the third and 9.3 percent in an election year, Sohn noted.
The reason is that presidents typically take what may be perceived as unpopular economic measures early and then reward the voting public later in the term to improve re-election chances.
"That tells you that the economy has to do pretty well," Sohn said. "How the economy performs this year is really a make or break for President Bush."
In Bush's favor are continued low interest rates, which have fueled home buying, and a decline in gas prices.
His economic stimulus package, though slashed from $726 billion originally, also could help. It would bring $550 billion in tax relief if the Senate backs a House version of the budget.
"It looks like the timing is right," said David Wyss, chief economist at Standard & Poor's.
Sohn disagreed, noting that the bulk of the relief will arrive in early 2004 - too late to help Bush.
Adding to Dubya's woes are state and local cash crunches caused by the plunge in tax revenues as people shop, travel and work less. The capital-gains portion of income tax revenue in particular has taken a hit because of the bear market.
So expect a hike in state and local taxes. With a total $100 billion in state budget deficits, half the nation's governors have proposed tax increases, according to the Center on Budget and Policy Priorities.
"In some sense, the tax rebates are all going to pay for more expensive services," Mokyr said.
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