Don't be sentimental, Mr Bush

George W. Bush's "compassionate conservatism" has attracted imitators around the world. But Bush wannabes beware: at home, the label often lands the president in trouble.

This summer, for example, the US economy has yielded some spectacular productivity numbers. Yet Mr Bush's opponents are arguing that the new data prove him to be a heartless corporate type. For what is increased productivity but increased profiteering if it is not accompanied by strong job creation? And there has been no strong job creation: unemployment is significant, even "high" at more than 6 per cent, as Howard Dean, one of the contenders for the Democratic presidential nomination, has noted. The situation is so dire, says Dick Gephardt, a fellow hopeful, that the best way to ensure that the US economic engine survives is to impose a worldwide minimum wage (an ambition worthy of a German). At a presidential debate this week, the Democrats will vie in their attacks on Bush economics.

The argument that the president has failed sounds exaggerated, given that the US economy on the whole has fared well under him, notwithstanding big market corrections and September 11. And it seems downright crazy when we consider the economy's postwar record.

Start with that troublingly jobless productivity increase. Productivity is a simple concept: widgets produced, divided by input. Labour often dominates the input figure. It is therefore difficult to generate high productivity and substantial employment increases at the same time. The very phrase "jobless productivity" is close to a tautology.

But that does not mean productivity gains are not good for workers in the longer run. For one thing, when companies make the sort of profits US corporations are announcing now, they tend to pay better wages to the workers they do employ. They also tend to invest in projects that eventually create yet more jobs - perhaps not precisely the same sort of jobs, but more jobs nonetheless. If this were not true, what with the productivity gains of the past three centuries, we would all be unemployed by now.

High productivity is in any case better than other sorts of productivity - weak, middling - that the US experienced in the 1970s, 1980s and early 1990s. Indeed, in those days it was low productivity numbers that were said to presage US decline. In 1980, concern about Japanese success and low US productivity led Congress to pass the Bayh-Dole Act, which permitted universities to patent ideas or research that they had developed with federal funds. It is revealing that Japan, doubtless in a mood of similar desperation, passed its own version of Bayh-Dole about four years ago.

Some commentators worried that low productivity was such a persistent problem that it would drive the US to become a protectionist stronghold. Other commentators blamed President Ronald Reagan's administration. Even as recently as the early 1990s, editors at US financial papers were hosting teas for famous economists at which everyone would speculate as to when, if ever, productivity might resurge.

Which brings us to the second Bush datum, unemployment. This is a more genuine problem. Many hundreds of thousands of Americans have failed to find replacements for the jobs they lost after the 2000 market highs. Here the campaigning Democrats are right: America needs to create more work.

But unemployment, while significant at 6.1 per cent, is not high compared with what most American adults have experienced. In the 1970s, 1980s and early 1990s, economists and politicians alike believed that 6 per cent or so was the "natural" rate of unemployment, below which there would be dangerous inflation. Kevin Hassett of the American Enterprise Institute points out that in the early 1990s, unemployment fell so low that President Bill Clinton began a campaign to cut unemployment insurance benefits from 30-plus weeks to 26. That dangerously "low" rate was 6.8 per cent.

Which brings us back to Mr Bush and his compassion. Recently, he has announced several compassionate initiatives, including "re-employment accounts". These sound like modern private-sector Republican projects but are really Democratic-type cash payments for training, day care and so on for the unemployed. On Labour Day, Mr Bush also announced that he would establish a "jobs tsar". This recalls the 1970s, not a decade that reflects well on presidential economics.

It is easy to see what moves Mr Bush. He feels for the unemployed. Who doesn't? And he reckons that the election cycle moves faster than the Schumpeterian economic cycle.

Still, hedging weakens his general argument, which is, or ought to be, that his rather significant tax cuts and other pro-growth measures will in the end serve the compassionate cause of job creation. Better, certainly, than any sentimental motto.

© Copyright 2003 Financial Times

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