Job loss isn't Bush's fault.

JOHN EDWARDS MAY have been the first to recognize the potency of job loss as an issue in the 2004 election cycle, but John Kerry has now firmly made it his own. "Dick Cheney went on TV and said, 'If we had John Kerry's tax policies, we wouldn't have had the job growth we've had in the country right now,'" Kerry told a crowd in New Orleans last Friday, amid news that January had brought a mere 21,000 new jobs, far fewer than the 125,000 jobs economists had expected. "I came here to say today, 'You're darn right, Mister Vice President. We'd have had real job growth; Americans would be working.'"

Listening to Kerry, you almost get the impression that George W. Bush personally scrolls through corporate payrolls looking for vulnerable people to throw out of work. "I think, when you're seven million jobs in the hole, step number one is pretty simple: Stop digging," Kerry thundered in Ohio last month. By this logic, all the country needs is a president more sympathetic to the plight of the common man and we could instantly reverse the recent hemorrhaging of jobs. Alas, it's not so simple. As incompetent as Bush may be at managing the economy, he deserves little if any responsibility for the millions of jobs lost during his term. Nor is there much Kerry or any other Democrat could have done to reverse the trend had they been in office instead.

CALL IT COSMIC justice for the Florida recount or a genetic predisposition toward economic bad luck. But, whatever you call it, you have to acknowledge that the deck was pretty much stacked against Bush on the jobs issue from the day he entered office. Just as American businesses over-invested in computers and sophisticated factory machines during the bubble years of the late '90s, they also over-invested in labor. There is some debate among mainstream economists over the lowest unemployment rate that can be sustained without causing inflation. (Companies must bid up wages when employees become too scarce.) Most economists put the sustainable unemployment level (known as the nairu, or non-accelerating inflation rate of unemployment, for sticklers) somewhere in the low 5 percent range. But, even if you're optimistic and put it slightly below that, the economy would still have needed to shed between a million and a million and a half jobs from its late 2000 unemployment rate of 3. 9 percent. Of course, the economy has actually lost, on net, many more jobs than that--some 2.2 million since early 2001, according to the Labor Department's payroll survey, historically the most reliable measure of employment. But, even blaming Bush for the million-plus additional lost jobs strains economic logic.

At the most abstract level, there are two things that determine short-term employment growth: the rate of growth of the overall economy, which affects job growth positively (the better the economy, the more new jobs), and the rate of productivity growth, which affects job growth negatively (the higher productivity, the fewer new jobs). This, in turn, means there are two possible explanations for a period of subpar job growth. First, the economy can be in the tank, in which case companies aren't hiring because there isn't much demand for their products. Second, the economy can be healthy, but companies are getting more production out of their existing employees. Both of these scenarios have played out over the last few years.

During the recession, which officially lasted from March to November 2001, the economy was shrinking, and there was little need to do much hiring. Then, even after the recession ended, the first year and a half or so of the recovery proved incredibly lackluster, thanks to a range of factors--excess capacity left over from the bubble years, fallout from the September 11 attacks and the corporate scandals, anxiety over a likely war with Iraq. Not only did these "shocks" act as a drag on economic growth; they acted as a particular drag on hiring. "It's been quite clear from the behavior of the labor market how important these shocks have been," says Ethan Harris, Lehman Brothers' chief economist.

Critics will respond that, even setting aside these shocks, the Bush administration still deserves at least part of the blame for the economy's weakness during this time. Liberals in Congress and at think tanks like the Economic Policy Institute offer three basic critiques: that the Bushies should have targeted the bulk of their tax cuts toward the working poor and middle class, who would have been more likely to spend their tax savings than more affluent beneficiaries; that more of the tax cut's benefits should have been delivered in the short-term rather than over five or ten years; and that the administration should have sent more help to the states, which were forced to cut spending and raise taxes even as the federal government was doing the opposite.

But, of these three criticisms, only the last one really holds water, at least as far as stimulating the economy is concerned. First, there is increasing evidence that affluent people spend a higher proportion of their income than economic models have traditionally predicted. And, Democrats' complaints about back-loading notwithstanding, the tax cuts appear to have provided plenty of stimulus when it counted. In all, according to Stephen Roach, Morgan Stanley's chief global economist, the 2003 tax cut has provided about 1. 5 percentage points of economic growth, which amounts to about $150 billion in our roughly $10 trillion economy. (By comparison, the economy grew by about 3.1 percent overall last year.) Meanwhile, though the states did suck some of that stimulus out of the economy, the effect was probably far overshadowed by the effect of the war. Though (as mentioned above) war-related anxiety probably hurt the economy prior to the invasion, Roach estimates that the tens of billions of federal dollars spent on the war and reconstruction could be credited with almost another 1 percentage point of economic growth.

The broader point is that almost no serious economist argues that the economy has lacked for stimulus during the last three years. Between the tax cuts, additional spending, the falling dollar (which makes U.S. exports more attractive abroad), and--perhaps most important--the Fed's historically low interest rates, the concern, if anything, has been that the Bushies and the Fed have done too much. "I think, combined, it was a Herculean effort," says economist Lakshman Achuthan of the Economic Cycle Research Institute. "We've never seen this kind of stimulus." Even Alan Greenspan, no foe of tax cuts, worried during the winter of 2003 that the latest round of tax-cutting might be overdoing it, stimulus-wise.  

WHICH BRINGS US to the second way the Bush administration might have failed the American worker: the inability to convert economic growth into jobs. With the war and the corporate scandals behind us, the excesses of the '90s finally getting worked off, and two and a half years' worth of stimulus kicking in, the economy rebounded nicely in the second half of last year, growing at roughly a 6 percent rate. The problem from the standpoint of workers was that large productivity increases--some of them made possible by technology, some made possible by outsourcing--have rendered new hires unnecessary. Over the last two years, productivity has increased at a torrid 4.5 percent rate on average.

But, pace Edwards and Kerry, this is good news, not bad news. The only drawback to increased productivity takes place in the very short run, when it slows job growth. In the long run, rising productivity is what improves our standard of living. As Berkeley economist Brad DeLong has pointed out, if the productivity of our labor force grows by 1.2 percent per year, it takes about 60 years for the income of the average American to double. If, by contrast, productivity grows by 3 percent per year, it takes only 25 years. And, ultimately, more income implies more economic growth and, therefore, more jobs. Which is to say, trying to put the kibosh on productivity growth in order to generate a few token jobs today would be utterly self-defeating. Joking about ways in which the government could conceivably accomplish that, former Federal Reserve Board Governor Laurence Meyer suggests, "We could cut out kindergarten. We could say no more school beyond seven years. I think we could do it if we tried."

Actually, even that's not clear. While we could certainly make American workers less productive, there probably isn't much we can do to prevent U.S. companies from outsourcing work to cheaper locales, short of making it against the law. (Outsourcing work abroad effectively increases productivity by increasing the amount of output an economy can produce with the same amount of resources. Trade has a similar effect.) Kerry has put forth a series of proposals intended to keep manufacturing work in the United States--closing tax loopholes that reward outsourcing, providing tax credits to encourage domestic manufacturing. But the effect of these proposals would be marginal. As long as, say, Mexican autoworkers make about one-fifth of what American autoworkers make, saving a few thousand dollars on payroll taxes isn't going to make much difference.  

OF COURSE, JUST because you can excuse the administration's record on job growth doesn't mean you can excuse its overall economic agenda. Even though the Bush tax cuts have succeeded at stimulating the economy, they've done so at enormous (and largely unnecessary) long-term cost. The large deficits created by such K Street goodies as a cut in the tax on dividend income and the (longer- term) lowering of top marginal income tax rates will almost certainly drive up interest rates once the economy sees a few quarters of growth. That could choke off today's healthy expansion not long after it started. Likewise, even if tax cuts that primarily benefit the affluent don't turn out to be appreciably less effective at stimulating the economy than tax cuts that primarily benefit the working poor, they're clearly less defensible morally. And, of course, the administration certainly hasn't done itself any favors on the jobs issue-- selling its repeated tax cuts as job-creation plans when they were intended as long-term efforts to starve the government of revenue and lighten the tax burden on the wealthy.

But the idea that correcting any of these deficiencies would have saved a significant number of jobs over the past few years is far-fetched at best. I have no problem with Kerry scoring political points on the jobs issue if it helps elect an administration that cares about the long-term consequences of its economic policies. But, if Kerry seriously thinks he can influence the pace of short-term job growth any better than Bush, then he is sorely mistaken.

This article appeared in the March 22, 2004 issue of the magazine.