The Only Real Issue That Hurts Republicans in 2004

[jaichind]

Unemployment's down to 5.6 and shrinking. Not as low as people thought it might go, but that's good because the Fed won't mess with the bond rate. The economy is on the way up. Eventually we should reach a boom, probably early next year.

The issue I'm most worried about is WMD. Bush is now saying that we might have been wrong in Iraq, but he didn't do it purposefully if so, and there were still perfectly good reasons to go to war (better ones actually, Saddam supported terror, was a monstrous dictator who had to go as soon as possible, and his fall could spur a democratic outburst acroos the Mideast.) This is actually a decent argument and if it is the major issue, Bush will win reelection. BUT though it is not a real political problem, it could be a policy problem. Say the ayatollahs are on the verge of acquiring a warhead. Bush says we must consider military options, and the media and the libs will go, "fool me twice, shame on me". Effectively it could make it politically impossible for the USA to save the Middle East from becoming so much radioactive slag.

Bush can talk about the decrease in unemployment rate to 5.6% all he wants but the fact is that total labor participation rate is still just 66.1%, no higher than most of last year.  While 112,000 jobs were added, about 76,000 of it are in the retail industry.  Due to a weak retail holiday season late last year, not as much retail employment did not increase much late last year and as a result the increase in retail employement in January 2004 is artifical as less surplus retail employees are laid off.  Besides, most of these jobs are low paying service jobs and reflect the fact that the structural economic problems in the US economy are unresolved.  While these problems are not the result of the actions of the Bush administration, it has do nothing to solve them and in fact make them worse on the long run.  The fact is the Bush administration is the first administration to have a net negative change in employment since the Hoover administration.

[jaichind]

Jaichind,

Much of what you say is true, but much of what you say is also incorrect or misleading. Here's where you are right and wrong:

YOU WERE RIGHT:

1. The drop of the unemployment rate from 6.3 to 5.6 IS misleading because many of the people who dropped off that list simply ran out of unemployment benefits and are still not working.

2. Most of the new jobs created were low paying retail and service jobs.

3. There are currently profound and fundamental structural problems with the U.S. economy.

4. These prolems are NOT the result of actions by the Bush administration.

YOU WERE WRONG

1. You said Bush has done nothing to try and solve these problems, but you ignore massive tax cuts which HAVE acted as a stimulant to the economy.

2. The comparison to the Hoover administration was quite silly in light of the overall economic picture. I believe you'll find that the economy was FAR worse under Carter than Bush, for example.

3. In your assessment of the unemployment figures, you fail to point out the massive increase in self-employment over the past few years, and that these numbers are NOT properly reflected when new job creation is calculated. This is a CRUCIAL point, because traditional job creation statistics do not reflect the modern trend towards the startup of small business and the tendency of many to act as independent contractors rather than employees.

I feel that the current structural problems in the USA are high and growing personal debt, real estate market bubble, over consumption leading to a high current account surplus, and surging budget deficit.  All this leads to a possible future dollar crisis.  Over the last few months foreign buyers of USA assets have dried up over the current account issue and the current account deficit is pretty much being financed by Japanese and PRC purcheses of US treasury debt in an attempt to hold down the value of their respective currencies.  The way out is the restructure the tax code to encourage savings and discourge consumption and higher interest rates to deflate the real estate bubble.  Both these solutions have the short-term affect of pushing up unemployment rates.  The Bush administration, instead of confronting these issues, has opted for an opportunistic Keynesian approach by cutting taxes, increasing spending in all areas to create a fiscal simulus which is the largest him USA history.  The fiscal balance swung from a surplus of 2% of GDP to a deficit of 4.5% of GDP within two years.  The purpose, of course, is to prevent a deep recession that USA deserves given the Clinton bubble and holding down unemployement so Bush can get re-elected.  Given the ammo the Bush administration wasted to keep unemployement down, the results are disappointing as the labor particpipation rate still remains low.  I have no problem with the Bush tax cut on its own.  If the choice was the Bush tax cut or nothing I would still opt for the Bush tax cut.  But I feel that the political capital Bush used to get it should have been spent on a restructing of the tax system to encourage savings and discourage consumption.  The fiscal surplus is now gone and we are looking a decificts for years to come and after 2008 the social security balance will fall into deficit.  Bush has demostrated that he has put his re-election ahead of solving basic economic issues.  He merely delays them and such delays make them worse.

I concur that the current state of the economy is not at all like that of the Hoover administration.  My point is that despite the largest fiscal simulus in USA history in a bid to keep employment high, the Bush record on net jobs is the worst since Hoover.  I personally do not measure economic success by the short-term number of jobs created or destroyed.  But the actions of the Bush administration seems to be using this as a critia.  By its own criteria, the Bush administration has failed on this count.

[jaichind]

Oil priced in Euros will hurt the US economy on the short-run.  The reason is the follows.  The USD is the reserve currency of the world and it follows that all major commodities are priced in USD.  This in turn means that all non-USD economies hold USD in reserve to pay for raw material imports, or any imports priced in USD for that matter.  This in turn means they have to hold securities priced in USD which in turn means holding US treasuries.  This has the affect of pushing down US intrest rates and subsidies US federal deficits and in turn overcomsumption of the USA consumer.  

If commodities were priced in euros, then reserve holdings would shift to euros and push up both short-term and long-term rates for USA treasuries.  This means US federal deficits and debt are less sustainable and cutbacks will be needed in federal spending.  This will hit the USA economy on the short-long in terms of growth and employment.  

With the obvious relative decline of USA economy vis-a-vis other economies over the next few decades as a forgone conclusion this might be a good thing on the long run as it would remove the situtation where the USA consumer borrows from the rest of the world to consume at an unsustainanble rate.  This hurts both the USA and the rest of the world on the long run and should be phased out over time.

[jaichind]

Oil priced in Euros will hurt the US economy on the short-run.  The reason is the follows.  The USD is the reserve currency of the world and it follows that all major commodities are priced in USD.  This in turn means that all non-USD economies hold USD in reserve to pay for raw material imports, or any imports priced in USD for that matter.  This in turn means they have to hold securities priced in USD which in turn means holding US treasuries.  This has the affect of pushing down US intrest rates and subsidies US federal deficits and in turn overcomsumption of the USA consumer.  

If commodities were priced in euros, then reserve holdings would shift to euros and push up both short-term and long-term rates for USA treasuries.  This means US federal deficits and debt are less sustainable and cutbacks will be needed in federal spending.  This will hit the USA economy on the short-long in terms of growth and employment.  

With the obvious relative decline of USA economy vis-a-vis other economies over the next few decades as a forgone conclusion this might be a good thing on the long run as it would remove the situtation where the USA consumer borrows from the rest of the world to consume at an unsustainanble rate.  This hurts both the USA and the rest of the world on the long run and should be phased out over time.

Hmmm...but then the pricing of commodities is more a symptom than an indepedent factor, is it not?

Not really.  If all trading economies other than the USA tomorrow agreed that they would only pay euros to OPEC for oil, then OPEC will, going forward, price its product in euros and not USD.  Since there is no written law somewhere that says USD HAD to be the reserve currency of the world, this action will decrease USD and increase euros as the reserve currency across the world.  Then what follows will take place exactly as what I stated earlier.  Right now the situation is dollar hegemony and USA is deriving, what I consider unfair and unsustainable benefits from it.  This current state of affairs, I feed, will pass, to the long-term benifit of all.