September 30, 2003

SOMEONE PASS KRUGMAN HIS SMELLING SALTS:

Economy growth beats expectations: A hot housing market and spending for the war in Iraq gave a boost. (Martin Crutsinger, Associated Press)

The U.S. economy, powered by a red-hot housing market and a huge dose of spending for the war in Iraq, grew at a surprisingly strong 3.3 percent clip last quarter and raised hopes for an even better performance the rest of the year.

The increase announced yesterday in the gross domestic product for the April-June period represented an upward revision from a 3.1 percent estimate a month ago.

Analysts said growth in the July-September quarter would be at a significantly higher rate, fueled by President Bush's newest round of tax cuts, which took effect in July, and continued low interest rates from the Federal Reserve, a combination that has helped to push auto and home sales to record levels.

"The economy is firing on all cylinders," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "The strong economic growth we are predicting in the future should create some new jobs."


So continues 20+ years of uninterrupted economic growth.

Posted by Orrin Judd at September 30, 2003 8:40 AM
Comments

The economy still seems a bit sluggish but, barring a shock like an attack, will be growing quite nicely next year. The question is whether people notice it (and it helps Bush) or people don't notice it (and it hurts Bush like it did to his father in '92)

Posted by: AWW at September 30, 2003 9:18 AM

I think it was oj who once said that the worst (political) outcome of the 1992 election was to afford Dems the opportunity to capitalize on the "low-hanging fruit" that was the US (and global) economic and geopolitical landscape as we approached 1993. This is the biggest "problem" W will face with respect to the economy: Not how sound it is in absolute terms, but how the Dems and their media accolytes will portray it in relative terms (relative to the late-90's).

That this strategy can work would only add insult to injury. The late-nineties were characterized by (1) unbridled (political and economic) excesses, which planted the seed for this current slow-down) and (2) rational return on (previous) macro and micro policy investments. I am not sure one can blame the Dems for the excesses; but there is no doubt that they have made W's task infinitely harder, and as such they have been the greatest beneficiary of their effect. What I am sure of is that one should also NOT give the Dems credit for what was return on investments made mostly by others. The heavy-lifting (macro and political restructuring) done by Reagan/Thatcher (including the winning of the Cold War) and the entreupenership (micro) of those businessmen/women who were willing to invest in technological innovation (against the cries of "where is the productivity?" or worse, "you are firing too many people") afforded Government (Reps in Congress leading the way, but not as far as the Dems is concerned) the opportunity to take credit for an unprecedented stretch of feel-good.

Has this given Dems of every stripe the credibility to run on such an obvious sophistry: "I would not mind paying Clinton Taxes if I got the Clinton economy back"! (And by the way, they are now also seeking to innoculate themselves aganist their other flu -- national security -- by essentially claiming "I would not mind kicking some major ass if I has Wesley Clark as Commander in Chief".

All of this is going to take some meticuluous debunking because it could sound so appealing to a tired nation.

Posted by: MG at September 30, 2003 10:20 AM

Except that Clark says he favors hugging ass, not kicking it.

Posted by: oj at September 30, 2003 11:31 AM

MG - agree. Today the Chicago PMI and Conference Bureau Confidence numbers came in well below expectations, leading to the markets being down about 1% each. The Chicago number actually showed the economy growing, just not as fast people expected.
Bush needs the economy to be clearly growing and improving by Q2 2004 to ward off the Dems and the media - the economy muddling along/going in fits and starts will not help him.

Posted by: AWW at September 30, 2003 12:36 PM

That depends what part of the economy you are in.

Enriching 60% at the expense of 40% is a surefire formula for political mastery in a democracy, but it isn't an economic program.

I know Reagan had no idea what he was doing, but the people around him did; and the economy is still suffering from it.

Posted by: Harry Eagar at September 30, 2003 3:37 PM

Harry --

Name one economy that left the 80's in better shape for the 90's than the US? Who presided over that economy? You call that suffering? For (seemingly) a class warrior, you appear are leaving too much on the table: enriching 60% at the expense of 40% just does not sound juicy enough. Come on, I thought the liberal mantra was more like 5% vs 95%, and the 5% are just too clever and steal elections. In fact, almost every serious study that has been conducted on the subject shows (a) a noticeable majority of people's welfare increasing and (b) a lot of mobility between the winner vs loser category (what really matters in a meritocratic, optimistic democracy). By the way, the most worrisome example of the so-called mastery of democracies is the (in this case real) fact that we have either crossed or will soon cross the magic 50% not paying taxes! Add this to the documented top X% paying XXXX% of the taxes and you have the real challenge to our democracy.

Posted by: MG at September 30, 2003 4:07 PM

Agree with MG. Look, Harry, the band between the 60% and the 40% is just not wide enough for your statement to hold water. And as long as Mr. 35% thinks he can get to be Mr. 45%, the economy will be just fine. The real problem is that the top 10% or so are living in a dream world (except for those who started out at the bottom), and the bottom 10% or so have become lampreys of the Democratic party. And thus they will remain, to be waved around every year at election time. But all they ever get is chum.

Posted by: jim hamlen at September 30, 2003 4:36 PM

20+ years of economic growth...

Posted by: oj at September 30, 2003 5:29 PM

I agree with MG that letting a big part of the population avoid taxes is a bad idea.

It is not a fact that everybody enjoyed 20 years of growth or that it was easy to move from the declining sector to the advancing one.

If you ate food during the past 20 years, you got it from somebody whose economy was not growing. And it ain't so easy to convert your assets if they are a corn farm in Iowa.

I used the 60-40 split advisedly. That was Thatcher's method in the UK. The US, a complicated place, is a little harder to specify, but there is no doubt that the men hnadling Reagan's leading strings were out to enrich the coasts at the expense the midlands.

It worked, too. Orrin crows about the results. Get out your red v. blue maps again and tell me about how Americans enjoyed 20 years of economic growth.

Posted by: Harry Eagar at September 30, 2003 9:13 PM

Some folks in Bentonville (AK) did just fine during the 80s. But more to the point, the collapse of the steel industry started in 1977/78, once the foreign mills (mainly Japanese at the time) reached the scope where they could sell enough product to begin to overwhelm the US mills. At first, the gains were incremental, due mainly to efficiency and quality improvements (the foreign mills were newer). The real wage differences did not begin to show until the mid-80s, when Mexico and Taiwan moved onto the stage. $5 vs. $25 per hour is just too much to compete against.

The difference is even more stark now, with the Chinese and Indians desperately needing jobs for hundreds of millions of people at a time. So the disparity grows. People gripe, but we know the alternative is even worse.

Posted by: jim hamlen at September 30, 2003 10:02 PM

Harry:

How many hours did it take to earn enough to buy a meal, a tv, or a shirt twenty years ago & how many today? Life keeps getting easier and better--in economic terms--for everyone.

Posted by: oj at September 30, 2003 10:47 PM

College education, doctor visit, bottle of wine.

All relatively more expensive today than 20 years ago.

Steel is a poor example to use. No integrated mill built in the past 30 years is or ever will be profitable. What killed US big steel was US minimills, notably Nucor. And the fact that we have all the steel we need now.

The US producedd 100 million tons a year for 100 years. There is 10 billion tons of the stuff lying around, and even though some of it is locked up in the Golden Gate Bridge, you can get all you need by recycling, except for the base metal for a few exotic alloys.

My steel adviser estimates that the most recent integrated mills, such as you mention in India, had an actual cost of more than $25 billion.

Posted by: Harry Eagar at October 2, 2003 3:39 AM

Harry:

Now that the government is doiung for steel what it did for education, medicine and alcohol steel prices are going up too. There's nothing you can'tr make more expensive by either subsidizing or taxing it.

Posted by: oj at October 2, 2003 9:02 AM

Harry:

Your 'steel adviser'? Sounds like you are moving in Warren Buffet circles.

Posted by: jim hamlen at October 2, 2003 4:26 PM

I'm a reporter. I need things explained to me. So I pick up the phone and call the guys who know.

If you prepare enough to ask a question that shows you can understand the answer, the top guys are almost always ready, even anxious, to talk, I've discovered. They get plenty of dumb questions; smart ones are a pleasant break from the daily round, I surmise.

In the case of my steel adviser, I don't have to surmise. He's tolkd me I'm the only journalist he'll talk to.

Posted by: Harry Eagar at October 2, 2003 8:40 PM

Wow...

Posted by: oj at October 2, 2003 11:42 PM
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