State of the Economy

As the Bush administration enters its final year, it’s time to take stock of its economic legacy.

A relatively mild downturn that began shortly after Bush took office evolved into an unprecedented job-loss recovery. It took more than three years from the bottom of the recession, in November 2001, for U.S. employment to return to its pre-recession level.

By way of comparison, in the jobless recovery of the early 1990s, the jobs lost in the downturn were regained in less than two years. Three years out, employment was already more than 3 million jobs above its pre-recession peak.

This time, job growth proceeded in fits and starts before slowing again last year. The number of jobs created each month averaged 90,000 from June through September – well under the number required to keep pace with growth in the working-age population, and less than half the 2006 average.

Overall economic growth has been mediocre as well. In the 1983-89 and 1992-2000 expansions, annual growth in gross domestic product averaged 4.3 percent and 3.7 percent, respectively. From 2002-2006, it averaged just 2.7 percent – with most analysts expecting the 2007 growth rate to come in at around 2 percent. That makes for one of the weakest expansions on record.

With incomes lagging, consumer spending in recent years has been fueled by debt. Household debt levels have reached unprecedented levels: the debt service ratio (payments on household debt as a percentage of disposable income) topped 14 percent in 2005 for the first time ever. By mid-2007, it was roughly 14.3 percent. Once housing values began to fall, families who had piled on debt – often in the form of risky, unconventional loans – were unable to keep up. More than 5 percent of all residential mortgage loans were delinquent in the second quarter of 2007, and another 1.4 percent were already in the foreclosure process.

Bad luck or bad management?

Some key economic factors, like the price of oil, are largely outside Washington’s control. But the response to these outside factors – which is in Washington’s control – matters. Sound economic policies can mitigate the immediate damage and build for the future. The Bush administration, in contrast, made a series of conscious policy decisions that worsened the economic situation of working families and jeopardized future prosperity.

Consider these missteps:

• The administration’s program of tax cuts for the rich was ineffective as economic stimulus and disastrous as fiscal policy. It resulted in ballooning deficits that have led to pressure on vital domestic programs and limited our ability to make needed investments in the nation’s infrastructure.

• The administration’s attitude toward the nation’s manufacturing base has veered between indifference and hostility. During Bush’s years in office, manufacturing employment has fallen by more than 3 million. That represents more than one out of every six manufacturing jobs that existed when Bush assumed the presidency. This level of manufacturing job loss is unprecedented in our nation’s history: not even the deep, back-to-back recessions of 1980-1982 come close.

• The administration has systematically tilted the playing field to favor investors and corporations at the expense of workers. The tilt can be seen in everything from tax policy to labor law to the bankruptcy code. With investors, not workers, reaping the gains of economic growth, the share of the nation’s income going to wages and salaries has been hovering around its all-time low. For most working families, wages and incomes have grown slowly, if they have grown at all. After adjusting for inflation, median household income fell for five straight years from 2000 to 2004. By 2006, the purchasing power of the typical American household was still below its 2000 level. But while wage and salary earners have struggled to stay ahead of inflation, incomes of the very rich, boosted by dividends, capital gains and other forms of property income, have grown rapidly. According to IRS figures, filers with annual incomes of more than $1 million – who make up less than a quarter of 1 percent of all taxpayers – monopolized almost 47 percent of 2000-2005 income growth.

• The administration’s failure to address the country’s health care crisis has jeopardized the health and economic security of working families, while also hurting the competitiveness of U.S. business.

Getting economic policy back on a sound footing means pursuing a new set of policies to address the needs of working people, now and for the future. The goals shaping our economic agenda include:

• An equitable tax system, along with a federal budget focused on meeting workers’ needs and investing for the future.

• Single-payer national health care, so that all Americans have comprehensive, affordable health insurance and U.S. employers who do the right thing by providing employee benefits no longer face a competitive disadvantage.

• Fair trade, including enforceable workers’ rights protections in all future agreements, and tough action against currency manipulation and other unfair practices by our trading partners.

• The right to organize for a collective voice at work, free from employer interference.

• A “high road” economic development strategy – high wages, high skills, high productivity and high quality – to create good jobs for the future, and stop employers’ race to the bottom.

Action