Prosperity Amid the Gloom
Recently Bill Clinton, at the British Labor Party's annual conference, delivered what the Times of London described as a "relaxed, almost rambling" and "easy anecdotal" speech to an enthralled audience of leftists eager for evidence of American disappointments. Never a connoisseur of understatement, Clinton said America is "now outsourcing college-education jobs to India."
But Clinton-as-Cassandra should not persuade college students to abandon their quest for diplomas: The unemployment rate among college graduates is 2 percent .
Clinton is always a leading indicator of "progressive" fashions in rhetoric. And every election year -- meaning every other year -- brings an epidemic of dubious economic analysis, as members of the party out of power discern lead linings on silver clouds.
"Worst economy since Herbert Hoover," John Kerry said in 2004, while that year's growth (3.9 percent) was adding to America's gross domestic product the equivalent of the GDP of Taiwan (the 19th-largest economy). Nancy Pelosi vows that if Democrats capture Congress they will "jump-start our economy." A "jump-start " is administered to a stalled vehicle. But since the Bush tax cuts went into effect in 2003, the economy's growth rate (3.5 percent) has been better than the average for the 1980s (3.1) and 1990s (3.3). Today's unemployment rate (4.6 percent) is lower than the average for the 1990s (5.8) -- lower, in fact, than the average for the past 40 years (6.0). Some stall.
Economic hypochondria, a derangement associated with affluence, is a byproduct of the welfare state: An entitlement mentality gives Americans a low pain threshold -- witness their recurring hysteria about nominal rather than real gasoline prices -- and a sense of being entitled to economic dynamism without the frictions and "creative destruction" that must accompany dynamism. Economic hypochondria is also bred by news media that consider the phrase "good news" an oxymoron, even as the U.S. economy, which has performed better than any other major industrial economy since 2001, drives the Dow to record highs.
The Jack No. 2 well, in deep water 170 miles southwest of New Orleans, recently discovered a field with perhaps 15 billion barrels of oil -- a 50 percent increase in proven U.S. reserves. This news triggered a gusher of journalistic gloom: More oil means more woe -- a reprieve for that enemy of humanity, the internal combustion engine, and more global warming, more air pollution, more highway fatalities, more suburban sprawl.
The recent 20 percent decline of the cost of a barrel of oil, from a nominal record of $78.40 (which, adjusting for inflation, was well below the 1980 peak of $92 in 2006 dollars), has produced an 81-cent decline in the average cost of a gallon of regular gasoline in 70 days. For consumers, that is akin to a tax cut of more than $81 billion.
President Bush's tax cuts were supposed to cause a cataract of red ink. In fiscal 2006, however, federal revenue as a share of GDP was 18.4 percent, slightly above the post-1962 average of 18.2. And the federal budget deficit was $247.7 billion, just 1.9 percent of the $13.1 trillion GDP. That is below the average for the 1970s (2.1), 1980s (3.0) and 1990s (2.2).
It is said that employee compensation has been stagnant. But to tickle that bad news from the statistics you must treat "compensation" as a synonym for wages and then ignore the effect of taxation on individuals' well-being.
Kevin Hassett and Aparna Mathur of the American Enterprise Institute, writing in National Review, say annual wage growth since 2000 has been 0.6 percent, but the annual increase in real hourly compensation, including benefits -- and if you do not include them, why are they called benefits ? -- has been 1.3 percent. And taxes -- particularly those paid by middle-class families with children -- have declined substantially.
Furthermore, as Hassett and Mathur write, consumers, by modifying their behavior, protect or enhance their well-being in ways not captured in economic statistics. For example, an American who, prompted by higher energy prices, traded in a Hummer for a Prius has served his or her standard of living. "If I ate 80 apples last year, and the price of apples increased this year to a million dollars, my welfare would not go way down; I would just switch to oranges," the authors write.
Finally, today's widening income disparities will be partly self-correcting. Granted, income statistics show the increasing disadvantages of persons with education deficits. But that is the market saying -- shouting, really -- "Stay in school!" Over time the voice of the market is rational, credible and therefore a potent instrument for changing behavior.