Posted by
Bruce Bartlett on Tuesday, June 19, 2007 10:57:41 AM
For an interview with a reporter about the state of the economy, I looked up a few numbers that are interesting. I compared the state of the economy today to where it was at the exact same point during the previous business cycle. Thus, according to the National Bureau of Economic Research, the most recent recession ended in November, 2001. If you count forward 21 quarters to the first quarter of 2007, we see the following:
Real gross domestic product: Up 16.4 percent
Real gross private domestic investment: Up 10.2 percent
Payroll employment: Up 5.3 percent
Standard & Poor's 500 stock index: Up 34.2 percent
Viewed in isolation, these numbers don't seem too bad. For example, real GDP has risen at a 3.1 percent annual rate since the end of the recession. But in areas such as this, there are no objective criteria for saying what is a good performance from a bad one; only experience can guide us. Thus it is interesting to look at the same numbers above counted forward the same number of months from the end of the previous recession, which the NBER tells us ended in March, 1991:
Real GDP: Up 17.9 percent
Real investment: Up 51.2 percent
Payroll employment: Up 10.8 percent
S&P 500: Up 82.2 percent
It is obvious that by every standard, the recovery and expansion after the 1990-91 recession was significantly better than that after the 2001-01 recession. Recognizing this fact is important for several reasons.
First, when Bill Clinton ran for president in 1992, he repeatedly said that the economy was the worst since the Great Depression, and he continued saying so well after he took office--two years into the recovery. In other words, the recovery from the 1990-91 recession was so anemic that voters elected a new president in order to get the economy moving. Therefore, we are not comparing today's economy to one that was historically robust, but one that was widely viewed as being exceptionally weak.
Second, the data raise serious questions about the role of taxes. Republicans are convinced that the Bush tax cuts saved us from doom. But there is really no evidence whatsoever to support this claim. Unless one believes that there would have been no recovery at all and that we would still be mired in recession without the tax cuts, it is hard to find any positive evidence of their economic impact. Investment stinks, employment growth has been mediocre, and even the stock market increase is nothing to brag about.
Third, it is worth remembering that Clinton raised taxes right out of the box in 1993. Every Republican opposed it and virtually every conservative economist predicted disaster. Yet it is hard to find any evidence that the tax increase had any negative effect whatsoever. One can easily argue the opposite based on the economic results.
I am not arguing for a reversal of the tax cuts or in favor of a tax increase. I am just saying that one has to do more than mindlessly repeat mantras about the benefits of tax cuts or the horrors of tax increases if you want to be taken seriously in this debate.