July 9, 2003
by Irwin Stelzer
Americans recently concluded a long weekend which began with a joyous, hot-dog-and-flags celebration of our liberation from the tyrannical British. If King George III’s small tax on tea could precipitate a war, it boggles the mind to think what King Gordon’s ripping taxes on home sales, petrol, cigarettes, incomes, pensions, and just about everything else would cause if we were still a British colony.
But Americans have more on their minds than such speculation. We find ourselves living in both the best of times and the worst of times. The unemployment rate rose to 6.4 percent, the highest level in more than nine years; but share prices, as measured by the Dow Jones average, are up over 20 percent since hitting a long-term bottom in October, with tech stocks up 46 percent. And the housing market remains strong. Which may be why consumers continue to spend.
Even auto sales, which most experts expected would slow, rose 4 percent in June, with the biggest, poshest models leading the way as consumers take advantage of $3,000 discounts per vehicle.
The Institute of Supply Management also seems to see these as the both the worst and best of times. It disappointed economy watchers with a report that the manufacturing sector continues to show weakness, but also noted that new orders are up and that the much larger service sector is growing at a surprisingly rapid rate.
Not the easiest set of indicators to sort through. The jobless figures were sufficiently gloomy to force the White House to issue a defensive statement, saying that we are in “a slow recovery from a short, shallow recession.” Actually, that may be more downbeat than the data warrant. The rise in the unemployment rate reflects two factors that could bode well for the economy. The first is that the modest expansion now underway is being accomplished without substantial hiring because productivity continues to rise—more output with fewer workers. In the long run, that is the path to a wealthier nation.
Second, in the early stages of a recovery many people who stayed out of the labor market because their prospects seemed dim during the downturn, re-enter, seeking jobs. That temporarily drives up the unemployment rate—one reason that Bill Dudley, chief U.S. economist at Goldman Sachs, says that the jobless report “overstates the deterioration in the labor market.”
So the jobless figures do not necessarily foretell a weakening of the economy. On the other hand, the rise in share prices doesn’t necessarily foretell a rapid recovery. Prices are now at the relatively high level of about 30 times earnings, driven by expectations of earnings growth that may prove unrealistic. Stephen Peck, a savvy New York investor, says we are seeing “trading and valuations not dissimilar to 1998-1999. The public and Wall Street money managers have not learned much.” If Peck is right, and the bears recapture the market from the bulls, consumers might rein in spending, causing the economy to crash.
But at the moment, that seems unlikely. As Americans crowded around their barbecues, providing employment for 350,000 workers by consuming millions of hot dogs in a direct challenge to the noisy anti-obesity crowd, set off fireworks, and paraded in tribute to the founding fathers who endowed them with a brief, durable constitution that makes the current draft European constitution look a massive dog’s breakfast by comparison, they could anticipate tax refunds dropping into their mail boxes starting this month.
Consumers will be getting some $122 billion over the next four quarters, over 1 percent of GDP. They will spend enough of that refund before year-end to boost the growth rate to 2.75 percent in the second half of this year, and to 3.5-4.0 percent in 2004, former White House economist Larry Lindsey is telling his clients.
American consumers continue to spend because they contemplate the future with an optimism that distinguishes them from their European counterparts. A new Harris poll shows that 57 percent of Americans are “very satisfied with their lives,” compared with only 21 percent in the EU (and 32 percent in the UK). And 63 percent of Americans expect their lives to improve in the next five years, while only 40 percent of Europeans (47 percent of Brits) share that rosy view of the future. (Germans are the gloomiest: only 20 percent expect to better off five years from now.) Karlyn Bowman, arguably the nation’s premiere poll analyst, says that this poll only confirms “a lot of other data that prove that there is a phenomenon known as American exceptionalism.”
The poll, it should be noted, was taken before Congress and the president took a major step to improve the quality of the lives of most Americans. Henceforth, we will be able to put our telephone numbers on a “do not call list”. Any telemarketer calling someone on that registry will be fined $11,000. Almost fourteen million Americans signed up in the first four days. Since some 40 percent of all long-distance call volume is accounted for by telemarketers, telephone companies will be big losers.
Not to be deterred, telemarketers plan to shift their emphasis to emails, adding to the spam that already accounts for more than 50 percent of the emails in America. They may run into a political storm. Although the problem of blocking spam is technically difficult, the massive popularity of the do-not-call program has emboldened several congressmen to call for a do-not-spam list.
So, when July 4 rolls around next year, Americans will gather in telemarket-free houses. And since the ban applies to cell phones, they won’t be bothered at their picnics either, which should make them even happier with their lives.
Which would bode well for Bush’s reelection prospects. Even with Iraq proving a more difficult problem than Defense Department experts anticipated, and the unemployment rate rising, his popularity rating remains above 60 percent. That’s just about the best present Bush could ask for as he celebrated his 57th birthday.
A version of this article appeared in London’s Sunday Times on July 6, 2003.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
Home | Learn About Hudson | Hudson Scholars | Find an Expert | Support Hudson | Contact Information | Site Map
Policy Centers | Research Areas | Publications & Op-Eds | Hudson Bookstore
Hudson Institute, Inc. 1015 15th Street, N.W. 6th Floor Washington, DC 20005
Phone: 202.974.2400 Fax: 202.974.2410 Email the Webmaster
© Copyright 2013 Hudson Institute, Inc.