The politics of cynicism
With the last syllable of last week's second presidential debate still being sifted, we have too much confusion about where the country is going--and the most important single domestic issue remains on hold: the looming crisis in our national finances.
Who's right--the optimists (read Republicans) or the pessimists (that would be the Democrats)? Optimists see a resilient economy turning the corner despite record energy prices and slowing global trade. They find comfort in the falling unemployment rate, rising wages, declining long-term interest rates, and the low inflation rate that's boosting our buying power. The result? Consumers are spending more on cars, on housing, and at the mall. Even the Federal Reserve believes the economy "appears to have regained some traction."
The pessimists see a very different picture. Weak job and wage growth merely tops their list of complaints. Despite unprecedented fiscal and monetary stimulus, Stephen Roach of Morgan Stanley points out, payrolls are as much as 8 million workers below the path of typical hiring-led recoveries since World War II, while wages have increased as little as 20 percent of the average gains seen during the comparable stages of the past six recoveries. The budget surplus President Bush inherited has been transformed into a huge deficit of 4 percent of gross domestic product, an anemic national savings rate of 2 percent of GDP, and a mesmerizing current account deficit of 5.7 percent of GDP.
Girlie men? There have been dramatic improvements in corporate profits and finances, and business investment is now growing at a very healthy 11 percent, but corporate America is still not confident about what lies ahead and distrusts the sustainability of the economic pickup. What has been extraordinary is the increase in productivity, which truly vindicates John Updike's observation that all blessings are mixed. It explains why corporate profits have rebounded twice as much as anybody expected but also why businesses have been able to meet demand while restraining payrolls to levels unseen in decades.
So is this a "macho man" or a "girlie man" economy? George Bush and John Kerry both take very predictable positions. Focusing on the fact that we have clearly come out of the recession he inherited, Bush ascribes the minirecovery largely to his big tax cuts. Insisting that the recovery is weak and faltering, Kerry points to slow job creation and wage regeneration and to Bush's huge budget deficits.
Sadly, both candidates barely address our biggest long-term financial problem--how to contain those enormous deficits in the face of the soaring costs of Social Security and Medicare. Neither candidate has proposed a credible plan to deal with the deficit, tolerable in the short run of a recession but insupportable over the long term. Both candidates propose programs to cut the deficit in half over the next four years but offer few specifics as to how they would do it. You know why? Both candidates are unwilling to address the question of reforming Medicare and Social Security or, alternatively, raising taxes on millions of Americans so that we can meet these obligations.
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