August 10, 2004

Wishing won't make it so
Posted by Dale Franks

James Glassman is reacting to the weak employment report by resorting to what seems to be the standard fallback position talking points.

Pessimism about the economy helps Kerry and his friends, but an objective look at the report shows a very different picture. Yes, the number of people employed in July rose only slightly, by 32,000. But the unemployment rate dropped to 5.5 percent--down from 6.3 percent a year ago and the lowest since October 2001, right after the 9/11 attacks.

The rate today is lower than when Bill Clinton was running for re-election in 1996. It's lower than the average unemployment rate in the 1990s--not to mention the 1980s and 1970s. Plant closings are way down from a year ago, and the threat of outsourcing is a figment of Lou Dobbs's imagination.

Everything Mr. Glassman says is factually correct, and utterly irrelevant. People's memories are short, and pointing to 1996 and saying that clinton got re-elected with a worse unemployment rate is just silly. It's like asking, "Hey, unemployment is much lower than the 25% rate of 1933, so why's everybody carping about it?"

Well, mainly because 1933 is not the comparison period people are concerned with, any more than 1996 is. The comparison period is now the 4.5% or so rate we had during 1998-2000.

Prior to that, 6% or lower was the "gold standard" because economists believed that the rate of full employment was about 6% or so. Much lower than that, economuists thought, and labor markets will be too tight, forcing employers to bid up salaries in an attempt to attract and retain good people. Rising salaries would, in turn, fuel inflation. And, so, any time we had an employment rate of between 5%-6%, we thought we were just doing a bang-up job.

Well, along came the late 90's, with the employment rate dropping as low as 4%. So, that's now the new gold standard. Increases in productivity, mainly fueled by the diffusion of computer technology, allow us to maintain a much lower rate of unemployment without undue worry about inflation.

6% is old news. It's 4.5% we're all looking at now. We've seen the lights of gay Paree, as it were, and no one is interested in going back to the farm.

So, you can bleat all you want about how unfair it is that Clinton sailed to re-election with a higher unemployment rate, but it's completely obtuse to do so.