Bill Clinton must be scratching his head. He presides over an economy that is growing more than 3 percent annually, with inflation at a 20-year low, and that has added over 4 1/2 million jobs, pushing the national unemployment rate down to 5.9 percent. On top of that, because of his controversial tax-and-cut action last year, the federal budget deficit is down $120 billion and shrinking even faster than predicted, with beneficial consequences for restraining interest rates. Yet 53 percent of the American public thinks he has not managed the economy well.
The Republicans, on the other hand, are well placed for the midterm elections, despite the fact that their most dire predictions about the impact of the deficit reduction bill have not materialized. "It's a job-killing, economy-busting tax plan," said Republican leader Bob Dole. Wrong. Texas Sen. Phil Gramm predicted that "the economy will create fewer jobs, the government will spend more money and the American people will be worse off." Wrong again.
Time out. What is going on here? The answer seems to lie in the way this expansion has developed. If it has falsified the broad predictions of the Republicans, it has not, as yet, made people better off. Unlike past recoveries, job growth is not bringing rising wages. For most Americans, incomes and wages are flat or, in some cases, even falling. The number of poor people continues to rise. Nor, despite the general buoyancy of employment, is there a feeling of security. Some 66 percent of Americans say they worry more about keeping their jobs today than they did two years ago.
The unease arises from a dramatic and unique change in the nature of employment. There are a million fewer high-wage manufacturing jobs today than there were when the recession began in 1990. White collar employment no longer provides job security since corporate downsizing and restructuring have become a daily fact of life. More than 50 percent of the jobs that have been created are temporary, part time or derive from contract work that is inherently unstable. Only 40 percent of American workers say they have the kind of job that pays them enough to live the kind of life to which they aspire.
The anxiety is compounded by what has been happening to health care and housing. Some 50 percent of employer-based health care programs have been cut back in the last three years. The value of many families' principal asset, the home, is still significantly below where it was five years ago, leaving them with a sense of reduced wealth. The only major beneficiaries of the Clinton program were the millions of middle-class homeowners who refinanced their mortgages at lower interest rates, but that window was quickly shut by the Federal Reserve policy of raising interest rates.
These are the reasons why the good-news headlines strike many Americans as a bad joke. According to a Times Mirror poll, 33 percent of Americans think the nation is in a recession; 21 percent think that it is in a depression. A growing percentage, now 40 percent, acknowledge a recovery, but most think it is modest and only 2 percent feel that the economy is surging.
A heavy damper on the national mood derives from the curious actions of the Federal Reserve Board. It has already increased interest rates five times as a pre-emptive move against barely existent inflation. This is the first time the Federal Reserve has moved up interest rates so early during a recovery, and the scale and the pace of the recovery provide little evidence for its concern. The Fed has much greater power over the economy today than in the past because its interest rate changes affect a much bigger debt load -- more than $15 trillion compared with about $5 trillion in 1980. If lower rates bring benefits, higher rates have a disproportionately restrictive effect on the economy these days. The public is right to have the jitters when it sees the Fed poised to raise interest rates yet again. New moves would slow the recovery further. Indeed, many professional economists believe the recovery will not be sustained given the combination of high real interest rates, adjusted for inflation, and the fiscal drag of sharply reducing budget deficits.
As for Clinton, he can only hope to keep the expansion going long enough for real incomes and home values to appreciate --long enough for the reality of "trickle down" to come to the rescue of the Democrats.
