Alan Greenspan testified before Congress last week. In the Q&A session, rather than answer questions on monetary policy and interest rates — the Fed chairman’s forte — Dr. Greenspan got an earful from partisan politicians about the problems associated with continuing budget deficits and unemployment. Listening to the questions posed by both Republicans and Democrats, it became obvious that some politicians are more interested in pushing their political agendas than entering into reasonable dialogue about the health of the economy.
In particular, Democrats continue to press the idea that the first four Bush years have turned in the worst rate of job growth since the Hoover administration. The president’s detractors, however, should be made aware that Hoover raised taxes on the wealthy (just as Kerry proposes) and encouraged the Smoot Hawley tariff to protect farmers from foreign competition (just as Kerry wants to protect U.S. workers from outsourcing). These policies are given the blame for the Great Depression, which hit during Hoover’s one term as president back in the 1930s, and justifiably contribute to Hoover’s reputation as the worst president of the 20th century. One might think twice about voting for a candidate who advocates economic policies that are more like Hoover’s than the tax-cutting and free-trading policies of the late president John F. Kennedy.
Be that as it may, in the hearing last week one Democratic congressman went to great lengths to graphically depict employment growth during the Bush years. His aim seemed to be to get Greenspan to admit that, under this president, employment growth has been terrible. But when he asked Greenspan to confirm the data, we got a novel answer — one that underscores the irrational behavior of Democrats on this subject.
Greenspan pointed out that the major cause for slow growth in employment is productivity growth. In other words, the unusual ability of U.S. businesses to produce more goods and services with less physical labor is the cause of slow employment growth, not one or more of President Bush’s policies.
The record increases in productivity mentioned by Greenspan have given every American the benefit of low inflation and the related low-interest-rate levels that have contributed to lower mortgage rates, lower car-loan rates, and the ability of workers to maintain more of their growth in real incomes. Simply, productivity allows for more output with fewer workers — lowering the need for more workers.
So, are the Democrats telling us that, in their world, productivity growth will have to be undermined if we are to overcome a slowdown in employment growth? Will they require companies to hire more people, thereby lowering productivity and increasing inflation? Do they even care why employment growth has been slow? I doubt it.
We all owe Alan Greenspan a great big thank you for pointing out that the reason why an economic event occurs can be more important than the event itself. Now that he has dispelled the linkage between Bush’s economic policies and slow employment growth, it is apparent that the Democrats have lost another reason for the electorate to overthrow a president who has made the right economic decisions during tough economic times.
– Thomas E. Nugent is executive vice president and chief investment officer of PlanMember Advisors, Inc. and chief investment officer for Victoria Capital Management, Inc.