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Jewish World Review May 5, 2003 / 3 Iyar, 5763

Mort Zuckerman

Mort Zuckerman
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Consumer Reports

America's next critical test | The White House is nervous about the economy, and with good cause. The statistics are enough to make an incumbent assume the fetal position: 2.7 million fewer private-sector jobs than two years ago; the longest decline (32 months) in industrial employment since the Great Depression; the longest continuous decline in jobs in more than 50 years; a near doubling of long-term unemployment. Making matters worse, the stock market has been off by double digits for three years in a row. That's the first time that's happened since the 1930s. The markets' plunge wiped out over $5 trillion in value, including the retirement savings of millions of Americans. As if all that weren't enough, the $5.6 trillion federal surplus we saw during the 1990s has been turned upside down into an estimated $4 trillion deficit. Business activity is as weak as it has ever been outside of a recession, and we don't know whether this signals the onset of another recession, the dreaded double dip.

All the bad news isn't due to the Iraq war, 9/11, or a Federal Reserve anti-inflation squeeze, because there has been no inflation to squeeze. Our predicament was triggered by a bust in the most dynamic sector, namely, investment. Capital spending grew by 10 percent in the last five years of the booming 1990s, only to decline by 5.5 percent a year in this decade. This single fact accounted for the entire decline in gross domestic product during the nine-month recession in 2001.

Vicious circle. The investment bubble burst because superhigh stock prices in the 1990s produced a capital-spending binge. That begat an increase in capacity, which begat more competition. That lowered profits, which led to lower stock prices, bringing us full circle to the capital-spending bust. Now about 27 percent of our industrial capacity is idle. That's the highest percentage in 20 years, forcing the corporate sector to cut costs and let people go. Cash flows and profits are improving, but no increase in investment is in sight because demand is just too slack. Just because companies can afford to invest doesn't mean they will.

The veil of economic uncertainty was supposed to lift with the end of the Iraq war, but it hasn't encouraged executives to boost capital spending and hiring. We lost almost 500,000 jobs in February and March alone. Half came from industries like travel, vulnerable to prewar jitters and terrorism fears. But the other half came from industries wrestling with problems that have nothing to do with the war. The jobless claims are ominous. Last week they spiked above 450,000; over four weeks the number is 430,000, the highest levels in more than a year. These numbers don't include over 900,000 people who have left the job market in the past year and 500,000 more who now describe themselves as self-employed.

If investment doesn't recover and exports continue to tumble, economic growth can come only from the consumer and the government. The March spending numbers show a blip because Americans are still keenly interested in buying homes, and mortgage refinancing continues to surge, yielding surplus cash for new appliances, home repairs, and cars. Confidence was higher in April, after the end of uncertainty about the war. But whatever the euphoria about our triumph in Iraq, we all know there's a limit to how much consumers will spend when they're unsure about their jobs and their paychecks are still under threat. The growth in real disposable income is down about 50 percent. Consumers generally are saving more and spending less, having increased their savings rate to 4 percent of income. And with stock prices growing modestly, consumers, particularly baby boomers approaching retirement, are even more likely to increase their savings and decrease spending.

This is a very dangerous moment. It is the moment for action to sustain demand--but we have Republicans and Democrats at loggerheads. The president is investing his considerable powers of leadership and advocacy in tax cuts of about $725 billion, the core of which is dividend tax relief, plus the acceleration of his previous tax cuts approved two years ago. These measures will not do the trick. Neither the acceleration of the phased income taxes nor the dividend tax relief will do enough for anyone in the time we need it--now, or rather, yesterday.

The administration, unsurprisingly, is fighting for its program. They latest Fox News polls found that nearly two thirds of those surveyed said that a candidate's position on the economy and taxes was a more important consideration in deciding whom to vote for, while just 10 percent said a candidate's position on the war would be more important.

That should give strong impetus to both parties to seek a reconciliation of their very different approaches to stimulating the economy and taking a risk with the long-term budget deficit. This is not a time for the testing of wills. It is a time for working out a bipartisan program because time, now, is everyone's enemy.

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JWR contributor Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report. Send your comments to him by clicking here.


04/22/03: The challenge of success
04/15/03: Shape up or step aside
04/08/03: The latest in reality TV is
04/02/03: Chirac and Saddam's thugs are two of a kind
03/26/03: War by new rules
03/05/03: The high price of waiting
02/14/03: Needed: fast fiscal action
02/03/03: Clear and compelling proof
01/24/03: Midnight for Baghdad
01/14/03: They should have said...
12/24/02: Who finances the fanatics?
12/19/02: Put-up or shut-up time
12/09/02: Sheep, wolves, and reality
11/21/02: Curing the uncommon cold
11/12/02: Everybody has the right to be wrong but the Dems have been abusing the privilege
11/05/02: Force vs. fanaticism
10/30/02: Land of the sinking sun
10/22/02: No more cat and mouse
10/15/02: And pigs will fly
10/07/02: A shameful contagion
09/26/02: Calling a madman's number
09/23/02: Our rainbow underclass
09/13/02: Why America must act
09/04/02: After bubbles, a double dip?
08/20/02: No time for equivocation
08/06/02: No time for politics
07/30/02: Getting off the dime
07/17/02: What scandal cannot dim
06/18/02: Time to crack down: Where is the outrage?
06/05/02: The next new thing
04/30/02: Roller-coaster nation
04/25/02: A critical tipping point
04/15/02: Israel's endgame will impact the free world
03/21/02: In the face of pure evil
03/14/02: A man on a mission
03/07/02: Land of the Sinking Sun
02/12/02: Speaking truth about energy
01/15/02: Putting our house in order
01/12/02: Talking points for 2002
12/24/01: The shape of things to come
12/11/01: Finally, a clarity of vision
12/04/01: Apocalypse now
11/26/01: The Big Apple's core
11/06/01: What it will take to win
10/22/01: Getting the mayor's message
10/08/01: A remedy for repair
10/01/01: A question of priorities
09/26/01: Our mission, our moment
09/11/01: Running the asylum
08/29/01: Hail, brave consumer
06/14/01: Blackouts --- or blackmail?
06/01/01: A time to reap --- and sow
05/25/01: A question of confidence
05/18/01: A question of confidence
05/04/01: Making the grade
04/26/01: The caribou conundrum
04/19/01: Chinese boomerang
03/27/01: The man of the moment
03/20/01: The Fed must be bold
03/15/01: Japan on the brink
03/01/01: Rethinking the next war
02/09/01: The education paradox
01/08/01: How the bottom fell out
01/03/01: Quipping in the new year
12/20/00: A time for healing
11/13/00: The need for legitimacy
10/30/00: Arafat's bloody cynicism
10/18/00: Arafat torches peace
10/03/00: A great step backward
09/08/00: The Perfect Storm
08/29/00: Don't blow the surplus
08/15/00: Voting for grown-ups
08/01/00: Arafat's lack of nerve
07/17/00: Can there be a new peace between old enemies? Or will new enemies regress to an old state of war?
07/11/00: A time to celebrate
06/19/00: A bit of straight talk
06/08/00: Using hate against Israel
05/26/00: Is the Federal Reserve trigger-happy?
04/18/00: Tensions on the 'Net
04/13/00: A paranoid power
03/10/00: Fuel prices in the red zone
02/25/00: Web wake-up call
02/18/00: Back to the future
01/21/00: Whistling while we work
01/11/00: Loose lips, fast quips
12/23/99: The times of our lives
12/14/99: Hey, big spender
11/18/99: Fountain of Youth
11/04/99: An impossible partner
10/14/99: A nation divided
10/05/99: India at center stage
09/21/99: Along with good cops, we need a better probation system
09/08/99: Though plundered and confused, Russia can solve its problems
08/31/99: The military should spend more on forces and less on facilities
08/05/99: Squandering the surplus
07/06/99: More than ever, America's unique promise is a reality
06/24/99: The time has come to hit the brakes on affirmative action
06/15/99: America should take pride in honoring its responsibilities
06/02/99: The Middle Kingdom shows its antagonistic side
05/11/99: Technology's transforming power is giving a lift to everything
05/04/99: The big game gets bigger
04/30/99: On Kosovo, Russia talked loudly and carried a small stick
04/21/99: No time to go wobbly
04/13/99: The Evil of two lessers

© 2001, Mortimer Zuckerman