Good News For The Economy, Bad News For Democrats

The US economy grew by an astonishing annualized rate of 7.2% in the third quarter, the fastest rate of economic growth recorded in 20 years.

Remember all those people who said that George W. Bush’s tax cuts wouldn’t have any economic effect? Your serving of crow has arrived:

Fueled by personal-income-tax cuts that became effective in July and a record surge in home-mortgage refinancing that gave homeowners more cash to spend, consumer purchases rose at a very strong 6.6 percent annual rate in the third quarter, by far the strongest factor in the overall gain in the nation’s economic output, or gross domestic product. Businesses also got new tax incentives to invest.

Of course, the media is still spinning the jobs issue. Employment is still a problem – but employment is a lagging indicator. By definition you see job growth after economic growth, not simultaneously. The job system has been poised at a recovery level for the past month, which means that lagging indicator is exactly where one would expect it to be under these conditions.

What does this mean? It means that the fundamentals of the economy are strong. There’s a strong demand for the first time since the tech bubble burst in 2000. Strong demand means that all that industrial production capability that’s been idle for the past 3 years is beginning to get fired up. It means that as demand rises, so too must supply – more supply means more jobs. In other words, we’re looking at a major economic recovery underway.

Most importantly this is a major psychological boost for the economy. Many of the problems we’ve been facing, especially in the markets has been a problem in which investors are skittish about their returns. With September 11, corporate scandals, Iraq, and all the other events, investors took a “wait and see” attitude. Now, that the economy is roaring again, that “wait and see” attitude is beginning to change to the “win” psychology that can fuel some significant market advances.

Of course, politically this has Bush walking on air and the Democrats messing themselves. The Democrats are losing a key campaign issue for 2004, and if the job market improves Bush will have a lot to crow about.

5 thoughts on “Good News For The Economy, Bad News For Democrats

  1. This is about the 12th alleged leapfrog the economy has seen since Bush took office….yet with each one it seems like fewer and fewer and fewer people have jobs. As for this being propelled by tax cuts, I’m sold. In fact, I’m suggesting we pass ten more trillion-dollar tax cuts this very day and see if we can’t turn that 7% growth rate per quarter into 70%.

  2. Yeah, thank God for those middle-class tax cuts that Gore campaigned on and weren’t even included in Bush’s initial tax plan, but were later put in as part of a compromise.

  3. But you are right to say that this will be a liability for the Democrats next election…provided the labor market follows GDP, and this isn’t a jobless recovery or a short-run gain from war spending. Ten again, it’s not like there won’t be war spending next year, too. And probably the year after that.

  4. Ahem…

    Like I said before, the major indicators aren’t showing what the dems would like them too.

    Politically it wouldbe advantagous to the dems if it was. But attempting to *create* a condition that doesn’t exist just makes the voters look at the candidates with a bit of skepticism.

    Everytime the economy evens it’s self out and realigns the job market to what is needed and sloughs off the extra it doesn’t mean you need to cry wolf. As we all know what happened to the little boy who cried wolf one too many times…

  5. “As we all know what happened to the little boy who cried wolf one too many times…”

    Uh, he ended up with his forces tied up in the Middle East and couldn’t respond rapidly enough to an emerging North Korea threat?

    Seriously, though, 2.6 million net job losses leave a lot of voters crying “wolf.” Every time the economy evens itself out, it is necessary to look at who got squished by the steamroller because, hey, this is America, and we like to help those in trouble. We don’t always do it right, but we like to try.

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