Commentary

Recalling the 1998 Tumble

What was so terrible about 1998? It seemed a pretty good year to me. It was, after all, the sixth year after recession, so you would expect it to be better than 2003, merely the third year after a recession.

As it happens, 1998 was also the fifth year of the Clinton administration. Yet I don’t recall any rabid Republicans claiming 1998 was the worst economy in 50 years or the worst since Herbert Hoover. Yet partisan Democrats do say such strange things about the present.

If judged by two standards now widely used to accuse President Bush of economic malfeasance, the economy of 1998 would have to be judged as worse than last year, 2003, and certainly much worse than this year.

The percentage of Americans living in poverty was 12½ percent last year, 12.7 percent in 1998. The percentage without health insurance was 15.6 percent last year, 16.3 percent in 1998.

“Letting 45 million Americans go without health care makes you unfit to lead this nation,” opined Sen. John Kerry after the president’s convention speech. But anyone who aspires to be president should at least understand that going without health insurance is not the same as going without health care.

Ironically, some providers seem worried too much is spent on health care for the uninsured, because hospitals and HMOs sometimes get stuck with the cost.

A May 11 Reuters story claimed, “The cost of providing health care for U.S. citizens who have no insurance will total $125 billion this year, with taxpayers and private entities footing most of the bill.” Not true. The source of that garbled news, the Kaiser Foundation, actually found private and public insurance paid 42 percent of the health bills of the “uninsured,” and their out-of-pocket expenses amounted to only 28 percent. Millions of the miscounted “uninsured” are, in fact, insured during part of the year. The Kaiser Foundation notes only half of the uninsured lack insurance for a whole year.

The uninsured are not generally poor — if they were, they would qualify for Medicaid (aside from new immigrants, especially illegal immigrants, who account for most low-income uninsured). A third of the uninsured have household incomes above $50,000, yet Mr. Kerry expects taxpayers to pay their insurance premiums. Why?

Although the percentage without health insurance is lower than in 1998, and exaggerated by half, the unemployment rate was certainly lower in 1998 — only 4½ percent in 1998, compared with 6 percent in 2003.

Like all other 2003 data, however, last year’s unemployment rate is obsolete. The unemployment rate has since fallen to 5.4 percent, also the unemployment rate in 1996, President Clinton’s fourth year. Then and now, half the unemployed found jobs in eight to nine weeks.

Determined partisans might try bemoaning slow progress since the previous peak, but that, too, cuts both ways. The Kerry-Edwards campaign complains “median family income has dropped by nearly $1,500 since 2000 [adjusted for inflation].” But that is just three years from a frothy cyclical peak, and the 2004 figure will almost surely be higher.

In President Clinton’s case, median income even in 1995 was still well below the level of six years earlier. Measured in 2003 dollars, median income fell from $41,411 in 1989 to $40,845 in 1995, without even accounting for the 1993 tax increase. In 1996, Bill Clinton’s fourth year, median pretax income was only $20 more than in the President Reagan’s last year.

The Kerry-Edwards campaign lately resorted to outsourcing a pamphlet called “A Failed Record: Jobs Quality.” This is supposed to validate Mr. Kerry’s frequent comment “today jobs in growing industries pay almost $9,000 less than jobs in industries losing jobs, based on the latest data Bureau of Labor Statistics [BLS] jobs report.”

The reference to BLS was as counterfeit as a $20 Rolex. The figures come from the Economic Policy Institute (EPI), an outfit specializing in confusing confused politicians. BLS has explicitly refuted these tortured statistics. And they are not about “today’s jobs,” because they include losses in the recession, including a million jobs lost after September 11, 2001.

The EPI industry breakdown confirms the obvious: Jobs in cyclical manufacturing drop sharply in recessions, and the largest absolute numbers of added jobs (as opposed to the largest percentage increases) always occur in industries with huge employment — such as health, education and finance.

Such figures tell us nothing about whether recent jobs in such industries paid well. To find out, we must look at post-recession data on labor income. For the year ending in June, increases in wages, salaries and benefits, says a real BLS report, “were 4.6 percent for blue-collar occupations, 3.7 percent for white-collar occupations and 3.4 percent for service occupations.”

The Kerry-Edwards team also relies on a recently released EPI book, “The State of Working America,” which mainly consists of comparing last year’s employment and incomes with figures from the year 2000. There are two fundamental problems with that. First, this is 2004, not 2003, and today’s jobs data make last year’s instantly obsolete and irrelevant. Second, 2000 was before the recession and the September 11 terrorist attacks.

From the recession’s end in November 2001 to August 2004, the BLS household survey shows 3,118,000 added jobs. But the payroll survey indicates 604,000 jobs have been added. The Kerry campaign naturally chose the payroll survey, which makes sense only if people don’t know if they have jobs.

What is far more objectionable is that Mr. Kerry and Sen. John Edwards always start counting from January 2001 rather than November. Doing so, they blame Mr. Bush for a recession that started during his third month in office (“on his watch”), without explaining what he could possibly have done to either start or stop that recession. Was it Mr. Bush’s fault the stock market began collapsing in April 2000, that industrial production began falling that September, or that real GDP fell in the third quarter of that year?

Constantly comparing 2003’s economy with 2000’s economy, or 2004 with January 2001, Mr. Kerry and Mr. Edwards essentially want voters to judge Mr. Bush by asking: “Are you better off than you were before September 11, 2001?”

Personally, I find that question offensive. But some related statistical tricks are extreme enough to make us wonder if these fellows can ever be trusted.

The opening paragraph of the new Kerry-Edwards memo, “A Failed Record,” says, “America is now about 7 million jobs short of where it should be at this stage of the business cycle.”

The labor force is now 147.7 million, and the number of employed is 139.7 million. If employment is “7 million jobs short,” that means employment should be 146.7 million, leaving just 1 million unemployed. Whether they know it or not, Mr. Kerry and Mr. Edwards have signed off on the astonishing claim the unemployment rate “should be” below 0.7 percent. Like confusing health insurance with health care, such comments are truly worrisome.

The Kerry-Edwards campaign continues displaying a reckless disregard for economic reality, a breathtaking economic incompetence or a frightening combination of both.

Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.