September 11 and the economy
Published September 8, 2004
John Kerry's presidential campaign raised $233 million, while his eight Democratic challengers collected more than $155 million. All of them spent much of the proceeds attacking the president over the economy. Democratic 527s have spent at least $63 million on TV ads doing much the same, and the Democratic National Committee has spent millions more. Yet, despite this unrelenting onslaught, a Newsweek poll conducted late last week showed that voters, by a statistically significant 49-43 margin, believed President Bush would do a better job handling the economy than Mr. Kerry.
Given the unrelenting Democratic refrain that Mr. Bush's term will likely be the first since Herbert Hoover's during which there will be no increase in nonfarm payrolls, how could it be that voters trust Mr. Bush more than Mr. Kerry to handle the economy? Clearly, voters have a more nuanced view of the economy than the one painted by the Hoover-obsessed Democratic machine. And for good reason.
Let us stipulate for the record that monthly nonfarm payroll surveys compiled by the Labor Department confirm that there were 913,000 fewer jobs in August 2004 (when employment totaled 131. 475 million jobs) than there were in January 2001 (when employment totaled 132. 388 million jobs).
Having stipulated the payroll numbers, we must also stipulate that Mr. Bush inherited a faltering economy, which was about to be pulverized by the September 11 terrorist attacks. Revised data now reveal that the economy actually declined during the third quarter of 2000. Meanwhile, previewing the collapse of the telecommunications spending bubble, business investment grew at an annual rate of less than 1 percent during the fourth quarter of 2000 -- before beginning a 27-month period during which business investment would decline for nine quarters in a row. The recession officially began in March 2001, less than two months after Mr. Bush became president.
Of course, long before Mr. Bush took the oath of office, the stock-market collapse was fully under way. The tech-heavy Nasdaq index, which peaked at 5,048 in March 2000, had plummeted to 2,770 on Jan. 20, 2001, having shed more than 45 percent of its value. The broad-based S&P 500 index, which peaked at 1,527 in March 2000, had lost nearly 200 points (an eighth of its value) by Inauguration Day, on its way to losing nearly 50 percent before recovering.
While there was little, if any, indication on the day Mr. Bush became president, it soon became apparent that a corporate financial scandal had been burgeoning for years during the Clinton administration. After downwardly revising its 1997-2001 earnings, Enron went bankrupt during the fall of 2001, followed a month later by Global Crossing. The WorldCom implosion quickly followed, as did Adelphia's. All these scandals had deep roots in the 1990s.
Perhaps worst of all, the September 11 attacks dealt the economy a devastating blow, particularly in the labor market, from which it almost certainly has not yet fully recovered. The attacks on the World Trade Center and the Pentagon occurred in the middle of a recession and during ongoing collapses in both business investment and the stock market. During the first five months (April-August) of the 2001 recession, the economy shed 676,000 jobs, or an average of 135,000 per month. In September 2001, however, the economy lost 267,000 jobs, or twice the average of the previous five months. Then the bottom fell out. Another 361,000 jobs were lost in October, followed by 332,000 more in November. The recession officially ended that month, but the economy jettisoned another 212,000 jobs in December. Thus, the immediate economic impact of the unprecedented terrorist attacks of September 11 was clear: In a brief span of four months (September-December), the economy lost 1,172,000 jobs.
As the nation prosecuted the war on terror, uncertainties abounded throughout the economy. A jobless recovery ensued, as companies met the expanding demand by dramatically raising the productivity of their existing workforces. Productivity in the nonfarm business sector soared by 4. 4 percent during both 2002 and 2003.
There have now been 12 consecutive months of job growth, during which 1,686,000 jobs have been created. Yes, there were 913,000 fewer jobs last month than there were in January 2001. Yet voters still support Mr. Bush over Mr. Kerry in handling the economy. Our guess is that voters understand the long-term impact of the unprecedented terrorist attacks of September 11, which contributed to a loss of nearly 1. 2 million jobs over four months. Where Democrats see only Hoovervilles, voters apparently realize that Mr. Bush inherited a sinking economy, which was made much worse by September 11.