Sour U.S. Economy Could Be Factor In Tight Election

by Emad Mekay

(IPS) WASHINGTON -- The U.S. economy grew by only 3.7 percent in the last quarter -- below expectations of a 4.2 percent rate --the government said Friday, news that fuelled rhetoric in the very tight U.S. presidential election.

The report from the Commerce Dept. comes only three days before Americans go to the polls to choose their leader for the next four years, in an election where the economy and terrorism have competed as voters' single most important issue.

A poll by the 'Washington Post' on Oct. 25 found that 24 percent of those surveyed choose the economy as their top priority. Terrorism came second at 20 percent.

The campaign of Democratic challenger Senator John Kerry quickly seized on Friday's gross domestic product (GDP) figure as evidence that the economic policies of incumbent Republican President George W Bush have failed. Republicans said the figure actually showed the economy is recovering.

"In the last three months, the economic performance was disappointing for middle-class families and below expectations: the results that have become the norm for the economy under President Bush," Gene Sperling, economic advisor to Kerry said in a statement.

The Kerry campaign says that with lost manufacturing jobs, anaemic private-sector job growth, three straight months of declining consumer confidence and high oil prices, most middle-class families are feeling economic pain under Bush.

"With today's GDP report, it is now official that President Bush is the first president since the 1930s to preside over declining real exports and business investment during his term," added Sperling.

One economist agrees that Bush does not come out well compared to some of his predecessors.

"The modest GDP growth for the quarter does not help President Bush's standing much in the presidential growth scorecard," said economist Dean Baker of the Centre for Economic and Policy Research in Washington.

"The 3.9 percent growth rate for the last year is good, but below the 4.2 percent average for President Clinton's second term."

In his analysis, sent electronically today, Baker said that during Bush's term in office GDP growth has averaged 2.7 percent. While that beats another recent president, George Bush Sr, at 2.1 percent average growth, it still leaves the incumbent well behind recent presidents Clinton (3.7 percent), Jimmy Carter (3.3 percent) and Ronald Reagan (3.4 percent).

Concerns about the state of the economy continue to take a central place in the election campaign mainly because of slow job creation and lagging increases in employee compensation.

Under Bush, the United States has racked up one of the largest economic deficits in recent years -- more than $414 billion in 2004, despite the fact that Bush inherited a surplus that ran from 1998 to 2001, the first in 29 years. That surplus peaked at $236 billion in 2000, the year he won the presidential election.

The cost of the Iraq war has now reached close to $200 billion.

Kerry has also charged Bush with being the first president in 72 years to preside over an economy that has lost jobs -- 1.6 million in the private sector.

The challenger also accuses Bush of siding with the rich, arguing that his much trumpeted tax cuts have only benefited the richest two percent of Americans. Kerry has promised to adjust the tax cuts to benefit the middle class if elected, as well as to improve working conditions for millions of people.

But Bush says his tax cuts are working, are responsible for only one-quarter of the deficit and actually stimulate the economy by placing money in the hands of consumers.

"Our economy grows when it is given the right stimulus -- in this case, tax relief and good monetary policy," Treasury Secretary John Snow said Friday, in a statement. "That stimulus, combined with the strength of our small-business sector and outstanding workforce, has led to a growing economy that is producing jobs in all sectors across the board."

And although the deficit is at its highest ever dollar amount today, it is equal to only 3.6 percent of GDP, well below the worst deficit in history -- six percent of GDP in 1983, adds the Bush camp.

Answering charges of too few jobs and outsourcing existing ones overseas, Bush has focused on education reform as a way to push those with "outsourced" jobs to embark on new careers.

"The best way to keep jobs here in America and to keep this economy growing is to make sure our education system works," he said during a presidential debate earlier this month.

Kerry says the current tax system rewards companies for outsourcing U.S. jobs. "I will make the playing field as fair as possible ... I will, for instance, make certain that with respect to the tax system that you as a worker in America are not subsidising the loss of your job," he said.

The challenger has won the backing of the American Federation of Labour-Congress of Industrial Unions (AFL-CIO), the largest labour union in the country.

Kerry also promises to focus on "restoring fiscal discipline, tackling rising health care and energy costs, and providing incentives for good job creation."

But a more sober look reveals that regardless of who wins, the U.S. economy is unlikely to see any radical changes soon.

Republicans control many institutions that even a new Democratic president would inherit, points out one analyst.

The Republican Party now controls the White House, the Senate and the House of Representatives. Most governors and state legislators are Republicans, and Republican presidents have appointed five out of the seven current Federal Reserve governors and seven out of the nine current Supreme Court Justices.

"This means a newly elected John Kerry would have to compromise to get anything done, reducing the likelihood of radical policy changes," said David Kelly, economic advisor at Putnam Investments.

If John Kerry is elected president, he will very likely adopt a fiscally conservative position similar that of former Clinton, added Kelly in a statement, noting that Sperling was an economic advisor to Bush also. "This should also rule out outsized changes in tax and spending policies," said Kelly.

"The American economy isn't run from Washington; it runs itself," he added.