DESPITE the Middle East peace conference, the gulf war victory and the Democrats' bungling of the Thomas hearings, polls are showing that George Bush is suddenly no longer a shoo-in for re-election because of the economy. The hard economic facts bear out voter intuition that the economy has gotten into trouble on George Bush's watch.
In his 1988 acceptance speech, Bush, confidently assuming a two-term administration, pledged to create 35 million jobs by 1996. Actual net jobs created since 1989 are just over 200,000 -- the lowest rate of any postwar administration.
Economic growth under Bush has averaged 0.6 percent a year -- again, the lowest rate of any postwar president. Growth per capita has actually been negative. The second-worst growth record was Gerald Ford's, at 1.6 percent. Even under Jimmy Carter, growth averaged a relatively robust 2.9 percent. And, of course, Carter and Ford were both denied re-election.
Real wages of non-supervisory workers -- about two workers in three -- have declined for three straight years. The decline in wages of male workers, who voted disproportionately for Bush in 1988, has been more severe than that of women.
More ominously, the Bush administration seems out of remedies to generate an election-year recovery. Fiscal stimulus is out, because of the already swollen deficit. On the monetary front, the administration has pressed the Federal Reserve to cut interest rates to their lowest level in 15 years, and has even lowered bank capital standards. But traumatized banks are still reluctant to lend because of a genuine shortage of creditworthy borrowers due to the real decline in asset values and purchasing power.
Under the "budget wall" of the 1990 budget accord, devised and defended by the White House, any money saved from cuts in defense spending can be used only for deficit reduction. So the administration denies itself a recovery strategy based on stepped-up spending for civilian public works.
Moreover, the hangover from the financial blowout of the 1980s causes banking and real estate to drag each other down. In keeping with the administration's general policy of minimizing a public-sector role, the Resolution Trust Corporation (RTC) and the Federal Deposit Insurance Corporation (FDIC) are continuing unload commercial properties they have repossessed -- onto an already depressed real estate market. This undercuts the rents that can be charged by healthy properties -- leading to more defaults, more repossessions, more declines in asset values and more bank losses.
Elsewhere, the two biggest automakers have just reported a third-quarter loss of $1.7 billion, which reflects and intensifies soft purchasing power. When President Bush insists that all is rosy, he contradicts the real-world experience of ordinary people and undercuts his own credibility as an economic manager.
In the face of all this, the administration's sole recovery program is a capital gains tax cut. Reagan's supply-side tax cuts stimulated the economy only because they increased deficits and hence stimulated demand. But Bush's proposed capital gains cut will only transfer tax relief to people mostly in the $200,000-and-up income bracket.
In a recent speech to the Economic Policy Institute, Sen. Tom Harkin, D-Iowa, had a field day with this issue. "Cut capital gains . . . That's his answer to everything. Eight million unemployed? Cut capital gains. Trade deficit? Cut capital gains? Got a toothache? Cut capital gains!"
We will hear a lot more of this brand of argument in the coming election year. Trickle-down seemed possibly worth a try in 1981, when it was fresh, before it had generated mammoth deficits, and when its pitchman was the Great Communicator. But it is definitely a non-starter for 1992.
By contrast, the Democrats are preparing legislation to give the working middle class an overdue tax cut. Democrats are still debating whether to push Sen. Lloyd Bentsen's plan to pay for middle-class tax relief with the peace dividend, or the Gore-Bradley-Downey proposal to finance it by raising taxes on incomes over $250,000. The latter approach, in my view, is better economics, better politics and better symbolism. But either approach differentiates Republicans from Democrats and places most voters in the Democratic camp on this issue.
The 1992 election promises a real, overdue debate about the economy. For the first time since the 1960s, the Democrats are embracing economic populism. The softer the economy, the more Trumanesque they will be. This year, there is no Mondale promising austerity, no Dukakis stressing "competence." There are no economic conservatives in this year's Democratic field.
As always, foreign policy carries an incumbent president only as long as the economy is sound. And this economy isn't. Voter retribution in 1992 would be richly deserved, for this lame
economy is the direct result of lame policies.
In my column Oct. 4 on inequalities in school finance, I wrote that Hawaii had equalized school funding by treating the entire state as a single school district and having the state government collect property taxes. In fact, the state does assume responsibility for all school finance, but property taxes are collected by local governments and used for other purposes.
Robert Kuttner writes regularly on economic matters.