ECONOMICS: Welcome to the Bush Boom
Wesbury, Brian S.
ECONOMICS BRIAN S. WESBURY Welcome to the Bush Boom ETWEEN 1995 AND 1998, William Jefferson Clinton governed as if he believed his own words: "The era of big government is over." He supported...
...economy's transition toward an information-based powerhouse...
...After sitting on the sidelines for two and a half years using up Y2K inventories, companies are finally beginning to invest again in high-tech gear...
...But with Washington's coffers full, the economy booming and his presidency swamped by scandal, Clinton tacked to the left during his last two years in office...
...Pessimists are clinging to even the flimsiest pieces of data to argue that the economy is hurting...
...The two key ingredients for continuing resurgent growth are already in place: accommodative Fed policy and reversal of the stealth tax hike of the Clinton years...
...Non-financial corporate productivity is up 4.9 percent over the past year, and grew at an astounding 8.1 percent rate in the second quarter...
...By the middle of this year it was 6.5 percent, an all-time high...
...Through mid-August, 719 32 THE AMERICAN SPECTATOR OCTOBER 2003 companies announced dividend increases, up from 550 during the same period in 2002...
...In 1970, the share of U.S...
...And more tellingly for the future, high-tech spending is rocketing higher...
...Small wonder the NASDAQ is booming...
...A key subset of this spending—computers and peripheral equipment—was up 57.5 percent...
...has seen since 1981, dropping the rate on capital gains to its lowest since 1933 and on dividends by 60 percent...
...New orders for computers climbed 33 percent during the three months ending in July, and tech giants including Intel and Cisco are boosting their sales forecasts...
...But what they fail to see—or to admit—is that a surge in imports subtracted 1.1 percent from GDP in the same period, while drooping inventories took out almost another whole point...
...The NASDAQ has climbed a remarkable 70 percent from its bottom in October 2002...
...Venture capital investment has finally turned the corner, IPOs are back and M&A activity is a daily occurrence...
...Interest rates always rise in the early stages of recovery, as demand for capital picks up...
...This stealth tax hike combined with a deflationary Fed policy and collapsing equity prices, threw the economy into recession...
...Then in 2003, while Senate moderates dickered, House Ways and Means Committee chairman Bill Thomas and the Bush team engineered the best supply-side tax cut that the U.S...
...The benefits are easy to see...
...Government spending contributed nearly half of that—proof enough to the pessimists that something is wrong...
...And job creation will resume in the coming months, as economic growth finally catches up with surging productivity gains...
...Bubble-touting pessimists relentlessly assaulting investors with forecasts of deflation, a 5000 Dow and years of sub-par growth have completely missed the boat...
...Call it the Bush Boom...
...The gold price, the dollar and the steep yield curve all tell us that deflation is not a threat...
...No one knows what the future will bring, but risk premiums are steadily being wrung out of corporate stock and bond markets, suggesting that the world is once again becoming a safer place...
...Already, those changes have hugely altered the investment landscape...
...economy is strong...
...Another 134 historically non-dividend paying companies announced they will begin...
...My top-down models of the economy—which use monetary and fiscal policy as inputs—suggest a 4.5 percent to 5.5 percent growth rate over the next 18 months...
...He supported free trade, a capital-gains tax cut and welfare reform...
...For example, third quarter real GDP climbed by 3.1 percent at an annual rate...
...Ignore it at your own risk...
...During the second quarter of 2003, information processing equipment and software BRIAN WESBURY spending expanded an annualized 19.4 percent...
...And we don't need to worry about rising interest rates, deflation, or the lack of job growth...
...experienced this kind of productivity growth...
...The Bush Boom has arrived...
...It is the slump of 2001 and 2002 that was temporary...
...Bubblenomics" sees the world upside down...
...Fortunately, George Bush arrived in Washington, cutting taxes even before the 2001 recession was officially recognized...
...GDP devoted to high-tech was just 0.3 percent...
...On the terror front, President Bush has taken the offensive, and since 9/11 not a single attack has occurred on L.S...
...Policy is the only thing that matters, for security and the economy alike...
...Yes, the cuts phase out in just a few years, but there is no reason to think that they will not be extended...
...Bracket creep drove effective tax rates upward, from 1993 to 2000, nearly doubling the number of people paying the top marginal rates of 31 percent or more...
...OCTOBER 2003 THE AMERICAN SPECTATOR 33...
...Call it the New, New Era...
...And as we now learn from Richard Miniter's new book Losing Bin Laden: How Bill Clinton's Failures Unleashed Global Terror, the seeds of 9/11 were planted then as well...
...The chart above tells the underlying story...
...However, a bottom-up approach that adds so-called "component" data—consumption, investment, trade etc.—points to as much as 7.0 percent growth in the third and fourth quarters...
...low inventories presage a rebound in future production...
...Rising imports are a sign that the U.S...
...The number of pages in the Federal Register—a proxy for the regulatory burden—ballooned...
...Not since the Industrial Revolution has the U.S...
...Moreover, this trend is set to continue...
...A.= Brian S. Wesbury is Chief Economist, Griffin, Kubik, Stephens & Thompson, Inc., a Chicago-based investment bank...
...soil...
...Broadband and wireless Internet access continue to expand, enabling real-time decision-making at all levels and fueling the U.S...
...The New Era was born, and high-tech entrepreneurs created wealth at an amazing rate...
...Despite protestations to the contrary, the promise of the New Era was always real...
Vol. 36 • October 2003 • No. 5
