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Economic Recovery: Reality or Mirage?
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10919 |
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Section : |
CURRENT ISSUES
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| Issue
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5 / 1993 |
2,120 Words |
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John Fund
Editorial writer for the Wall Street Journal, John Fund is
coauthor of the new book Cleaning House: America's Campaign
for the Term Limits (Regnery Gateway, 1992). |
Is the economic recession finally over and a recovery under way? It depends on what evidence one looks at.
The last few months of 1992 were a period of robust economic expansion. Gross domestic product--the output of all goods and services in the economy--went up 4.8 percent in the last quarter of the year. That is the briskest pace in five years and a full percentage point above initial estimates. Much of the gain came in December alone, when personal income jumped a full 1 percent, and a 0.8 percent gain in consumer confidence spread Christmas cheer in retailing. Home sales, meanwhile, registered the best month since 1979. Consumer confidence rose more than 12 points in December.
Can this recovery be sustained? The first figures for 1993 give some cause for doubt. Personal income and consumer spending managed to eke out some gains, though at only half the December rate, that only on the strength of a cost-of-living increase for Social Security recipients and a federal pay raise for government employees. But construction declined for the first time in five months. And home sales declined 6.4 percent, the first drop since last August. Consumer confidence leveled off in January and dipped again in February.
Some of this drop-off in growth can be attributed to public concern over Bill Clinton's tax and budget policies [see "The President's Economic Plan," p.48]. Few jobs are going to be created by people who are distracted from their business plans by worries about how they can shift income from one place to another to avoid the taxes Clinton has threatened.
Michael Eisner, the chairman of Walt Disney Company, is a classic example of how economic players are already turning their attention from creating jobs to avoiding taxes. He cashed in his stock options between Clinton's election in November and the 1993 tax year. His plan was to realize his capital gains before Clinton could raise taxes. Disney President Frank Wells did the same thing, and the two of them added $187 million to December income figures. No wonder the figures were so robust.
To be fair, the economy is now producing some net new jobs--the first time that has happened in nearly two years. But there must be stronger job gains if the economy is going to lift itself from the doldrums. The newspapers and networks are still filled with stories about companies such as IBM and General Motors announcing cuts in their work force. The results of such cuts are, of
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