South-Western College Publishing - Economics  
Bush Whitehouse Looking for Jobs
Subject Job Creation
Topic Employment, Unemployment, and Inflation
Key Words

Job Creation, Unemployment Rate, Tax Cut, and Discouraged Workers

News Story

A January 9, 2004 report on unemployment was not what the president wanted to hear. Unemployment in December was much weaker that most independent economist or the Bush Whitehouse had forecast. In fact, job creation appears to have come to a stand still after some growth in November. The unemployment rate did fall, but only because the labor force was declining as more people became discouraged and chose to stop looking for work.

As a presidential election approaches, the Republican Party is looking for new jobs to bolster their position in the eyes of the electorate. The problem is, there is little Bush can do between now and the elections except wait and hope that the employment figures to improve. It is certainly not likely that the Whitehouse will get any help from the Federal Reserve which appears to remain fixed on its record low federal funds rate target of 1 percent.

"In terms of big levers to pull, they don't have anything," said Pierre Ellis, a senior economist at Decision Economics, a forecasting company.

Whitehouse officials are well aware, that the critical issue in an election year is jobs and the Democrats keep reminding the country that the Bush administration has recorded a net loss of more than two million jobs since taking office. These job losses remain one of Bush's biggest political weaknesses.

Since the administration cannot do much more to stimulate the economy before the election, the administration's strategy is to argue that the three bush tax cuts over the last three years have actually made the economic downturn and the loss of jobs less than it would have otherwise been.

"The evidence is powerful that we can have 4 or 5 percent growth without hiring much." Said John Makin, a senior economist at the American Enterprise Institute. Makin has continuously been more pessimistic about forecasts than many other economists, but the last set of data even surprised him. "I was stunned, quite frankly," he said.

The president does have one last hope, that the tax cuts will produce a large surge of income tax refunds that will be spent by households. Economists at both Goldman Sachs and Macroeconomic Advisers have predicted as much a $40 billion in extra cash flow to American households through 2003 tax refunds.


(Updated March, 2004)

Questions
1.

Define the economic concept of discouraged workers.

2. How can the unemployment rate fall if the number of jobs are not growing?
3. Respond to the administration's argument that the economic situation could have been worse without the tax cuts?
Source Edmund L. Andrews, "Bush Seeks Ways to Create Jobs, and Fast", The New York Times Online, January 10, 2004.

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