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Can spending surge help reelect Bush?


MY YOUNGEST child bought a car last weekend with his bride, late for the third quarter gross domestic product figures but illustrative to a point -- just like the long-delayed spurt of growth.

There won't be a second car anytime soon, the realities of graduate school and new jobs being what they are. The kid and his wife are trying to live the way the federal government isn't -- within their means.

I'm trying, too. My wife and I will shortly do the serious work on a nicer bathroom in the weekend place. We should have done it earlier, but it will be our contribution to the fourth quarter.

That's about it, though. Being borderline geezers, there's no child tax credit for us, and we track nursing home prices a lot more carefully than we do new cars. Unlike the federal government, we like to save for retirement costs.

But make no mistake, the third quarter was welcome news and a big political deal for those who understand the basic lesson of a political economy -- that rhetoric may be about the past and future, but elections are about the present.

If the third quarter was a harbinger, it was a solid piece of evidence that President Bush can get reelected in spite of his record. If it was just another spike -- and there have been a few since the short recession took hold in early 2001 -- Crawford may beckon.

One thing is clear. The train wreck that has been arranged for the day when the government's ravenous appetite for IOUs to finance unheard of red ink collides with both the capital needs of a recovering economy and the huge cost of my generation's impending retirement will come after next year's election. It will come, but deficits do not matter politically the way they mattered in 1992 when they were an obvious factor in the stagnation that hurt Bush's dad.

It was powerfully symbolic that the third quarter spurt of 7.2 percent at an annual rate was the best performance by the output of goods and services since the first quarter of 1984, a reelection year. In part that reflected a combination of tax cuts taking effect and an investment recovery spurred by a late-1982 budget deal between Ronald Reagan and Congress that at least promised to keep the deficit from being too ridiculous and prompted the Federal Reserve to start stimulating growth.

The performance of the key component of output, moreover, was also symbolically interesting for politics watchers. Consumer spending, which is two-thirds of the pie, nearly doubled its pace during the third quarter, shooting up by 6.6 percent. That just happened to be the best result since the first quarter of 1988. Everyone likes to tell Mike Dukakis and George H.W. Bush stories about that year, but not enough attention is paid to a growth spurt back then that greatly influenced the voters' choice to elect Bush.

Ahead of last week's announcement, there were two surprising bits of news about the economy that overshadowed one surprisingly negative development.

First, the government said the country's horrid international trade picture was better than expected. Exports were up, but there was an unexpected dip in imports. The narrowing of this deficit, which subtracts for the output picture, is not likely to continue, but it was a boost to the third quarter. So was a sharp revision upward in the consumer spending estimates for July and August. The reason involved sharply higher car sales -- again a welcome development but one not likely to continue at that pace.

The third surprise was a dip in August business inventories, another output component. As it turned out, there was a net reduction in inventories for the quarter as a whole, which kept total output from exploding by nearly eight percent.

This has to change, and there is expectation that it will. A collapse of business investment, especially in technology, was the key cause of the 2001 recession, and a strong recovery has been underway for about six months. Unless demand falls flat (unlikely), inventory accumulation may be just around the corner.

There is not going to be a repeat of the third quarter performance. The latest round of tax cuts has been mostly spent, imports will go back up, there is a much smaller volume of mortgage refinancing to provide extra cash, and states and localities have only just begun slashing services and jobs.

Nonetheless there has been an unprecedented amount of budgetary and monetary stimulus applied to the US economy over the last 30 months and at some point it is going to respond. The political question is partly how much, but it also involves whether the output recovery is perceived by people as actually improving their standard of living.

For the perception question to be answered favorably for Bush, there have to be a lot more jobs producing more after-tax, after-inflation income for people who live off their paychecks and pension checks. In my next column, I will explain why the prospects are so dicey and so central to next year's election.

Thomas Oliphant's e-mail address is

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