Is Cooked Economy a Bit Too Well Done?

In a year the American presidential campaign will be entering its final, thunderous phase. The Republican hopefuls--Vice President George Bush, Sen. Bob Dole (R-Kan.) and all the others--must now be wondering: Can the economy’s strong performance continue that long? Democrats are surely asking the same question. The economy now belongs to the Republicans. Unless things change, the Democrats may need a miracle to recapture the White House.

A presidential election is not usually a careful choice between political ideologies. Nor do political strategists typically decide the outcome. Rather, a presidential election is a crude public referendum on the present and the recent past. Prosperity now favors the incumbents.

Since World War II, only unpopular wars and weak economies have consistently forced incumbent parties from the White House. The Korean and Vietnam wars cost the Democrats in 1952 and 1968. In 1960 Richard Nixon lost narrowly to John Kennedy; the economy was in recession. When Jimmy Carter beat Gerald Ford in 1976, unemployment remained high from the 1974-75 recession.

Of course, more than pocketbook issues matter in politics. But they are critical for middle-of-the-road voters. When there is a general sense of well-being, people are less eager for change. Thoughtful Democrats know this and must have silently cheered last week when the Federal Reserve raised its discount rate. Higher rates could mean that the recovery is finally fraying at the edges.

But for now the recovery endures. The recovery that began in late 1982 is entering its 58th month. Of the nine postwar economic recoveries, only one--the 106-month recovery between 1961 and 1969--has lasted longer, and arguably it was sustained by Vietnam War spending.

No one should expect rapid, spectacular economic growth in the fifth year of a recovery. What’s desirable is steady expansion that’s adequate to absorb the rise in the work force and to create higher living standards. That’s precisely what the economy seems to be producing. Consider:

- For 1987, most economists expect an increase of about 2.5% in the gross national product. That’s the average forecast from the 51 economists surveyed by the Blue Chip Economic Indicators. Their average estimate for 1988 is 2.9%.

- Over the past year, the number of jobs has risen by 3.2 million. The civilian un-employment rate has fallen from 7% in July, 1986, to 6% in August, 1987. Since the recovery’s start, the number of jobs has grown by 14 million.

- Living standards are rising faster than in the late 1970s. The same can be said of productivity growth--the source of higher living standards. In the current recovery, business’ output per hour has increased by 1.9% annually.

- Export volumes are up, import volumes are down. The reported trade deficit, which hasn’t dropped, obscures the shift. Because a depreciating dollar means that imports cost more, the lower volume of imports has had a higher price tag. Adjusted for price changes, the deficit has declined by about 18% since the summer of 1986.

The Democrats cannot draw much satisfaction from this overview. The country’s trade and budget deficits remain immense. Parts of the Farm Belt and the Oil Patch are still depressed. The proportion of Americans below the official poverty line hasn’t dropped much. But converting these problems into potent campaign issues requires some economic turbulence.

Criticisms--no matter how compelling--are neutralized by the general prosperity. Voters are more impressed with tangible present successes than with future possible problems. “Most Americans believe the country is on the right track, and they are optimistic about the economy,” analyst William Schneider writes in the National Journal.

A cynic must wonder if the Republicans have cooked the economy for the election. A few years ago a Republican strategist might have advised the White House to promote a dollar depreciation to make U.S. exports more competitive, nudge out Federal Reserve chairman Paul Volcker and ignore the budget deficit. Despite the long-term benefits of smaller deficits, higher taxes and lower spending might initially hurt the economy.

In a nutshell, that has been the Administration’s economic policy. Is it mere coincidence or shrewd strategy? Whatever the truth, Republican prospects and the recovery may now be riding on borrowed time. This one could end in numerous ways. Inflation could accelerate, in part because a depreciating dollar raises the prices of imports. Debt-laden consumers could further slow their spending, while feeble foreign economies fail to provide an offsetting stimulus to U.S. exports.

What ought to worry Republicans, and hearten Democrats, is that the economy may be too good to be true. Politically, it may be running ahead of schedule. In September, 1987, it may have achieved the dull, reassuring prosperity that Republicans had envisioned for November, 1988. Political handicappers, stay tuned: The White House may hang in the balance.