July 14, 2004

Bush Versus Kerry on Economy, Taxes and The Deficit

Knowledge@Wharton, from the business school at the University of Pennsylvania, has just released a survey of some UPenn business professors about the differences in John Kerry's and President Bush's policies and proposals on taxes, healthcare, Social Security and the overall economy. The comments of finance professor Jeremy Siegel are quite interesting...

According to Siegel, however, Kerry's focus on middle-class economic woes is tough to reconcile with economic reality. "When you have a little bit more than 6% unemployment, that means you have more than 93% employment. With job losses now quite rare, the fear that employees will lose their jobs has diminished rapidly … I don't think I see a big squeeze [on the middle class]," Siegel adds. "It's a hard theme to play for. It played a lot better six months to a year ago when job losses were the fear, when people thought they would be next. That subject today is not as potent as it was."

In general, Siegel believes the country's economic situation bodes well for Bush's reelection. "He's a year ahead of his father in terms of economic recovery, in terms of job creation," Siegel notes, alluding to the 1992 reelection campaign of President George H.W. Bush, who lost to Bill Clinton because the country had not entirely emerged from a recession. "We do seem to be hitting a soft spot in the economy [right now]. But I don't think it's going to be worse. My feeling is it won't be a roaring economy. It won't be a '90s boom, not at least before the election. But the economy is not going to be decisive in favor of the Kerry team."

The Democrats also have criticized Bush for the government's burgeoning budget deficit. Kerry has said that he wants to cut the deficit in half over the course of his four years in office. Siegel, too, is upset that Bush has not done more to control spending, but says that voters, by and large, do not see the deficit as a major issue.

"The truth of the matter is that until Americans see some concrete disadvantages of deficit spending - which means inflation and sharply higher interest rates, not the tiny rate increases we see now - it's hard to make that an issue," Siegel says. "You look at the economy and things are going well. People ask, 'Why are the markets doing pretty well if [the deficit] is such a bad thing? Why has my home price done well if this is such a bad thing?' If the economy starts recovering strongly, the deficit can actually be reduced. During the Clinton administration, deficits disappeared because of strong economic growth, not because of cuts in spending."