It's the Economy, Stupid - And the GOP Hasn't a Clue
Super Tuesday appears to have resolved very little, except that political junkies relishing the prospect of a brokered convention may actually get their way -- twice.
Government and other reports during the past week relating to growth and employment should ensure that the economy will be a major topic of discussion during the remaining primaries.
First came Wednesday's GDP report for the fourth quarter of 2007. I thought, based on positive reports on employment and business activity that preceded it, that growth might come in as high as 3%. Oops -- try 0.6%. I think that revisions to fourth quarter GDP growth will probably be upward, and lead to a final number as high as 1.5%. But even if that happens, the economy's growth during the quarter was a major disappointment after the two stellar quarters that preceded it.
Then on Friday, the Employment Situation Report from the Bureau of Labor Statistics came in mixed. The good news was that the unemployment rate dropped to 4.9% from 5.0% the previous month, reversing a slow upward trend throughout the second half of 2007. But that good news was accompanied by the first reported loss of jobs (-17,000) in the economy in over 4 1/2 years.
The pain of the employment report was alleviated a bit 90 minutes later Friday morning, when the Institute for Supply Management (ISM) released its January Manufacturing Index, covering about 15% of the economy. Surprising just about everyone, the index came in at 50.7, indicating that manufacturing was in expansion mode, if only slightly, during the month (any reading above 50 indicates expansion), after slipping into contraction for the first time in nearly a year in December.
With the three reports just described pointing towards a lukewarm but not necessarily troublesome situation, economists were anxious to see Tuesday's Non-Manufacturing Index (NMI) from ISM, which covers most of the rest of the economy, to get the last word on where we are.
The word: Ouch. The services sector went from a decent expansion in December to a very decided contraction. The report's Business Activity Index dropped from 54.4 to an anemic 41.9. That drop was the largest on record in the 11 or so years of the index's existence. While it's possible that the drop is a one-month anomaly, I doubt it.
With the economy slowing and a now-legitimate possibility of a recession, you would hope that at least one of the GOP's remaining viable candidates might have a credible platform for addressing the challenges. It appears not. (Both Democratic candidates appear so determined to raise taxes and implement nationalized health care that their claims for having any genuine ideas for improving the economy cannot be taken seriously).
John McCain has taken a lot of deserved heat for not supporting the Bush tax cuts in 2003. However, he does say he would now make them permanent. But anyone who thinks that he would fight for the kind of further tax reduction that would truly stimulate the economy into long-term growth mode again is probably doomed to disappointment. His health care plan, while at least not statist, is not exactly a model of coherence either.
Mike Huckabee, who after his Super Tuesday performance has to be seen as McCain's leading challenger, has a record of raising taxes and fees while he was governor of Arkansas, and of personal opportunism both while he was in office and shortly thereafter. He has attempted to allay concerns about his fiscal bona fides by advocating the "Fair Tax," which is, in effect, a high-rate national sales tax designed to completely replace the income tax and many other smaller taxes. I believe that Huckabee's Fair Tax adoption is opportunistic, insincere, and fails to address the reality that as president he would not get any kind of congressional cooperation. What are you going to do in the real world, Mike?
I referred to McCain's mishmash of health care ideas earlier. You might expect that Mitt Romney, McCain's remaining credible challenger, given his business and management background and his four years of experience governing Massachusetts, would have something to offer for health care and the economy as a whole. Unfortunately, whatever Romney says will be drowned out between now and convention time by what he has done. He imposed a "universal" health care plan on the Bay State in his final year before he left office that naturally led to skyrocketing and out-of-control costs. It will serve as an ongoing embarrassment to a man who should have known better than to have even tried. Voters will correctly see any attempt by Romney to further distance himself from his Bay State blowup as a demonstration of irresponsibility.
The GOP's last best hope may be to knock some sense into these guys if and when they attend CPAC. Attendees should have their suggestions and arguments at the ready.
Tom Blumer is a CPA based in Mason, Ohio, outside of Cincinnati. He presents personal finance-related workshops and speeches at companies, and runs BizzyBlog.com.