Getting the Job Done

ROBERT REISCHAUER, Urban Institute: I'm Bob Reischauer, president of the Urban Institute, and I'd like to welcome you all to this third in a series of First Tuesdays which deal with issues that are due to be important in the election and the political events of this year. This forum will focus on employment. We had one that focused on healthcare and another on immigration issues. The structure of these gatherings—these forums—is to have two individuals with analytical backgrounds discuss the facts and figures and analytics of the issue, and then to have two individuals who are closer to the political fray, but represent different sides of the aisle, comment on how the issue might evolve in the upcoming election.

We have really a tremendous panel here today to fulfill these roles. The two analysts will be Harry Holzer and Bob Lerman. Harry is a visiting fellow here at the Urban Institute and a professor of public policy at the Georgetown Public Policy Institute. Harry was the chief economist for the Department of Labor during part of the Clinton administration, and before that was a professor of economics at Michigan State. He is also an affiliate of many groups of scholars at different universities: namely, Michigan, Harvard, and the University of Wisconsin, and has been a contributor to the field of labor economics for many years.

Bob Lerman is a senior fellow here at the Urban Institute in the Center on Labor, Human Services, and Population, and also a professor of economics and one-time chairman of the department at American University. He has been involved in labor issues and welfare youth employment training kinds of topics for many years. He was staff economist at the Department of Labor and has published very widely.

The commentators from the political perspective are Doug Usher and Dave Winston. Doug is a vice president at the Mellman Group and a pollster for the Kerry campaign. He has been in this line of work for a long time analyzing the determinants and effects of public opinion and mass preferences, and was a research consultant during the Clinton-Gore 1996 campaign and has also advised the Democratic National Committee and served on the staff of People for the American Way and the Capitol Group.

Dave Winston is the president of the Winston Group and he served as director of planning for Newt Gingrich when Newt Gingrich was the speaker of the House of Representatives. He also has been a vice president at Fabrizio McLaughlin and Associates, which is a survey research firm, and is a columnist with Roll Call and a political commentator who is frequently seen and heard on various media outlets.

The panel's going to be moderated by Julie Kosterlitz, who is a national political and public policy correspondent for the National Journal, where she has been, I believe, for the last 18 years except for—sorry about that, it's hard to believe—

JULIE KOSTERLITZ, National Journal: Ouch.

ROBERT REISCHAUER, Urban Institute: —for a 35 year-old woman, but—no, Julie and I go back a long way. She at one point was a guest scholar at the Brookings Institution and was one of the individuals who was condemned to cover the Clinton healthcare reform effort when we had a lot to do with one another. Frequently Julie is also heard and seen on various TV and radio outlets.

With that, let me turn it over to you, Julie, and take it away.

JULIE KOSTERLITZ, National Journal: Okay, thanks Bob.

Well, I thought I'd start by delivering a eulogy for Gregory Mankiw who was the late great chairman of the Presidents Council of Economic Advisors. Actually, it's not often you get to express sympathy for a Harvard don who is smart, successful, and evidently pretty well off from having a best-selling textbook, but it's still not hard to feel a wave of sympathy for him in light of the fact that when political imperatives and economic analysis collide, it's not a pretty sight. And collide they have over the question of jobs, or more precisely the lack thereof.

When Mankiw scarcely a year onto the job said outsourcing was, quote, "probably a plus in the long run," close quote, he forgot not only John Maynard Keynes' famous observation about the long run versus the grim reaper, but also that the only run that matters in this town right now takes place between now and November.

There is, however, one place where Mankiw might have been well advised to focus on the longer run, and that was when he made his prediction that the same economy that's lost 2.5 million jobs since President Bush took office will create 2.6 million jobs this year. His mistake was to add the part about this year. In so doing, he violated a cardinal Washington rule which is, if you're going to paint absurdly rosy scenarios, it's best not to let the paint dry while you're still in office.

Mankiw's report may be called the Economic Report of the President, but President Bush has been more than willing to let—to see the credit go to the ghostwriter this time. Indeed, by the time the press discovered that his report had also explored the question of whether hamburger flipping might qualify as manufacturing, the administration was referring to their chief economist not as Mankiw, but MakeWho?

Any president who presides over a net loss of jobs is entitled to feel anxious about his reelection prospects, and this president has a birthright to such anxiety given that it was another jobless recovery that helped cut his father's White House tenure short. Just how worried should the current President Bush be? Well, I think that's a question for the experts and so without further ado I will turn it over to, I believe Harry Holzer. You're going to lead off?

HARRY HOLZER, Urban Institute and Georgetown University: That's right. Thank you.

Well, my charge was to review all of the relevant numbers on employment and job creation within a six to eight minute period, so because there's a lot to cover I'm going to dispense with my usual wit and charm up front in opening remarks and dive straight into the numbers. Most of you have a handout—a three or four-page handout in your packet with a cover that looks like this. I'm going to be referring to a few of those numbers as I move through these quickly.

The first page lists the employment rates and unemployment rates that we've observed in the economy over the last three or four years or so. The right-hand column is the unemployment rate. The single statistic that gets talked about every month when the BLS—Bureau of Labor Statistics—quotes numbers fro its survey of households, and you've probably all seen these numbers before. At the outset in the year 2000 the unemployment rate was at about 4 percent. Over the next two and a half years the unemployment went up to 6.3 where it peaked in June of last year. It's dropped off a little bit since then. These numbers generally are lower than the unemployment rates we've seen in earlier recessions, although it's at least partly because we started at a lower rate at 4.0.

One way of measuring the severity of the downturn in the labor market is to look at the increase from its lowest to highest level: that is 2.3 percentage points. It makes this recession in severity pretty similar to the last one—the one we had in the early 1990s—a good deal less severe than the recessions of the 1970s and 1980s. So this is considered a moderate recession by most historical standards.

Now, of course, one problem with the unemployment rate is that it's only measured for people who are actively in the labor market, which means people actively searching for work in the last month. We know in a recession some people stop looking for work, so economists often look at this alternative measure of the employment to population ration, which is simply that: out of all people in the population, how many of them are employed? There you see the numbers dropping from a peak of 64.5 percent in the year 2000 down to 62.1 last September. It's about a 2.5 percentage point drop and there's actually been very little improvement—just a very small amount of improvement in that measure—since last September.

Now a lot of the discussion that you hear in the news and that Julie referred to is about the number of jobs: the number of jobs created and the number of jobs lost. I want to show you a few numbers on that in the next page. There's actually two different ways that the Bureau of Labor Statistics calculates job creation and job loss. One of them is through the household survey—the same one that gives us the unemployment rate. It's under the assumption that every time a person says they're employed, they're filling a job, so you simply count jobs by the level of employment. The other way is actually through a survey of establishments where you ask employers about the number of workers on their payrolls, and that's the left-hand column. And the numbers from these two different surveys have looked a little bit different over the last couple of years, and especially during the last year because it's on the payroll survey from these establishments that you see this fairly big job loss you've heard a lot of talk of in the news: a job loss of about 2.7—2.6 or 2.7 million jobs at its largest amount last September. There's been a little bit of recovery since then: about 300,000 jobs created, but we're still down about 2.3 million jobs by that payroll number.

Now on the household side the numbers have looked somewhat better. As you can see, the drop off from the peak in March of 2001 was much smaller in magnitude than what you saw on the payroll side, and the resumption of growth in jobs on the household side occurred earlier. And at this point, we're actually ahead of where were in the year 2000 by that count of the number of jobs on the household side.

So the first question is why are these two surveys giving us somewhat different measures? Partly, it's because they measure different things. The household survey counts some things as employment that the payroll survey doesn't count, such as being self employed or working in private households or working in the agricultural sector and the payroll survey doesn't include those things. And that might account for at least part of the discrepancy.

There's also the question of survey errors and most economists believe that the payroll survey is the more accurate measure of what's really happening in the labor market, partly because it's based on a much larger base of establishments and workers, and with larger samples there is less error involved partly because the answers given by employers about their payrolls are considered more trustworthy and less error prone than the answers given by people to a household survey.

And indeed, when the administration made this, well, shall we say controversial forecast that Julie referred to of 2.6 million jobs between the years 2003 and 2004, which actually meant 3.8 million new jobs in calendar year 2004, that would amount to 300,000 new jobs every month compared to the roughly 75,000 or so we've had over the past four months. They were talking about the payroll numbers. In other words, they were accepting that the turf that this issue was going to be played on is on the payroll side and that's where the debate's going to proceed. Now, of course, they have backed off that prediction since then.

That prediction, by the way, was based on a prediction that GDP growth would be fairly moderate this coming year, but that productivity growth would drop way down. And Bob Lerman's going to talk about this whole relationship between productivity and employment and so I don't need to go there now. But, simply, the payroll numbers I think is where most of the focus will continue to be because of its considered greater reliability.

One more thing I want to say about these two surveys. I don't think the difference between them is nearly as great as has been suggested because I think there's been too much focus on the absolute number of jobs and whether the absolute number is above or below where it was in the year 2000. I think the real question is, relative to where we would be in the absence of a downturn in the job market for relative to where we were in 2000, what should employment be or what should the number of jobs be? And by those measures, both surveys show a fairly significant jobs gap. Even on the household side if you say, if the employment to population ratio was back where it was in the year 2000, what would the total number of jobs look like? It would be about 5 million more than the household survey is showing now. If you ask a similar question on the payroll side, what would the payroll number now be if we'd had continued growth of employment in line with population, it would be about 7 million more. So there's some difference between those two numbers, but at least qualitatively both of them show a fairly large jobs gap or employment gap continuing.

So that's my view of the jobs numbers and the payroll numbers. I want to take just a couple minutes to wrap up with three more quick facts that we can come back to later on if folks want to talk about them, and they're the last three bullet points I list on my third page of facts. The first one I'll start with is that, as I said, this is not a severe downturn in the labor market by any kind of historical standard, but it is a very lengthy one. We're now almost exactly three years into this downturn into the labor market. And when I say downturn, I mean downturn of the labor market. You know, the recession was declared over by the NBER Business Cycle Committee almost as soon as it began in the year 2001 because output—production of goods and services—recovered so quickly, but on the job market that recovery hasn't been seen. The downturn continues, and a three-year downturn with this much job loss is unusual. I mean, the last time we've seen that kind of job loss over three years is in the 1930s, so it's a noteworthy fact whatever interpretation we put on it.

Related to that is the next fact that we have a lot of workers becoming unemployed, getting unemployment insurance, and then exhausting that unemployment insurance while they remain unemployed before they've gotten a new job. Partly that's because of the length of this downturn in the labor market, partly it's because the federal government has been slower to extend unemployment benefits as they have done in most recessions in the past, and if you know anything about the complicated world of unemployment insurance—workers get unemployed, they're entitled to six months of state benefits, they exhaust those and then the federal government often kicks in with emergency benefits, which the federal government this time has had two extensions of emergency benefits, but that's less than we saw in the 1990s and certainly less than we saw in earlier recessions. So we see 4 million workers—over 4 million workers at this point have expired their unemployment insurance without regaining employment, and that's a bigger number than you've seen in previous downturns.

Last point: you know, most workers remain employed; what they really care about is their wages and salaries rather than employment levels, and here's an interesting phenomenon. Wage and salary growth has been what I would call moderate over the last three years; 6 to 7 percent cumulative over those three years, and I say 6 to 7 because it depends on exactly how you measure inflation, which is a little controversial. Productivity growth has been actually much stronger than that. Productivity growth has been over 11 percent in this three-year period, and within the last 12 months the gap has been really striking—productivity growth over 4 percent, virtually no growth in wages and salaries once you've adjusted for inflation.

What's going on there? You know, at least a little bit of that story is that some of the money that workers would normally get in wage and salaries might be getting eaten up by their health insurance cost or the cost to their employers. That's a part of the story. Another part of the story is that more of the total output is going on the profit side rather than to wage and salaries, so the pie is getting bigger and bigger, but the slice going to workers in terms of wages and salaries is getting somewhat narrower than it was in the past.

So those are the facts as I see them. I'll stop there and turn it over to my colleagues.

JULIE KOSTERLITZ, National Journal: Great. Thank you. It was—on to you.

ROBERT LERMAN, Urban Institute and American University: Thank you very much. I'm going to take a little bit of a—start with a bit of a long-term perspective. Excuse me. You know, over the 1970s and 1980s the U.S. was a great job creation machine. We created 40 million jobs that matched the very rapid growth in the work force which was about 2 percent per year and that was on a base, and so that's 2 million a year for 20 years. That was on a base—a much smaller base. A base of about 80 million. We were creating more jobs—we created more jobs than all the jobs in some of our industrial country partners and people were marveling, oh, the U.S. is a great job machine, but then there was always the point, well, yeah, that you're creating jobs, but what kind of jobs? And what about wages? Wages are stagnating. Productivity is slow. We need to get productivity up because we need to move our living standards up.

Well, I think our corporate people and business people they listened to that and they said, oh, well, we've got to get productivity up. And they gave us more productivity than we expected, and so we do have to be careful sometimes what we wish for because at least in the short run this rapid productivity growth is what is causing the slower job growth. By the way, you can have both slow productivity growth and very little job growth. You can also have relatively good productivity growth and good job growth, which we did in the 1960s, but very often, at least in the short run, they go together and the mathematics is pretty straightforward. If you have output growth of some number, let's say 4 percent, which is a healthy number by industrial economist standards, you can produce that extra 4 percent with 4 percent more workers and no productivity growth or 4 percent productivity growth and no more workers, or something in between such as 2 and 2.

Between '73 and 1990, output was growing at about 3 percent a year and jobs by about 2 percent. Hours actually fell during that period, so—person-hours grew by about 1.6 and productivity grew by what we thought of as a meager 1 to 1.5 percent per year. Since '95, productivity has increased to 2.5 percent per year. Jobs grew originally only at about 1 percent, which is—would be okay because now our labor force is only growing by 1 percent, but we have some catch-up to do because of the recession.

Now the important thing to remember here is that to the extent that macroeconomic policies—by that I mean monetary and fiscal policies—can influence anything directly, it's going to be the rate of growth of output, so you can say, all right, we should target for a 4 percent growth in output. How that's divided between productivity and job creation works itself out in the economy and how it works itself out is not always easy to know, but the danger, of course, is if you expect—if you say, oh well, productivity's humming along at 3.5 percent, we should be able to grow at 5 percent to bring in some of the unemployed. Then you may have people say, ah, well, 5 percent that's going to create inflation because productivity growth is really going to be very slow and, you know, you'll use up workers too fast and you'll use up capacity too fast.

So it's a very tricky matter. Now, in today's numbers, if we look at them, as Harry said, productivity grew quite well over this period and in the year that just ended, the December—or the fourth quarter of 2002 to the fourth quarter of 2003, the economy grew by 4.2 percent, which would be a good number. And even if productivity was growing faster than historically in the last 25 years, let's say 2.2 percent, job growth would have been 2 percent and that would have used up some of the unemployed, because remember labor force is growing only by 1 percent, but by the payroll numbers job growth was zero.

Now it's interesting how you play this out. I don't want to take the job of our political commentators, but this is relating to what Harry was talking about between the household numbers and the payroll numbers. The household numbers showed more employment growth, and on the one hand you might say, well, why don't they tout the household numbers? Now of course if you tout the household numbers and say, well, employment grew, then you say, oh, well, productivity didn't grow as rapidly as we expected, so these things have a interesting relationship.

Now, I have two [minutes]. I've been keeping track.

JULIE KOSTERLITZ, National Journal: Never argue with an economist.

ROBERT LERMAN, Urban Institute and American University: A manufacturing point illustrates this in a very important way and I have a graph in the handout showing that in terms of widgets—in terms of things that are produced, output in manufacturing over the last many years has been growing alongside GNP at about the same rate, maybe recently even a little more, but productivity growth has been absolutely massive.

Two other points. Well, here I'll bring in my outsourcing point. The issue about outsourcing I think misses one of the key pieces of information that we have, and that is—I don't know whether it's a term—but "insourcing," and that is it's true that U.S. companies create jobs abroad; in recent years somewhere around 9 million, but foreign companies create jobs here. Last time I looked it was around 6.5 million. So more than half of the jobs that are outsourced are offset by jobs provided here. And there is also considerable contribution from foreigners to our lagging savings helping us invest more than we otherwise would.

Now, finally, let me just say why I think perhaps the change is even more politically sensitive than in the past. In the past, the typical group that was unemployed—lost jobs—were the least educated workers. After all, firms didn't usually invest as much in training these workers, if you let them go you could pick up another one very easily when things pick up, but it turns out that in this recession that has not been the case. The employed share of the adult population with not even a high school education—high school dropouts—has actually remained constant. That is, the number employed as a percentage of their population has not gone down. Whereas for the more educated groups it has gone down and one of the reasons is that our economy is simply a more educated economy. If you look at another aspect—another handout, you can see that all of the net growth in the labor force since 1992—this is the adult labor force 25 and over where we know their education—has been among college-educated workers. That the absolute number of—and this is not just because of participation rate, the actual population figures mirror this—number one. Number two, more of our jobs are in the managerial, professional, and technical fields, and so when you have higher and higher shares of your workforce in those fields, if you decide to make some cuts, it's more likely to affect those groups.

Just to say looking forward, I think that productivity from my standpoint remains a very critical goal despite its short-run consequences. It gives us a higher target to shoot for and if we achieve it, we'll be that much better off.

Sorry to be—

JULIE KOSTERLITZ, National Journal: No problem. And now it's on to the politics of the issue and I'm gong to have, I think, Doug Usher lead off with his remarks.

DOUG USHER, The Mellman Group: Okay, thanks. Any audience that finds a Greg Mankiw joke funny is one that I know I can talk to. (Laughter.) I've got two later on.

I just wanted to start by looking back to—you know, take us back to where rosy scenarios used to come true, when incumbent presidents had a rosy job growth scenario that they didn't have to make up. I'm thinking back to 1996. The economy was adding about 250,000 jobs a month and the Dole campaign was in big trouble because it was challenging Clinton, and at one point Dole actually had some traction when he told the story about a former factory worker that he met on the trail. And the factory worker said, Bill Clinton is telling the truth when he claims he's created more than 6 million jobs. I've got three of them and my wife has two. So what he was pointing out there was a key change in the economy that was going on then and is going on now, which is the move from high-paying manufacturing jobs to lower paying service sector work. And it was certainly something that voters were concerned about, but the fact is the jobs were being created, albeit lower paying jobs. Clinton cruised to victory.

And what I just wanted to talk about and reflect on for a few minutes in terms of the political power of economic growth is what could be a transition that's going on right now in the economy and that's the no-job-growth economic growth scenario.

You know, we can debate whether there are policy solutions to this change, but there's also no question that there has been a bit of a change. You wouldn't have expected to have such low job growth in an economic environment like we're in right now. From a political perspective, though, job creation itself does matter, if it doesn't matter for economic growth. It matters for the dispersion of economic benefits to a broader group of people than just the folks at the top of the chain in the economy. Now, I'm not going to go into the details of this because we have economists here who can actually answer that in a real way. In a normal audience, I could just make stuff up and that would work well. (Laughter.)

But I think it's even more important in terms of the way voters perceive how the economy is going. Obviously, as you pointed out, unemployed workers are concerned about jobs, but I think now employed workers are very concerned about jobs and I think that's a bit of a transition. In today's economy, everybody recognizes that their jobs are not permanent and they're always looking around. Workers are looking around to see what jobs are available in the likely event that they lose their job sometime down the road.

And then what—the way that affects our perception—let's say you go into a focus group—and I'll just talk a little bit about some qualitative research that we do. We go to talk to people about how things are going in their area, and without fail when they say the economy's going well and what they cite are the availability of jobs in their area. They don't talk about larger economic statistics. They certainly don't talk about productivity growth. They talk about jobs. They say, everyone's hiring. It's great, and I can go down the street and I can get a better job and that's what's making sure that my employer takes care of me. That's what makes sure that my wages stay high. That's what makes sure that my benefits don't get cut.

At the same time, when voters hear elected officials talk about the economy doing very well and they don't see it in their own lives and they don't see it in their own communities, that perception gap can be a very serious issue as well, so even if you look at long-term unemployment statistics, unemployment obviously isn't that bad. It's been worse very recently. However, people do perceive a serious problem, and they also don't believe that Bush is on their side when it comes to job creation. So that poses a serious political conundrum for the Bush administration. As a political statistic, a bright line on job growth stands out when you look at election years in the past—basically since 1968. In every cycle where more than 200,000 jobs were created between January first and the end of October of the election year, the incumbent party has won. In every year where that number falls below that, the incumbent party has lost.

Now this isn't a political rule. Obviously, you know, with good analysis I am sure there are other statistics we can look at that would give better indications, and this is one that's ripe for disproving this year. However, I think what that points to is that while GNP goes up and down, GDP goes up and down—and GDP was obviously very high, for example, in 1992 when Bush 1 was up for reelection—what you didn't have was job growth. And I think often the gap between what people hear about in the news and what they experience in their community can have very serious deleterious effects on incumbents and on incumbent parties.

Now, I've had an argument with Republican friends in the past and they talk about there's fundamental change in the economy in lagging indicators; however, if there's been a fundamental change in the economy such that economic growth has been decoupled from job growth, then the question about what—it becomes a question about whether economic growth becomes a good indicator of political success.

There are key moments in elections, and it's going to be a political problem for the Republicans this year, but it's also going to be a political problem for a Kerry administration or for any other administration in the future. We have economic growth with no job growth. We have economic growth while healthcare benefits disappear and wages are pressured downward across the middle to lower spectrum of the economy. It's going to be a serious political problem no matter who is in power.

And there are key moments in elections when political statements or misstatements crystallize perceptions that voters have about the candidates, and it can spell doom for campaigns. In 1992 I think it was George Bush senior discovering a grocery store scanner. When he first realized that one existed, he obviously hadn't been shopping in 10 years, but can't imagine he'd actually gone shopping for about 30 years. And this year, it may be Greg Mankiw saying—claiming that off-shoring jobs is good for the economy. He may be right on the numbers for the basics because basic statistics of economic growth, but he's dramatically wrong on the politics. And the administration, of course, distanced themselves from the statements. I think the actually more interesting comment from that report—part of that report was when, as you mentioned, they mulled talking about turning flipping burgers into manufacturing jobs, which I think brings up the really interesting question: if Republicans had their way, ketchup will be the driver of the new economy because it will be both an agricultural commodity as a vegetable in schools, and a manufacturing commodity in fast-food restaurants. So—(laughter)—and you can make the Heinz joke if you want later on. (Laughter.)

But all put together, this feeds into the perception of an administration that's out of touch with what workers want. And the question again, both from a campaign and political strategy, is creating the distance between what voters want and what the administration stands for. And I think certainly Bush was right to a certain degree to distance himself from the 2.6 million jobs created—or job prediction. Having said that, if he creates 2.6 million jobs, he improves his chance of reelection dramatically, so whether or not he predicts it, it's sort of—it's irrespective, frankly, of its ability to help him win. And I think one of the real problems he has right now is the fact that he's distanced himself from a report which his signature is on. He actually hurts his credibility, which is right now on the downswing.

You know, more generally, the fundamental change in the economy we are seeing may be politically poisonous for this administration; it also could be a serious problem for the administration's future. And I think just in summing up; people always talk about the economy: it's the economy, stupid. However, I think if you look at the 2000 elections and look at all those brilliant political scientists predicting that Gore would get anywhere between 58 and 65 percent of the vote, I think what we're learning is we have to be a little bit more careful in looking at the economy as the driving force behind American politics. Strong economic growth is—it's a necessary condition of political success, but I think without job growth and without a dispersion of benefits throughout the economy it's not a sufficient condition for reelection.

JULIE KOSTERLITZ, National Journal: Okay, David.

DAVID WINSTON, The Winston Group: Actually, the—well, and thanks for having me. I appreciate it. And actually you're going to find in many ways I agree with what Doug says. Obviously, some of the implications of those means we'll have some disagreements.

Let me start off with predictions and the 2.6 million as an issue. I worked for Newt, and Newt in '98 was convinced that we were going to win 20 to 30 seats and I kept trying to tell him that if we just simply—if he still remained as speaker after—for a third term, that would be a unique accomplishment, but for some reason he wanted to go off and say 20 to 30 seats and we ended up losing five and we almost lost the House. At one point during the evening it looked like we were going to lose it. So instead of having a plus 20 or plus 30, he had done—he had achieved a historic moment—a Republican speaker for three consecutive terms, and then he had to resign. And the reason was because he said this prediction that was unnecessary to do, and I think to some degree that's what you're seeing.

I mean, truth be told, if this economy, rather than 300,000, was producing 150 to 200,000 jobs a month, Bush would be in pretty good shape, and there's no reason why we wouldn't want to sort of accept that at least on the Republican side. So I think when that number jumped out I think we were all a bit surprised.

Going and talking about jobs for a second, and I want to go back to my first national—when I was involved in sort of the first national level races I was working for the National Republican Congressional Committee in 1982, and that was the year that we—Reagan had won in the White House and we won the Senate, and now 1982 is going to come along and we'd just done redistricting and we were going to take the House back. And the first Friday in October when the unemployment figures came out, we were actually—when you took a look at the races, we were doing pretty well. First Friday in October in 1982 unemployment figures came out and we broke 10 percent, and you have never seen a group of numbers drop for candidates like that—it was just staggering. And ultimately Republicans lost 26 seats in that election. I mean, it was a staggering loss and it basically locked in a Democratic majority for the rest of the decade.

Having said that, that issue was jobs. All right, there were a lot of other things going on at that point, but it was jobs, and I will tell you that the number one issue in this election is going to be jobs, and let me tell you how—from a survey I did—how people look at the economy. When you ask them to evaluate the economy, 60 percent say it's jobs, 25 percent say economic figures, 15 percent say stock market. Stock market has grown up because you've got a lot of wealthier people, but you have a lot of people who actually were able to invest some money in terms of their retirement and that tends to be sort of older folks who were sort of noticing that, gee, I don't have as much money as I used to have a couple months ago or a year ago. And so there is a little bit more following of the stock market than before, but I understand that jobs is clearly the dynamic.

Now, how did we get here in terms of this, and I'm going to give you—there is no question the American public is somewhat pessimistic about jobs and somewhat pessimistic generally in terms of how things are going for them in terms of their own finances, but you have to put it in the context of this is an electorate that has changed and is not as willing to put blame on people as to look for solutions. They understand that basically four things happened. And you'd be surprised when you see it in focus groups how sophisticated they became. In some degree, they became sophisticated through the '90s and they've been getting a lot more sophisticated about the economy than they used to be because they got involved in more aspects—that there was more money for them to be involved and so they got a better feel, but there are four things that they see.

One, there's the natural business cycle. Two, September 11th had a huge impact. I think—I mean, the loss of life was extraordinary, but what they did—what terrorists did to our economy was pretty staggering and it's something that we're still recovering from. The corporate scandals, and the dot-com collapse. I mean, this economy took a massive hit and people understand that and what they're really looking for is some solutions. They're not looking to place blame, and that has helped Bush because Bush is at least at this point laying things on the table. Whether you agree or disagree, there is a sense that he is making some sort of effort and that's what they're looking for. And the way you can determine that, if you take a look there there's this question called right track/wrong track—how do you feel the direction of the country's going? And generally recently it's been pessimistic except when we've had capturing Saddam Hussein or you've had the initial—in terms of the Iraqi War or 9/11 where we've had these huge surges, basically because of the economy people have tended to move toward feeling that the country's headed in the wrong direction.

Despite that, Bush has still had remarkable job approval all the way through that. Even at this point, given where the right track/wrong track is, given the fact that Bush still has a slightly favorable job approval, that's because at least he's laying some things out.

Now, the other dynamic in terms of absolute job creation—what to look for in terms of how people are measuring this, although you were arguing against this, in fact the Democrats did a remarkably good job in defining what counts as job creation. All right? That's the number, and it's the worst number, but everybody's bought into it and at this point, you know, we're all stuck with it, all right. And Republicans are dealing with it as well, although I would argue the one thing about the survey is it does not capture new businesses. It's still going back to existing businesses in terms of the payroll. They didn't necessarily capture new businesses as quickly. They ultimately revise later in terms to get them, but the point of that being is job creation is the critical thing.

We are not—okay, and I could be wrong on this and I'd be happy to be wrong on this. I don't see us getting back to even in terms of where we started in 2001. Mostly I would suggest to you that the American public doesn't expect that either. What the American public is looking for is that somehow we've gotten back on the right track, that basically the economy is beginning to produce jobs.

And I agree with Doug, it's a real serious problem if we decoupled economic growth with job growth, all right. And one of the best moves the Democrats made was an attempt to actually politically—through political discourse decouple that to say that there are two separate things going on, and obviously what Bush wants to do and Republicans want to do is couple it back up. We can't do it if we don't have numbers, and to some degree it hasn't been until real recently where we've begun to see some job growth. Having said that, I'll give you an example of just how sensitive people are to that number. For the last three months in last year, we had job growth of over 100,000 and Bush had a tremendous December. I mean, you had capturing Saddam Hussein, we created over 120,000 jobs, you know, it was Christmas. I mean, everything just sort of soared, and I will tell you—but the dampening effect was not the weapons of mass destruction in terms of turning stuff down, it was that 1,000 job growth that came up at the beginning of the month. I mean, I can't tell you what a wet blanket that was to a lot of people in terms of their optimism. And so one of the things to look for in terms of defining this campaign—you'll see it this Friday and you'll see it the first Friday of every month—and that is what is that number? And I don't disagree. I mean, it may not be the right number, but it's the number that everybody's using; and how people evaluate and judge how we're doing is really going to be based on that.

Having said that, you know, I think the likelihood is that we are going to see some number hopefully over 100,000—from my point of view hopefully over 100,000 a month that will probably be a satisfactory level that if it's over 150 it'll be real positive. If it's under 100,000 it's going to give Doug a real shot here in terms of next fall.

People expect results from their government and one of the things that is just absolutely critical to them is the ability to have a job because now in this society there is one other component that ties into this: having a job is not merely having the resources, which is obviously important to be able to feed your family and all that, but because it's so also tied to another basic need, that is healthcare, because one concern people have in terms of losing their job is losing their healthcare coverage. It is a critically important issue, so in terms of how to look at it in terms of the next year and evaluate what's going to happen politically, basically if we're over 100,000 jobs a month that's probably a dynamic that's going to work for Republicans. If it's under 50 it's probably going to be problematic. But that really is the number to follow.

JULIE KOSTERLITZ, National Journal: Thanks. Okay, we've had the numbers, now it's time for the questions. I'm probably going to lead off with a question, but before I do I just wanted to let you know that you should wait—if you have a question, raise your hand and when you're recognized, wait for the wandering microphone to make its way to you and then identify yourself and the organization that you're with. That would be helpful.

Well, I guess there are a lot of different questions one could ask. I suppose the first one off is sort of a policy question—policy and politics, which you both touched on, I think the politics more than the policy. To what extent could one hold George Bush responsible for anything that's happened? In other words, how much could you mitigate? How much could policy have made a difference here, or was it completely macroeconomics—things beyond policymakers' control?

And then for the political panelists, how much will people hold—(laughter)—no, the first one was—yeah, essentially it is—it's the same question. How much do you expect that people will hold Bush responsible for this, or as you were perhaps suggesting that people see that this is bigger than all of us and that there's something going on here that they're not sure any candidate is going to be able to handle? So maybe the economists first. You want to go?

HARRY HOLZER, Urban Institute and Georgetown University: On the policy side I think, first of all there's no question that George Bush is not responsible for the occurrence of a recession. The economy was slowing down in the year 2000; by the official definitions we probably would have gone into recession no matter who had won the 2000 election. And the negative shocks that you mentioned are obviously beyond any president's control. I think all that's correct.

On the answer of what could have been done on the policy side in the short-term, I think if you go back to the introductory macroeconomics class that—(audio break, tape change)—government has fiscal policy and it has monetary policy. Now, monetary policy, A, is not under—is under the control of elected officials and most think—people agree that that's been quite stimulative. It's hard to imagine that the interest rates could have gotten lower and that we could have gotten more mileage out of monetary policy.

I would differ on fiscal policy. I think fiscal policy in the last three years has been a mess. We have massive deficits as far as the eye can see. Now, again, going back to that early economics class that you've had, deficits in the short term usually stimulate the economy, but I would argue that the amount of stimulus that we've gotten out of this level of deficits has been modest for a couple of reasons. Number one because the deficits are so back-loaded and go so far down the road rather than occurring in the short-run where they'd have their biggest short-run impact.

And they're not very well targeted. In other words, the tax and spending policies—the tax cuts have not been very well targeted to the people who spend the money and to the people who are in need during the downturn. So if a different course had been taken, and if a more traditional kind of downturn fiscal policy had been chosen with short-term deficits heavily targeted on unemployed workers, unemployment insurance, health insurance, aid to localities, would output and growth have been much higher? Probably not much higher. Maybe we could have done a little better than the 4 percent per year overall growth we had. Though that's a good number, it's not a spectacular number for coming out of a recession, but the impact—certainly the impact of those policies on those hurt by the recession might have been a little more positive had those tax and spending cuts been allocated in a different manner.

ROBERT LERMAN, Urban Institute and American University: Well, I go back to my earlier point, which is that the output performance, which is the macro tool that you have to the extent that you have any tool and it's not even clear that we can do that so well, the output has been relatively healthy and if—I don't know. I see Van Ooms here and the CED many times had talked—was one of the groups that was talking about our low productivity performance. If someone had said, hey, we're going to have 4 percent growth in productivity and therefore this 4 percent output figure is not going to create any jobs, people would have laughed them out of the room.

I mean, so there is to some extent—I notice by the way in the first Bush administration in 1992, again productivity was much more rapid than people expected and that was one of the reasons we didn't have a—I do agree that there are some things on the edges that you might have done that would be more job growth intensive, but I do think that the stimulus—the change in the stimulus was pretty big. I mean, you don't see too many—and most people were saying it's way too big, so—I mean, I think that if one were to criticize, I wouldn't think that one would criticize on the grounds that, well, we didn't have enough short-run fiscal stimulus. I mean, some people feel we had too much, but certainly we had a lot.

JULIE KOSTERLITZ, National Journal: Doug?

DOUG USHER, The Mellman Group: Yeah, I agree that one would have expected a lot more job growth from this output and that's clearly not the issue, and I think there are two very specific policies that Bush pursued, or one that he pursued and one that he pursued by omission that would have had an impact. And the first, which isn't really getting much coverage at all and I think should, is the change in overtime laws, because if you get rid of overtime rule restrictions and people can add hours—firms can add hours without adding workers. And adding workers is a huge added expense; an expense that would be reasonable to incur if you have to pay overtime wages to those who are currently working. But if you don't have to pay overtime wages to people that are working, you only need to just add 10 more hours and it's just the same cost without adding another employee for—with healthcare. Don't know what the numbers are and what that would create, but clearly in terms of perception issue, that's something that could have made a big difference.

And the second, of course, is with the tax code, and, you know, there's no way Bush is going to do this, but it would certainly make some sense to deal with tax credits and to deal in the tax code with companies that take jobs offshore. Again people say, well, it's good for the economy if they move jobs offshore. Well, it might be good for the economy, but the question is, why should we pay business to do that? Again, in the long term is there a huge—is that a huge impact? I doubt that it is; however, it's also clear that this administration sort of has it upside down politically, which is push for the economic growth and think that politics are going to follow, when instead they really need to be looking a little bit more at the nitty-gritty of what makes up political support.

And I sort of will disagree with you, David, to say that Bush's approval ratings are doing well. They're actually down to below 50 percent for approval rating, which is a very dangerous position right now to be in, especially considering the trend line. His economic performance—his performance on the economy is disastrous right now and that's actually dragging down the rest of his ratings. His personal favorability is down, which means that people don't really even think he's a likable guy, and that's a serious problem for him because everybody had said that his job performance was being picked up by his own personal ratings. So all of this is feeding into a perception that actually goes against the entire Bush political strategy, so one wonders sort of who's in charge of the shop there? Who is making the decisions that not only lead to these conditions in the economy, but more importantly to these perceptions in the polity?

JULIE KOSTERLITZ, National Journal: Just an added question that when you take this one on—you mentioned earlier that people understand that there's something bigger and they don't necessarily hold Bush responsible, but I'm wondering how viable a campaign strategy is it to say, the recession didn't start on my watch and I must get a press release from the joint economic committee at least twice a week making this argument.

And second, gee, September 11th set us back and it's a big world and economics is scary and, you know, we want to do better—we want to do better. Is that a good campaign platform, or else how do you deal with the issue?

DAVID WINSTON, The Winston Group: I guess I wasn't clear. No, the American people are going to hold him responsible for this economy. What I am saying is that there are things that happened to this economy that are giving people a different perspective in terms of how they're going to look at it, and that point being there was a huge hit and the question is has he through his policies put the economic course back on the right track? Are jobs being created? Is the economy growing?

Now, at least half of that equation seems to be working. The economy is clearly growing. He may deserve credit, he may not deserve credit, but the fact is, ultimately he is being held responsible for it.

Doug's absolutely right in the sense of—but that's about 25 percent of the equation. And the remaining 75 percent is how many jobs does this produce? At this point, the American public is uncertain. I mean, like everybody else, they're looking at these job numbers. They've had a little bit of positive news in terms of the last couple of months where you've seen over 100,000 jobs a month being created and so there's a little bit of a positive sense, but it's not enough numbers. I mean, they want to see a trend, they want to see it established, they want to get a comfort level that in fact jobs are clearly being created at this point.

If they sense that that's the direction, then all the policies he's laid out are going to be viewed favorably. If, over the next five months, we're looking at 1,000 jobs a month, the view toward that policy is obviously going to be not quite as rosy. I mean, it's sort of a straightforward connection. And so that's why I go back to—in many ways, one of the difficult dynamics for political operatives like Doug and I is—you know, depending on what happens next Friday in terms of what numbers are reported, we'll tell you the sort of press releases that go out that day. I mean, we're just waiting for it and then all of a sudden, you know, oh, it's, you know, 300,000 jobs. Well, you know what we're going to say and you know what he's going to say. If it's, you know, we lost 5,000 jobs, I mean, it's the same dynamic.

So in one sort of bizarre way, I mean—one bizarre element in this whole thing is to some degree we'd like to tell you that, you know, we've really got this under control and manipulating is a political issue, but we're completely relying on that number every Friday, or every Friday of every month, and it drives lots of things. One thing—I mean, for example, how important is that number? Particularly the next two in terms of setting up the dynamic of the fall? Those are the two numbers that go into the budget assumptions for the budget that gets passed in April, right? That will set the deficit number that we have to talk about all summer, right? You know, so if we have 250,000 jobs added each month, which, you know, I'd love to see happen obviously, the deficit number's going to go down. If it's only 1,000, the deficit number's going to go up. Now, that will get revised again in September, but that gives you the sense of Bush is ultimately going to be held responsible, I think, in terms of whether we grow jobs or not and that's perfectly fine—but there's a dynamic here of what we're waiting for is not a political discussion, it's what's the outcome? He's put these policies in place and we're going to see.

JULIE KOSTERLITZ, National Journal: Okay, let's open it up. We have a question in the back.

JOHN CHASE MAXWELL: Could either of you comment on the effect that the war in Iraq is having politically and economically—succinctly?

DAVID WINSTON, The Winston Group: I'll take it. The war in Iraq is obviously important, but I'm going to tell you it's a secondary issue to jobs. I mean, people are concerned about it, people care about it, but I'm telling you when you take a look—and again, I was following the numbers last month, the bigger impact last month was not David Kay's we didn't find weapons of mass destructions, it was the 1,000 jobs. I mean, that had a much more significant impact. The reason is people need jobs to be able to feed their families, to take care of healthcare, and going back to somebody said when there is a sense of job loss, even though you have one, you get concerned, and so the whole—it creates a whole sort of cycle of being concerned.

DOUG USHER, The Mellman Group: I think that the impact of the war in Iraq is more one of perception of Bush than it is an issue in and of itself. I mean, clearly it drove part of the Democratic debate and also, you know, drove Howard Dean to heights and despair all at once, but I think that what—the bigger problem for Bush right now—and this is something again that's sort of a larger, not statistically validatable argument—is that it's become part of the lexicon that there are no weapons of mass destruction to the point of being a joke, and what that causes for Bush is a lack of credibility that passes across a lot of different issues. Again, I don't think the war in Iraq is going to be a big issue. I guarantee you the war on terror is going to be not only a big issue, but the thing they're going to point to the most. But the problem for Bush on Iraq is something certainly no one anticipated a year ago, which is that it would be the leading edge of questions of his credibility.

JULIE KOSTERLITZ, National Journal: Anybody on the economics? No? Okay.

Let's see. A gentleman back in the—right there, yes. Please identify yourself.

GHIYETH NAKSHBENDI, Sangamore Group: The question is very simple: job outsourcing, is it good or bad? Because it's my understanding lately that Greenspan indicated in a comment that job outsourcing is not as bad as politicians are planning to use it in the election year. So by the end of the day, is job outsourcing really bad for the American economy or not?

Thank you.

HARRY HOLZER, Urban Institute and Georgetown University: I'll try to answer that without sounding like Greg Mankiw, because I don't want to be the late, great—follow in his footsteps. (Laughter.) Most economists—the vast majority of the economists would say that outsourcing is like any other source of international trade and that on net it does add to economic growth; that it's good for productivity, it brings costs and prices down, and people benefit from that.

What I also think is often not stated—you can say that. You can say that there are benefits on net for the whole economy, but what's often not said is that if you look at the same economics, there is no economics that says there aren't losers as well as winners in the process. And what do we do for the losers? If they are sacrificing their jobs for the greater good of the American economy, for the larger pie that we're creating, should we not invest a little bit of that larger pie in helping them become reemployed, get retrained, have transitional sources of income or health insurance in the meantime?

And that's where I see in some sense some surprise that—some of the Democratic politicians talk as if they can stop outsourcing. That's likely not going to happen no matter what they do. Probably not good that it would happen, but can we do a better job of compensating the losers? I think we can. Of course it would take some resources and there aren't a lot of resources right now to expend on that, but I think that's in some sense where the picture isn't quite as rosy as some economists would say.

ROBERT LERMAN, Urban Institute and American University: Make a couple of quick comments. First of all, many people don't realize that when we have a growth, let's say job growth of 100,000, that's about 8.1 million hires and about 8 million people leaving firms, so we have even in the natural course of the way the economy operates, some people get big orders in one company and another one loses orders and people are moving—there's a lot of dynamism in the economy.

The second thing that one thinks of is the issue of immigration and whether or not, you know, if you employ someone in another country or if that person in the other country comes here, you know, in either way, you know, that's in a sense adding to the overall production, so that—while at the same time possibly causing someone else to lose their job at least temporarily. I think no one worries about it so much—if jobs overall were growing rapidly, I don't think it would be a big issue, but when they're not, then it is.

JULIE KOSTERLITZ, National Journal: Okay, on this side of the room. How about Van?

VAN OOMS, Committee for Economic Development: I was a little surprised that Doug and David seemed to agree completely on putting the economic emphasis on job—on number of jobs, job creation, and so forth. Harry mentioned earlier that there are a lot more people employed than there are unemployed and that they worry about their income and wages. The cliché used to be people vote their pocketbooks.

More specifically to the point, the economists and political scientists that have tried to actually model the outcomes of presidential elections have generally found that the growth rate of after-tax, real income works a lot better than employment and unemployment variables in those models. And in fact, those models actually, you know, given the problems in making political predictions, have done pretty well. I think in 1980 the Ray Fair model up at Yale, it was a very simple model, was only about 2 percentage points off with respect to the Gore margin. The reason I raise that is that those models now, or at least Fare's model, has Bush ahead by about 8 to 10 percentage points. It has him winning about 58 to 60 percent of the popular vote based upon forecasts, sort of consensus forecasts now, of what per capita real income growth would be between now and then.

That would mean, if those were to hold up and Bush were to lose the election, that those models—that that model at least—those models would be off by something like three to four times the average prediction error and much further off than any error they've ever made previously.

So I guess my question to Doug and David is, is that really what you expect? I mean, in other words, has the politics of this changed so much that it really is just jobs, jobs, jobs? It's not the economy, stupid, anymore. It's just jobs and that's the end of it.

DAVID WINSTON, The Winston Group: Political communications doesn't necessarily have to jibe with reality all the time, so—(laughter)—and let me walk through how I sense we got to this, and this is actually sort of a compliment to Doug and his group.

What happened, oh, probably looking at sometime around May, April of last year was the economic numbers were clearly starting to take off, right? And politically for Democrats that was going to be a difficult element, so naturally they sat around and said, okay, we cannot sustain a win if the economy is at this level and we're going to argue about economic growth. That's not a winning debate. So what's a winning debate? And the sense was, well, is there a way to decouple jobs from the economy because we're not seeing any jobs, and then you heard the phrase "jobless recovery." Right? It was actually a pretty good political device to use to sort of say, no, this economic recovery is not complete and we want to define it this way.

They did a very good job collectively of driving that message and to some degree what you're seeing is reporters now focus on that. They created the focus in terms of that particular number and to some degree we as Republicans are forced to respond to it. Having said that, again, you're getting them to focus on something that is a real important component. I go back to 1982 when we lost 26 House seats based on the unemployment figure alone.

Now, I have to tell you—now that I've discovered this household number, I may try to go back and try to focus on this one. But ultimately the economy is sort of like the deficit. People are concerned about the deficit, but once they're unemployed the deficit is real abstract, and so the problem is how do you take those other economic components and that's where outsourcing sort of became a little bit more real because people could see where maybe potentially the jobs that they might have or their friends might have might go away. The problem is that's an abstraction where jobs is a real clear component, and that's where there's agreement because we know that when people walk in, if they are satisfied or feel that things are going the right way in terms of being able to hold onto their job or their friends being able to hold onto their jobs, structurally that creates a very positive environment for the president. It would make it very difficult for Kerry—inversely, if that's not the case.

DOUG USHER, The Mellman Group: I certainly wouldn't argue that jobs are it. You know, if jobs hit this number we're going to lose, if jobs don't hit this number we're going to win. And then second, I take issue with the assumption that the models are going to predict correctly because certainly retrospectively we've done a good job of predicting past elections and we did that very well in 2000. (Laughter.) We predicted 1996 back. I assume the article you are talking about was the article that came out just after the 2000 elections in PS that went over 38 different economic models and then—or different models of the electorate and then found that real, disposable income was the best indicator.

Again, though, this is a moving target and these indicators work on these relatively small N studies. Remember, we're talking about 40 elections. That's 40 points. I mean, that's not much over an incredibly fluid time of history. So, you know, before we can sit here and say that based on these models—you know, say that based on this model that Bush is going to get 55 or 58 percent, I don't think there's anybody who would say let's pack up our lunch and go home. I do think that we have to be—but we have to be anticipating changes and there are changes that go on. Some of the models will be right, some of the models will be wrong. It is the case that the American Political Science Association, you know, again as I was joking earlier before the panel, that there's a hierarchy as a political scientist. We're political scientists, then come the economists, then come the statisticians, and then the mathematicians, so when the political scientists all got together, they made a statement that Gore was going to get between 55 and 58 percent of the vote. Period. And they were wrong.

JULIE KOSTERLITZ, National Journal: It's worth noting also in an article by my colleague John Maggs that the one time that Ray Fair's model failed the worst was in 1992 in the midst of another jobless recovery, and I believe he was using GDP as his marker, so there may be something about that decoupling that throws things off a bit.

Any more questions?

Yes, Jodie?

JODIE ALLEN, U.S. News and World Report:—whether the economists and the pollsters thought that these issues might have any traction in the coming months. One is the issue that I believe defeated Jimmy Carter: rising oil prices, especially prices at the pump. And they have been going steadily up and some people think that the administration, for the moment anyway, is adding to that pressure by buying oil for the strategic petroleum reserve, which of course they could turn around and do the opposite, but I think it's worth watching.

Then there's the question—and I see even some congressmen on the Hill looking at the structure of the tax cuts, and since we know that this recovery and strong growth actually is continuing a trend out of the '90s towards more income inequality, that the productivity gains have been—and there'd be less numbers, very interesting on the subject—to show what a small share of that and declining share has been going to workers. It does seem like the structure of the tax cuts, which favors capital, which is already gaining from the productivity, might not be well adapted to the current economic situation and you do see some noises on the Hill about possibly not renewing—you know, continuing all of them and I'd be interested to know if you think that would strengthen.

And then finally, I wonder is the—on the Iraq front, as we now are about to turn over and send all these National Guard people, that's got to be causing a lot of disruption. Is that enough to make—I mean, you have seen support for Iraq continue to trend down. I think it's still net positive, but do you think there's any strength to that trend?

ROBERT LERMAN, Urban Institute and American University: I think on the oil side, you know, predicting something like oil prices is very hazardous, but one thing we can say is that relative to at least 1980, it's a much smaller segment of the overall economic picture. Interestingly enough, almost no reporters—you can be the first one, Jodie—have remarked about the massive rise in steel prices that have taken place over the last— Well, steel is not a straightforward commodity, but—so I mean, I think that one of the—to the extent that there is a kind of fear, one place where it may come into play is where if the Board of Governors sees this as a real inflation risk that they may choose to raise interest rates at a sensitive time, so—

JULIE KOSTERLITZ, National Journal: History really does repeat itself.

ROBERT LERMAN, Urban Institute and American University: Well, so I think that's to me where that would come in.

DOUG USHER, The Mellman Group: I mean, I think politically it's going to be seriously problematic and obviously—I think it's easy to predict when the oil prices go up. They go up in the summer. Right, is that what—and we'll watch as gas prices go up and reflexively the administration has said, well, that means we need to drill in the Arctic, and I think that at this point, honestly, that the credibility problems that are developing for Bush make it more difficult for him to push that line of reasoning.

And if you look at John Kerry, some of the solutions that he's talking about are, you know, new types of energy development, new types of renewables, and also increasing efficiency, et cetera, are things that resonate with the public and they have resonated with the public for many years, but again I think that politically where you would have had a united front, say two years ago, on what to do about this: drill obviously, without question. I think that you may have more divisions in the Republicans than you will in Democrats, and so oil could be a much more—gas prices could be a—almost—I won't go this far, but could be a serious problem for Republicans, less so for Democrats.

DAVID WINSTON, The Winston Group: Not surprisingly, I'm going to slightly disagree in terms of the gas prices. I mean, I don't think—again, I'm not as convinced for obvious reasons that the credibility of the president has been damaged the way Doug sees it, but you would expect that. But having said that, in terms of the oil prices—I mean, I think there's a threshold, all right, that I think that you should just watch for. If it ever goes over $2 a gallon, it turns into—it'll turn into something different and you'll see people respond to it. Up to $2 a gallon I think it's uncomfortable and it will certainly impact people in terms of the summer, but ultimately, again in the scope of things you're still looking at jobs.

Let me go to your tax question for a second. The president implemented a classic conservative tax cut. I mean, I think everybody would agree. I mean, his view of the world is you create—you do a tax cut that creates capital that allows for investment that causes economic growth, that that in theory creates jobs. Right? I mean, that was his structure and that's what he was simply trying to accomplish.

I'm not quite sure who you've been talking to in terms of the Hill, but at least the folks on the Republican side—obviously I don't deal with the—

Okay. I mean, maybe all the pieces, there might be some questions about, but overall, at least on the Republican side, there's a lot of support for it because again it's the classic conservative view of how you create economic growth and jobs. The dynamics here, and this is going back to what Doug was—I mean, we've now gotten the economic growth and it's sort of like we're waiting for the other shoe. Right? I mean, and to some degree we're all waiting for the other shoe and if it doesn't drop, then we'll be in sort of inverse roles next time, but if it does drop, then it's fine.

So my sense at least in terms of the Hill is there's still commitment to it because they believe that's the right direction.

JULIE KOSTERLITZ, National Journal: But by when do the shoes have to drop to make a difference? What's the timing on this?

DOUG USHER, The Mellman Group: Well, I'll go back to 1982. I mean, the shoe—in that case the shoe dropped the wrong way and that was October 1st. I mean, I think to some degree people are going to follow this pretty closely all the way to the end, and so—again, for us that just drives us nuts because there's this event hat you just simply can't control that you're going to have to respond to. Some number's going to be generated.

What you're really looking for overall and what the American people are looking for is some trend. I mean, if for example, it was 100,000 or more for each month, I think you would see people becoming more positive. If it was, you know, a negative number over the next couple of months, it would just be very difficult.

HARRY HOLZER, Urban Institute and Georgetown University: I wonder, and again I defer to the two of you on the political science of this and the politics of it, but you wonder if, A, at some point some unease over the size of the deficits kicks in with the electorate, and we know that that's had a checkered history. In the '80s it didn't seem to matter. In 1992 it seemed to matter a lot. There shouldn't be times when people get nervous about that about the long term—well, and that gets tied to the tax cuts. And, B, the other thing I would—and I also wonder about—is one of the reasons that, you know, if you just talk about the unfairness—quote, "unfairness"—of the tax cuts, it doesn't seem like the Democrats ever get much traction out of that because if people are getting a little for themselves maybe they don't mind somebody else getting more. Democrats—if they start to make the case that there's what economists call an opportunity cost to those tax cuts, what gets lost—what doesn't get spent because the money is going where it's going in terms of health care or education or unemployment insurance supports for those who are lacking these jobs? You know, then it seems to me that the tax cuts as an issue might play out differently.

DAVID WINSTON, The Winston Group:—I asked the question in terms of what are you more concerned about: job creation or deficits? I mean, as long as jobs is the number one issue it was 77 to 17—just overwhelming. And there's another thing about deficits and this is—I mean, just in terms of talking to focus groups and folks. Democrats use the deficits because they want to stop Republican tax cuts. Republicans use deficits to stop Democratic spending. Truth be told, the group that really cares about it is independents and that's how the Perot movement sort of started. I mean, those are the people who really cared about it, but in terms of the two parties, it's a vehicle by which they sort of stop the other person's ideology.

DOUG USHER, The Mellman Group: Could I just rephrase that? We use deficits to stop Republican giveaways to the wealthy. (Laughter.) You use deficits to stop expanding education and opportunities for Americans. (Laughter.)

DAVID WINSTON, The Winston Group: Actually, wait, it's like a retort. But in Clinton's eight years he increased the education department by $6 billion. In the first three years, Bush has increased it by $25 billion, so—

DOUG USHER, The Mellman Group: So he's the education president.

DAVID WINSTON, The Winston Group: Well, we hope. We hope. I hope.

JULIE KOSTERLITZ, National Journal: There's one right there. Yes. Thanks. Please identify yourself.

JOSHUA SILBERT, Georgetown Public Policy Institute: My point goes back to something David Winston mentioned. Obviously the election is the first Tuesday after the first Monday in November and that would mean that obviously the October report will come out after the election. If these reports will be watched as closely as, Mr. Winston, you believe that they will, can the economists speak to how politically this is done in the previous administration or in other administrations—the current administration as to how the career people do it and how it sort of moves up the chain of command?

Maybe it's my cynicism speaking, but I'm wondering to what extent can knowledge be known beforehand and how does that sort of work from your perspectives working in the Department of Labor?

DAVID WINSTON, The Winston Group: Actually, I can address that direct. My wife used to be the deputy assistant secretary over at Labor and in theory, right, BLS was under the Department of Labor. The only—at one point in time she asked to—was like there a way that they could see it ahead of time, and basically the BLS people threatened to go to Congress to say, look, you're interfering. BLS is very proprietary about that and political appointees have a hugely—I mean, they find out just when everybody else does, and that's been pretty much the tradition there for a while.

HARRY HOLZER, Urban Institute and Georgetown University: Yeah, when I was at the Labor Department it was actually my job to spin those numbers at 8:30 a.m. on the Friday morning when they came out, or to help the secretary spin them. And we got—actually a half hour before, you know, is when we got to see them as political appointees.

There are some leading indicators of what those numbers—like for instance people will look at the unemployment insurance claims and there is some weak correlation between those claims and the unemployment rate and people have come up with this benchmark that if it's below 400,000 it's a good thing, and above—but quite frankly, that correlation is weak at best. It seems to get very little play in the news media outside of the group of people professionally interested in it, and so, no, I don't think coming out of the jobs market leading indicators are going to give you much in that month. Now, you'll still have nine months of data before then that will have some input.

JULIE KOSTERLITZ, National Journal: I am told that there is a cardinal rule here about ending at 1:30. Do we have time for one more question do you think? Okay.

Nell?

NELL HENDERSON, Washington Post: As is the wont of many economists, we've all been talking about jobs in the national aggregate the whole time, but you know that one of the reasons it's a sensitive issue this year is because so many of the job losses have been concentrated in certain swing states. And one scenario I think we could envision is the economy could start creating more jobs, say 150,000 a month, but they might not necessarily be created in some of those states that had the biggest losses, and if that were the case, how would that affect your political calculation going forward on the Republican side?

And on the Democratic side, what do you say to the people in those states who've lost, particularly manufacturing jobs, that would make them think things would be any different under a Democrat?

DAVID WINSTON, The Winston Group: Well, let me go ahead and start off. Again, there is a point, and nobody knows what this is—I mean, I'd like to tell you that we've got this all, you know, carefully modeled but we don't. There's some point in time that if you're having a certain level of job creation that Americans will say, okay, we're back on the right—given all that's happened, we're now back on the right track and we think the economy is going, and we think job creation is going, and it'll be a general mood shift. I can't tell you what that is. I mean, I don't know where that point is, but that's what we're sort of looking for.

Once that begins to occur, that will pretty much permeate, I would suggest, through most of the electorate. There are some pockets of areas where you've got just really intensive manufacturing, and I would point to North Carolina, South Carolina, you've clearly got some very difficult situations. But ultimately, once that flip occurs it'll be a broad-based flip. And people are generally going to be positive about it, excluding some pockets. I mean, I think what you're focusing on is Ohio, which has become like the state this time around. It's sort of Florida at this point in terms of how people are viewing it. But again, and Ohio's a relatively large, complex economic state. But ultimately, when that begins to shift you'll see a broad-based mood shift.

DOUG USHER, The Mellman Group: I think that your question is exactly right and I think that the shift to Ohio and the concentration on Ohio by both the Bush travel schedule and Democrats as well is about the loss of jobs, particularly manufacturing, there, and I do think that when we talk about job creation, it is nice to talk for the overall statistics, but it's not just about being in the swing states, it's about being in people's neighborhoods and being jobs that they can really see so that they feel a little bit more confident about their own job prospects. I think that's what's key to the transition.

Strategically, I mean, I wish I could quote John Kerry directly and I could direct you to his website where he'll—he has it all exactly laid out, but what he's talked about in the debates and what Democrats have consistently talked about is they can't promise the return of all the manufacturing jobs. It's not something that they can guarantee, and no president can guarantee that. However, one of the things they are committed to is education, retrain—first of all, closing all the loopholes that allow jobs to go overseas, et cetera, but more important—something we can obviously do very clearly is getting rid of the tax cuts for the highest-income Americans and using that money to invest in workers, both through job training, but also I think more importantly—sorry?

JULIE KOSTERLITZ, National Journal: Training for what? I mean, the record of training programs is just terrible.

DOUG USHER, The Mellman Group: Again, I'm not—I direct you to the campaign. I don't want to make any, you know, statements or anything like that, but also more importantly one thing that was touched on here—to start paying for health care for Americans to decouple job—we talked about decoupling job growth from economic growth, we need decoupled jobs from health care. You can actually increase hiring because the costs of additional workers goes down, and also it helps people feel a little bit less concerned about their jobs knowing at least they won't lose their health care if they do lose their job.

ROBERT LERMAN, Urban Institute and American University: If I could add one thing, Jodie, just to respond. Actually, we're going to have to figure out a way to come up with better training programs, and that was one of the president's initiatives in the State of the Union in terms of beginning that process, and the reason is, as was being described, the length of employment—the reason it's longer is typically what happens in an area, they'll lay off some people in manufacturing, they'll lay off some people and wait for the economy and rehire. What's happening is that's not what's—plants are just going away where it's all of a sudden you've got this whole group of people that have nowhere to go. It's not like their jobs are going to reappear, and so to some degree they're going to have to be retrained into some other profession and we are going to, as a society, learn how to do that and give them new skills or else we've got permanent unemployed. And that's why the unemployment tends to be longer even though it's lower; it's tended to be longer because it's a structural shift because they're moving from one occupation to another.

JULIE KOSTERLITZ, National Journal: I see that you have your next First Tuesday topic all lined up for you about does retraining work.

Thank you for coming.

(Applause.)

(END)

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