An Oscar for Economics?
Billy Crystal is wrong. America's economy looks marvelous!
BY BRIAN S. WESBURY
Saturday, March 6, 2004 12:01 a.m. EST
Billy Crystal is a great actor. I have really enjoyed some of his movies--especially "City Slickers," in which his yuppie character was thrown into a Wild West adventure for which he was woefully unprepared.
Mr. Crystal was also unprepared when he attempted some economic and political commentary as host of the 2004 Academy Awards. He recalled the first time he hosted the Oscars 13 years ago: "Things were so different then. You know how different it was? Bush was president, the economy was tanking, and we'd just finished a war with Iraq." The audience thought this was hilarious.
In Hollywood, this line of reasoning makes sense. If a Republican is in the White House, then the economy must be in bad shape. Maybe the Hollywood elite have no need to understand the economy. Because if they did, when they heard that the "economy was tanking," they should have been scratching their heads instead of doubling over in laughter. (By the way, what's so funny about a tanking economy?)
For the record, according to the National Bureau of Economic Research (NBER), the U.S. was in recession when Mr. Crystal hosted his first Academy Awards. In fact, average real gross domestic product contracted at an annual rate of 2.5% during the six months prior to the Oscars in March 1991.
In the most recent two quarters, real GDP has expanded at a 6.1% annual rate, the fastest growth in 20 years. Moreover, the NBER says that the recession ended 2 1/2 years ago, in November 2001. While Hollywood is quick to blame the recession on George W. Bush, the economy turned downward well before the 2000 election. Despite terrorism, corporate scandals and war, the economy is accelerating sharply today.
Let's look at some other data:
• The unemployment rate is currently 5.6%. In March 1991 it was 6.8%. According to the Bureau of Labor Statistics, 1.4 million civilian jobs have been created in the past year. Between the Oscars of 1990 and 1991, civilian jobs declined by 1.4 million.
• In the past 12 months, inflation-adjusted retail sales grew by 3% and stand at an all-time record high. During the year ended at the 1991 Academy Awards, real retail sales fell by 4.5%.
• According to the Institute for Supply Management, manufacturing activity has operated at the fastest rate in 20 years during the past three months. In February, the ISM employment index climbed to a 16-year high, indicating that manufacturing jobs expanded in February for the first time since July 2000. The ISM Supplier Deliveries Index indicates that purchasing managers are experiencing delays in order fulfillment. In the past, Alan Greenspan has argued that this indicates the economy may be overheating.
• Nonfarm productivity expanded by 5.4% in the past year, its fastest rate of growth in 23 years. During the year before Mr. Crystal's first job with the Academy, productivity increased just 0.9%.
• The Dow Jones Industrial Average has increased by 35% in the past year. During the year ended March 1991, the Dow gained just 7.6%.
• Last year, 1.09 million new homes were sold (an all-time high) and the average sale price for those homes increased 10%. In 1991, 509,000 new homes were sold, and their average price fell 3.9%. In California, the housing market was particularly hard hit in 1991 and home prices fell 13.5%. In the past year, however, California home prices jumped 20.7%. (Hollywood mansions have never been worth more.)
The data go on and on. High-tech investment (in computers that make movies, for example) has risen to a record share of GDP. Corporate profits rose to an all-time record high in the fourth quarter of 2003. Initial unemployment claims averaged 350,000 per week in February 2003, but averaged 501,000 per week in March 1991.
There are two major differences between 1991 and today. In 1991, the Fed was very slow to cut interest rates and the federal-funds rate was still at 6.25% when Billy Crystal hosted his first Academy Awards. In addition, the first President Bush raised taxes. This combination of tight monetary policy and tax hikes always creates a recession.
Today, the Fed is holding interest rates at a 45-year low, and in May 2003 the most pro-growth tax cut since 1981 was signed into law. Immediately following the tax cut, the economy accelerated to its fastest growth in two decades. The economy would still be stumbling along without the 2003 tax cut.
In Hollywood, film producers use illusion, technology and makeup to change the shape of reality. It is clear that no matter how strong the data become, there are many in Hollywood who want the economy to be weak. But facts are stubborn things; the economy is soaring, not tanking, and President Bush is responsible for turning it around.
There is one major similarity that Billy Crystal failed to mention when comparing 1991 with today. In the early 1990s, Democrats were hammering the first President Bush to increase taxes, as they are doing with his son.
George H.W. Bush caved in to this pressure, while his son has stood strong. This makes a world of difference when it comes to the economy. Tax hikes, at this juncture, would be economic suicide.
One thing is certain: Hollywood's perception of the economy is not based on reality. The economic data point clearly to a robust recovery no matter how many times the contrary is repeated. A better analogy might be to look at the movies that swept the Oscars in Crystal's first year vs. this year.
"Dances With Wolves" won the award for Best Picture at the 1991 Academy Awards. The ending sent the heroic lieutenant into the cold wilderness. This year, "The Lord of the Rings" took the prize. In the end, against all odds, the forces of darkness were defeated and Middle Earth was saved. These endings are appropriate for the times. In the early 1990s, the economy resembled a lifeless, frigid tundra. Today the economy is healthy and getting stronger. Hollywood and Mr. Crystal should stick to what they do best--making movies, not analyzing the economy.
Mr. Wesbury is chief economist with Griffin, Kubik, Stephens & Thompson in Chicago. |
