National Center for Policy Analysis

MONTH IN REVIEW

Economy & Income
July, 1996

POLITICAL POLICIES AFFECT PERSONAL INCOMES

In a reversal of the common wisdom, the least affluent among us fared better under the Republican administration of President Reagan than they have under the Democratic aegis of President Clinton. And the well to do have flourished under Clinton, compared to their progress under Reagan.

During the Reagan '80s, the share of income going to the top 20 percent of households rose by 2.4 percent -- with the top 5 percent increasing incomes by 1.9 percent.
Yet during just the first two years of the Clinton administration, the top 20 percent have increased their share of total income as much as they did during the entire eight years of the Reagan presidency.
And the top 5 percent increased their share by 2.5 percent under Clinton.

Under Reagan, everyone's income rose.

Real median family income increased from $36,825 to $40,890 (in 1994 dollars) over the course of the entire Reagan presidency.
Furthermore, the average real income of those in the lowest fifth (quintile) of income groups rose from $7,954 to $8,391, and the income of those in the second-lowest quintile went from $18,856 to $20,797 under Reagan.

By contrast, median family income has been flat during the Clinton administration.

During its first two years, real median family income averaged $38,343 -- down from $38,632 in 1992 and well below the level when Reagan left office.
The income of the bottom quintile averaged $7,681, with the second quintile at $19,176 during the first two Clinton years.
However, the average income of the top quintile rose from $96,240 in 1992 to $105,945 in 1994 -- with income for those in the top 5 percent increasing from $152,751 to $183,044.

Real average weekly earnings for workers are lower today than when Bill Clinton took office.

Source: Bruce Bartlett (National Center for Policy Analysis), "Misguided Conventional Income Wisdom," Washington Times, July 1, 1996.

THIS ELECTION YEAR ECONOMY

While unemployment is down, inflation stable and economic growth unspectacular but steady, Americans' wages and incomes are stagnating. And this could mean trouble for President Clinton's re-election chances, political analysts observe.

Last year, Secretary of Labor Robert Reich noted that:

At the point in 1994, the median full-time worker in this country was earning $479 per week.
In 1995, factoring in inflation, the median wage was $475 per week.
Among working families, 11 percent did not earn enough to lift themselves above the poverty line.
Compared with 1994, in 1995 some 636,000 more Americans are working two jobs.

In the year since that report, all of the concerns expressed by Mr. Reich have only gotten worse.

But recognizing that Clinton is vulnerable on the issues of wages and incomes, the President's Council of Economic Advisers issued a report this April totally contradicting Mr. Reich's position. After the CEA announced that things were just great, Reich has been notably silent on the problem of stagnant wages.

Source: Bruce Bartlett (National Center for Policy Analysis), "Wage Woes Beneath the Rosy Numbers," Washington Times, July 8, 1996.

THE HUNDREDS-OF-BILLIONS OF DOLLARS QUESTION

Does growth in productivity ignite inflation and, if so, what is the ratio? The Federal Reserve is widely thought to see an economic speed limit at 2 percent to 2.25 percent in annual growth of the gross domestic product -- the limit above which higher inflation will be experienced. Others say there is a limit, but it is more likely to be around 3 percent or better.

The National Association of Manufacturers (NAM) recently issued a report, entitled "A Case for Higher Growth," contending that:

The economy's growth could be boosted from the current 2.2 percent rate to 3 percent, without risking more inflation.
Since the 1870s, the economy expanded on average 3.2 percent per year.
In the 1960s, it grew by about 5 percent a year.
Lowering interest rates to boost growth will result in increased demand and allow the full utilization of U. S. productive capacity.

The author of the report, NAM president and economist Jerry Jasinowski, contends that the key to noninflationary growth is balancing the federal budget, reducing government regulation and creating a flat tax on income to increase saving and investment.

The impact of even a few tenths of a percentage point in GDP growth can be enormous. According to a recent report by the Institute for Policy Innovation:

GDP has grown by about 2.2 percent on average so far during the 1990s.
However, had it grown at an average annual rate of 3.3 percent -- which it did during the Reagan years -- the U. S. economy would be $2.6 trillion larger today than it is.
If the 3.3 percent growth rate were to continue until 2010, the GDP gain could have been $22.8 trillion.
That would have added $21,000 to the average family's income between 1990 and 1996 -- and $40,000 from 1996 to 2010.

Since 1990, that would have meant roughly $90 billion extra in revenues to the federal government -- or $538 billion total, more than half the $153.6 billion budget deficit expected this year.

Source: Perspective, "Don't Fear Growth," Investor's Business Daily, July 8, 1996.

THE PROFLIGATE AND THE SAVERS

In a land where private property is under increasing attack, the financial assets of those who save could be endangered species. Will the nest eggs of those who have foregone immediate pleasures to prepare for comfortable retirements be at the political mercy of those who consumed at their pleasure during their working years? Some fear they will.

There are several ways this could happen:

Under political pressure from the many have-nots, government could limit benefits or raise taxes and impose financial penalties on those who have saved.
Baby boomers might gang up on the next generation, heavily increasing their taxes to sustain Social Security and Medicare.
Experts say that those in the middle -- with incomes of $50,000 to $100,000 -- are the most vulnerable to political shenanigans.

Here are some political and financial realities:

Between 1990 and 2030, the number of Americans over 65 will double -- while the working age population will grow by just 25 percent.
Only 2.8 workers will be around to produce the goods and services consumed by each retiree over 64 -- compared with 4.8 workers today.
Under current tax and spending conditions, the budget deficit will rise from today's 2.2 percent of gross domestic product to 37 percent in 2030, according to the Congressional Budget Office.
Using an index developed by economist Douglas Bernheim of Stanford University, baby boomers are only saving 36 percent of the amount necessary to sustain the standard of living they expect to enjoy in their last working years -- but saving much less than that if taxes must be raised and Social Security cut.

To understand how politically vulnerable savers might be, consider that, even today, people who have accumulated large amounts in their retirement accounts and who withdraw more than $155,000 a year pay penalties to the government. In a political/economic confrontation, levels that constitute an "excessive amount" could be lowered or not allowed to rise with inflation, punishing those who have saved to help those who have not.

Any number of unusual suggestions have been made as to how to avoid or mitigate a catastrophe of our own political making -- from educating workers to save, to inviting into the U. S. more young, talented immigrants to help pay the taxes. But according to a growing number of economists, privatizing Social Security is probably the best place to start.

Source: Peter Passell, "You Saved, But They Didn't. So Now What?" New York Times, July 7, 1996.

LAYING OFF THEIR OWN

While executives of publicly-owned corporations are catching heat in the press for downsizing, 2,000 U. S. companies in which employees own a majority stake are increasingly laying-off their own fellow owner-workers.

Among the largest of the worker-owned companies, nearly 16 percent have laid off workers in the past year.
Managers at employee-owned companies usually make the cutback decisions -- acting independently of other worker-owners --just as they do elsewhere.
The employees own chunks of stock in nearly 10,000 companies, including the 2,000 in which they hold majority stakes.
Over a recent 12-month period, at the 57 largest employee-controlled companies which engaged 1,000 or more workers, 15.8 percent laid off 50 or more employees.

Generally the companies do try to economize by every other option available before they resort to layoffs, observers report. But most employee-ownership plans are not set up with job security as the goal. Their primary purpose is to give workers pension benefits through stock ownership or profit sharing, or they offer tax breaks to the company and the former owner under law.

According to one observer, "No one can suspend the laws of economics, and sometimes they dictate fewer workers."

Source: Louis Uchitelle, "Downsizing Comes to Employee-Owned America" New York Times, July 7, 1996.

BUSINESSES SEEK FRIENDLY CLIMATES

The U. S. Senate is scheduled to vote today on establishing a national right-to-work law, which would forbid employers from requiring that employees join unions with which companies have contracts.

Such a bill would have profound consequences. Few want to dash in where they are not welcome, and businesses are no exception. That is why those that wish to expand their operations to other states use the presence or absence of right-to-work laws as an indicator of where they are likely to receive a friendly or hostile reception.

Three University of Tennessee researchers surveyed 325 business executives responsible for making plant siting decisions and asked them to rank 21 different factors that affect their decisions to start a new enterprise, choose a new location or expand their existing business.

Here are some of the findings of researchers David Hake, William Fox and Donald Ploch:

Less union influence, right-to-work laws and higher worker productivity are the only factors ranked in the top five by firms making each of the three types of site selections.
The three factors are interrelated, since right-to-work laws lessens unions' ability to negotiate rigid work rules and make-work positions (called featherbedding) that reduce productivity.
Business executives understand this and increasingly view the existence of a right-to-work law as a proxy for whether or not a state possesses a business-friendly climate.

Business executives across the country apparently agree with those surveyed.

Between 1960 and 1993, according to the U. S. Bureau of Labor Statistics, the 21 states with right-to-work laws created more than 2.6 million manufacturing jobs -- a 77 percent increase.
In states without right-to-work laws, manufacturing employment actually fell by some 1.3 million jobs.
A study from George Mason University found that after adjusting for cost-of-living and state and local tax differences, a typical urban family in a right-to-work state has $2,852 more in purchasing power than the same family would have in a non-right-to-work state.
A study from the Federal Reserve Bank of Minneapolis -- comparing employment in right-to-work states and non-right-to-work states which border one another -- found that, on average, manufacturing employment is one-third higher in counties of right-to-work states compared to adjacent counties across the border in non-right-to-work states.

The study also found that from 1947 to 1992 manufacturing employment increased by 148 percent in states with right-to-work laws, versus virtually zero growth in states without those laws.

Source: Thomas S. DiLorenzo (Center for the Study of American Business), "Right-To-Work Going National?" Washington Tines, July 10, 1996.

LABOR OPPOSES WORKER-MANAGEMENT COOPERATION

Labor unions are attempting to defeat legislation which would make it easier for nonunion employers to set up employee committees to make recommendations to management on issues ranging from wages to smoking policies to work schedules.

At issue is the Teamwork for Employees and Management Act (TEAM Act) which will enter final debate in the Senate today. President Clinton has threatened to veto the bill.

Increasing numbers of U. S. companies are instituting worker-management teams.
Supporters estimate that as many as 30,000 non-union companies now have such teams in one form or another.
At issue is whether teams are legal or illegal under the ambiguities of current law, with unions claiming they are nothing but devices to head-off union recruitment; in effect, an illegal union dominated by management.
The teams can be established to consider any of a wide range of issues, including pay, working conditions, benefits, company policies and even corporate strategies.

The teams -- whose members are often chosen to reflect the racial, sexual and professional make-up of the work force -- function often as "focus groups," debating, voting upon and then reporting their conclusions on workplace issues to top management. Usually, their recommendations are not binding, but do carry weight and influence with top management.

Source: Glenn Burkins, "Senate Debates Right to Set Up Worker Teams," Wall Street Journal, July 10, 1996.

SMALL BUSINESSES CLAMORING FOR WORKERS -- SKILLED OR NOT

Hiring plans by small businesses are the strongest they have been in the past 23 years according to the latest monthly survey by the National Federation of Independent Business.

Some 27 percent of the organization's members report they have a job opening that can't be filled.
Of those, 17 percent cited the shortage of skilled workers as their number one problem; 4 percent said unskilled workers were also in short supply; and 6 percent cited both.
Some 63.2 percent of the adult population is presently employed -- a record high.
Hourly earnings have risen 3.4 percent since this time last year, according to the Labor Department.

Some 29 percent of firms responding to the NFIB survey said they had raised compensation to lure workers away from other firms. Only 5 percent of the more than 2,000 small businesses surveyed said they plan to reduce employment.

Those conducting the survey predicted that a downturn in the economy during the second half of 1996 will ease the current strains in the labor market.

Source: Perspective, "Job Market Tightness," Investor's Business Daily, July 10, 1996.

HOLDING DOWN ECONOMIC GROWTH

Eliminating government policies that force the private sector to be less efficient could unleash growth without the threat of inflation, according to many economists.

The latest Census Bureau data establish that:

Real median household income is now lower than at any time during the Bush presidency.
More Americans live in poverty today than at any time during the Reagan or Bush years.
Since March 1991, total nonfarm employment has grown just under 11.2 million -- or just 10.3 percent.
At this stage of the Reagan expansion, employment had grown 15.4 million or 17.4 percent.

While manufacturing employment has dropped by 268,000 since March l995, government employment at the federal, state and local level has increased 721,000 since January 1993. At this point during the Reagan years, government employment had fallen by 210,000.

Economists say that higher economic growth would help propel the country out of debt.

By the Congressional Budget Office's rule of thumb, raising the full GDP growth rate by one percentage point beginning in 1996 would lower the cumulative budget deficit by 53 percent through 2006.
The deficit in fiscal 2006 would be just $63 billion -- rather than the currently projected $406 billion.

While economic growth would not solve the problem of looming Social Security and Medicare deficits, it would certainly help make them easier to bear.

Source: James Carter (Republican National Committee), "Democrats for Growth," Investor's Business Daily, July 12, 1996.

JUST HOW SOUND IS THE ECONOMY?

Despite the recent announcement that unemployment declined to 5.3 percent in June, a variety of statistics indicate that the economy is weakening.

In the first quarter of this year, some 3.53 percent of all credit card payments were behind, according to the American Bankers Association.
This is the highest figure in 15 years and well above the level registered during the 1990-91 recession.
Consumer debt has hit an all-time high at just above $1 trillion, a 44 percent increase during the Clinton administration.

With debt at such a high level, even a small rise in short-term interest rates could have a very depressing effect on consumer spending very quickly.

Since January, the rate on the Treasury's 30-year bond has risen by more than 1.2 percentage points.
Although short-term rates have remained relatively constant, the steepening of the yield curve -- the spread between long- and short-term rates -- is a matter of concern to the Federal Reserve.
Since the Fed has historically viewed such a situation as a sign of inflation, and with wages and commodity prices also showing early signs of inflation, it may have to raise short-term rates before the election.

While household assets have also risen due to increases in stock prices, much of the gain is locked up in retirement accounts such as 401(k) plans -- and may be difficult to tap in a crunch. Federal law generally requires financial institutions to withhold 20 percent of any assets withdrawn from a retirement account.

For many consumers, the crunch is already here.

Personal bankruptcies hit an all-time high last year at 874,642 filings, according to the American Bankruptcy Institute.
And during just the first quarter of this year, another 252,761 individuals filed for bankruptcy.
If this trend continues for the rest of 1996, more than one million people will go bankrupt this year -- another all time high.

While there are as yet no signs of a recession, it may not take much to push the economy into one.

Source: Bruce Bartlett (National Center for Policy Analysts), "Weakness Beneath Rosy Economic News," Washington Times, July 15, 1996.

DEREGULATION ABOUT TO SPARK ELECTRICITY INDUSTRY

Competition has come to the airlines, railroads, telecommunications and banking. Now the business of providing and selling electricity is about to be deregulated.

Twenty states have plans underway to open the electricity business to competition.
Another 24 have plans under review by legislatures and regulators.
New Hampshire and Illinois have launched pilot projects, and California and Massachusetts are planning to do so.

The savings to consumers and businesses could be substantial.

The typical residential electricity bill would probably be cut by about $20.
In Arizona and Texas -- where power costs are high --consumers would see their bills dropping, respectively, from $89.84 to $66.36 and from $86.71 to $64.05, on average.
Savings in Colorado and Wyoming -- the lowest-cost states -- would amount on average to $11.74 and $11.95 per month.
Industrial users could save billions of dollars -- making them more cost-competitive against foreign rivals.

In New Hampshire and Illinois, electricity providers are offering potential customers a variety of inducements for signing up: bird feeders, a month's free service, light bulbs, young trees -- even civic improvements.

Source: Beth Belton and Sandra Block, "Deregulation Juices Utilities Competition," USA Today, July 16, 1996.

GOVERNMENT TRAINING PROGRAMS BENEFIT FEW

Investing more in government job training programs is a popular proposal for helping the unemployed and uneducated, low-skill workers. However, many economists have found that such programs have few beneficial effects.

The U.S. Department of Labor spends $5 billion annually on training programs, but James Heckman of the University of Chicago found that such programs have been a waste. Among the conclusions:

The largest federal program, the Job Training Partnership Act, had no benefits for those under age 21 and may have reduced their earnings.
Adults, particularly women, did improve earnings -- but that may be because most of them were spurred to work harder to support their children.
An earlier study of 22 pre-1977 training programs also found that women increased their earnings, but the results were mixed to negative for adult men and youths.
Participants in the Job Corps, the second largest federal training program, are more likely to graduate from high school and earn a bit more than others their age.
But much of the benefit to Job Corps youths is due to the fact that they commit fewer crimes than their peers -- suggesting the program keeps them occupied rather than giving them marketable skills.

Training programs in other developed countries also show few or no benefits. For example:

Britain's Youth Training program for 16- and 17-year-olds enrolls about 200,000 a year, but a 1994 evaluation found that almost half of them dropped out and unemployment among those who finished was 27 percent -- higher than for the age group as a whole.
In four out of five Australian training programs studied during 1989 to 1992, fewer than half the participants who completed the program were either working or in school three months later.

Peter Robinson of the London School of Economics concludes that programs help those who would have gotten jobs anyway and cause workers whose jobs are subsidized to be substituted for other workers, but don't benefit anyone else.

Source: "Training and Jobs -- What Works?" Economist, April 6, 1996.

UNIONS' STEADY DECLINE

Rutgers University economist Leo Troy observes that the "forces which have brought unions down continue to grow in strength" during this "new age of Adam Smith."

From 35 percent after World War II, the proportion of the private-sector workforce represented by unions has declined to 10.4 percent. And Troy forecasts the numbers will continue to decline to just 7 percent by the end of this decade. Here are some of the forces and factors he and others identify as working toward the demise of labor unions:
Legal protections which permitted unions to become cartels began to erode in the late 1970s.
Deregulation and freer trade increased competition at home and from abroad -- putting pressure on inflated union wages.
One example is the trucking industry, where just seven years after deregulation the proportion of truckers who belonged to unions fell by more than half to 28 percent.
A growing sector of service firms -- which tend to be smaller than factories -- have made it harder for unions to organize.

Service firms also tend to employ administrative and technical workers -- most of whom are repelled by the option of joining unions. Then there is the fact that government has taken on roles that many unions used to play, such as providing unemployment and disability insurance. And employers have taken on the task of providing health and life insurance.

The public sector is the only area to buck this trend. More than a third of government workers are union members. But public-sector unionism may have peaked. Last year, while state and local governments added some 200,000 workers, their unions still lost members.

Source: Perspective, "Are Unions Dead?" Investor's Business Daily, July 17, 1996.

WIDENING INCOME GAP DISAPPEARS

Claims about a "widening gap between rich and poor Americans" and a "disappearing middle class" are based on the political manipulation of data, according to some analysts.

Between 1970 and 1990, the percentage of families in the middle class, arbitrarily defined as those with incomes between $15,000 and $50,000, fell from about 63 percent to about 55 percent.
However, all of the net statistical decline of the middle class was caused by people moving to the next higher income category in 1990 dollars.
The over-$50,000 income group grew from 24 percent of the population in 1970 to 32 percent in 1990.

Further, data based on family income understate the growth of individual income, which grew in real terms by about 40 percent from 1969 to 1992. Since the 1970s, the number of adults in the average family has declined, mainly due to the high divorce rate combined with the increasing number of women who have children but never marry. These social trends depress both the median and average family income.

Beginning in 1987, the Congressional Budget Office, produced a series of studies that purposefully obscured these facts. The CBO combined Census Bureau data for income of families and unrelated individuals into one category, "families"

According to the Census, between 1980 and 1989, real income for the middle fifth (quintile) of families increased by 8.3 percent. Real income for the middle quintile of unrelated individuals increased by 16.3 percent.

Since the number of unrelated individuals increased more rapidly than the number of families, and since families headed by two adults on average have far higher income than unrelated individuals, combining these groups in a single category depressed average "family" incomes -- causing their total income to appear to decline by 0.8 percent in the 1980s.

In addition, the CBO didn't account for the income mobility of individuals and families in each quintile of income, and it performed various manipulations to make it appear that an overwhelming share of income growth during the 1980s went to the top 1 percent of earners.

Source: John H. Hinderaker and Scott W. Johnson, "Wage Wars," National Review, April 22, 1996.

A VIGNETTE OF THE ECONOMY

If one could ask the economy how it feels, it would probably reply: "Not so good, not so bad." At least that's what its doctors say.

Since President Clinton took office, 10.1 million new jobs have appeared -- 245,000 each month -- and unemployment stands at 5.3 percent.
But annual growth in gross domestic product from 1993 to the present has averaged an anemic 2.5 percent rate -- tied with the growth rate under President Nixon for dead last among all presidential administrations going all the way back to President Truman's.
Unofficially, the current expansion is in its 64th month, more than a third of which occurred during President Bush's tenure.

More recently, the numbers have been weakening and some economists see them sagging even further in the future.

Recent tumbles in the stock market may indicate that Wall Street thinks we are in for rougher times.
Real GDP growth has fallen from a 1994 peak of 3.5 percent to 2.2 percent in the first quarter of this year.
Job growth, which also peaked in 1994 at 3.2 million, fell to 2.4 million last year.
Some 201,000 high-paying factory jobs have vanished over the past 12 months.

Researchers say people are not confident about their ability to get better jobs, and are uncertain and anxious about their economic futures. Despite the tighter labor market, inflation adjusted incomes are down.

According to the latest Census Bureau data, real median family income in 1994 was $38,782 -- 0.3 percent less than in 1992, and 5.2 percent below 1989's peak.
Real per capita disposable personal income has grown just 2.0 percent a year since 1993.

Experts say that of the 10 postwar presidents, seven have done a better job than President Clinton in boosting personal income.

Source: Paul Sperry, "How Strong is Clinton Economy?" Investor's Business Daily, July 22, 1996.

Note: For related information, the Daily Policy Digest link to NCPA's Taxes and Growth page is http://www.public-policy.org/~ncpa/pi/taxes/taxes3.html#5

IS ALL QUIET ON THIS INFLATION FRONT?

In congressional testimony last week, Federal Reserve Chairman Alan Greenspan said the Fed has had to become "especially vigilant to incipient inflation pressures" -- and indicated he thought he might be detecting them in labor markets.

In the first quarter of this year the Employment Cost Index rose 3 percent -- with an even stronger 3.5 percent rise in the wage and salary component.
Yet in the most recent inflation report, the Consumer Price Index was up just 2.8 percent year over last year -- with the core inflation rate up 2.7 percent.
However, the National Bureau of Economic Research has estimated that the CPI likely overstates the true rise in prices by at least 0.6 percent.

Some economists contend that increases in wages are not a sign of inflation, since inflation is classically defined as "too many dollars chasing too few goods." They also argue that unemployment, wages and inflation are not directly linked.

As they see it, government's proper role should be to encourage increases in productivity and wage rates by cutting taxes, slashing red tape and keeping interest rates low -- which would also strike at some of the root causes of inflation.

Source: Editorial, "Will Greenspan Steal Your Raise?" Investor's Business Daily, July 22, 1996.

REAGAN YEARS WERE BETTER

According to almost every objective measure of progress and prosperity, the economy of the 1980s far outperformed the economy of the 1990s.

The Census Bureau reports that the real income of the median-income household in America increased by $4,100 from 1981 to 1989 -- an 11 percent rise.
In the 1990s, by contrast, the median-income household has lost $2,100 in take-home income, a 5 percent decline.
Every income group (quintile) gained real income during the 1980s.
In contrast, in the 1990s only the rich are gaining income, at a slower rate, while low- and middle-income Americans are losing ground.

Unemployment rates, the supposed bright spot of the current recovery, have been consistently below 6 percent since 1994 and even dropped to 5.4 percent in April. But the drop in joblessness is primarily a result of exceptionally slow growth in the labor force -- that is, the number of people seeking work, rather than any large increase in hiring, according to economist Alan Reynolds in a recent Hudson Institute report.

The labor force expanded by 1.7 percent per year between 1981 and 1989.
However the labor force has grown by just 1 percent annually between 1990 and 1994.
From 1990 to 1995, the net number of new jobs in the U.S. expanded by 1.1 percent annually.
In the 1960s, 1970s and 1980s, civilian employment grew almost twice that fast.

Savings and investment rates have also fallen.

Its true that the personal savings rate sagged in the 1980s to 6.5 percent from 9 percent in the 1960s; but now it has plummeted to less than 4 percent.
The investment rate fell from 10.5 percent in the 1960s to 5.3 percent in the 1980s to an all-time low of 3.8 percent in the 1990s.

The result has been slower economic growth. During the Reagan era, 1981 to 1989, the average annual rate of expansion of gross domestic product was 3.2 percent; but during the Bush-Clinton years GDP has grown on average only 1.8 percent annually.

What difference does the relatively poor performance of the economy in recent years make? If the economy had grown at the same trajectory over the past seven years as it did in the 1980s, America would be $510 billion richer today; five million more Americans would be working; and the income of the typical American household would be about $4,000 higher.

Source: Stephen Moore (Cato Institute), "The Lean Years," National Review, July 1, 1996.

NO GREAT MYSTERY WHY AMERICA CREATES JOBS, EUROPE DOESN'T
Some economists seem to be puzzled over the fact that America 's economic culture generates growth, while Europe's doesn't.

From 1979 to 1995, Western Europe created less than one new job for every two new workers -- 10.3 million jobs for 21.5 million added workers.
Consequently, unemployment jumped from 5.7 percent to 11 percent.
Meanwhile the U. S. created 26 million new jobs absorbing 95 percent of new workers.
A U. S. unemployment rate which was 5.8 percent in 1979 registered only 5.6 percent in 1995.

Job creation requires three things economic growth, reasonable labor costs and a willing workforce.

Between 1979 and 1995, the U. S. economy grew at an average annual rate of 2.4 percent -- compared to 2.1 percent among European Union countries.
Between 1983 and 1993, worker compensation -- wages plus fringe benefits -- jumped 6.3 percent annually in the EU -- versus 4.2 percent in the U. S.
While initial unemployment benefits for American and European jobless are comparable -- replacing from 50 percent to 70 percent of an average worker's wages -- U. S. benefits dwindle after a period of unemployment, while European countries continue to provide support.

While some European firms manage to flourish, on balance excessive government taxes, regulations and market controls hobble economic growth. High labor costs and steep payroll taxes deter hiring. Europe also suffers from strong and heavy-handed labor unions, more political determination of wages and less competition in product markets.

Among U. S. advantages are:

Corporations which are consistently more profitable -- earning an average 18.3 percent return on assets in 1995, compared to 13.8 percent for German firms.
Venture capital is more available in the U. S. for starting up new companies.
The U. S. is on a comparatively more swift deregulatory path than is Europe.
America still embraces a market culture, strives for wealth, accepts change and is obsessed with growth.

No single U.S. advantage over Europe is decisive; but their collective impact propels the U.S. economy and hinders Europe's.

Source: Robert A. Samuelson, "Why America Creates Jobs," Washington Post, July 24, 1996.

A PRESIDENTIAL HOUSING COMPARISON

President Clinton stated in 1995 that it became "much harder for many young families to buy their first homes" during the Reagan 1980s, and that the national homeownership rate declined for the first time in 46 years.

But research indicates that homeownership actually got easier as the 1980s wore on -- and homes have become less affordable during Clinton's tenure.

The National Association of Realtors surveys the market each month to see how well a median-income family can afford a median-priced home. A Housing Affordability Index score of 110, for example, means that a median-income family had 110 percent of the income needed to qualify for a mortgage on a median-priced home.

In 1981, with interest rates soaring, the index stood at 69.9.
But by 1990, it was up to 109.5.
Housing affordability peaked in 1993, at 133.3.
But the index dropped in the Clinton era to 126.9 in 1995.

Source: Editorial, "Clinton on Homeownership," Investor's Business Daily, July 26, 1996.