More good news for America, and, incidentally, George Bush.
Final third quarter GDP figures were released today, showing a fantastically high 8.2% growth in GDP for the period. Let this be a lesson for anyone who would say, as I've heard often, that this president's (don't speak his name, it burns!) economic policies have resulted in the loss of 2.2 million jobs, the worst performance since Herbert Hoover, giving us incidentally the worst economy since the Great Depression.

It is true that Bush economic policy has not been entirely quite what I'd like to see. The deficit, pardonable at first while we got the War on Terror kicked off and decided we needed to whack Saddam, has ballooned to proportions which give pause for concern. But, Daschle & Co take note, there are only a few ways to actually cause a recession or massive loss of jobs by virtue of economic policy. There are only two levers by which the economy can be controlled: fiscal policy and monetary policy. The president has essentially no influence over the latter, which leaves us to consider how Daschle's claim could possibly be true with the President only recommending, not actually enacting, fiscal policy (which enacting is, after all, what Congress does for a living when it's not busy perpetuating its own existence).

So how could Fiscal policy produce a recession or massive loss of jobs?

1. It could be restrictive at the wrong time.
2. It could be neutral when matters plainly suggest loosening is in order, or loosen only a little when a lot is in order.
3. There are some really subtle and long term issues with currency valuation, which depends upon many other things on fiscal policy.
4. The size of the deficit has some theoretical long run impact on long term interest rates, which may nudge GDP (and hence job growth) in the wrong direction.
5. Protectionism, not strictly an element of fiscal policy, is generally not good for the economy on balance.
6. The tax code itself can, by its sheer complexity and the cost of ensuring compliance with its myriad byzantine provisions, reduce GDP.

Those are about it. Anything else from the fiscal policy side, which you're welcome to suggest, essentially has only fringe influence on the actual behavior of the economy. Let's briefly review our fiscal policy performance against the above items:

1. Being restrictive at the wrong time is bad for the economy. It basically means taking more money away from people just when the economy is getting into trouble and is headed for recession anyway. Restrictive fiscal policy relies either on increasing taxes or cutting government spending, neither of which has happened during the current administration.

2. Being neutral means relying only on automatic stabilizers for economic stimulus; or for tax receipts and spending to give opposing influences (both are presently stimulative). These automatic stabilizers refer to the tendency of tax receipts to automatically drop in a recession (fewer working people paying taxes); and the tendency of government spending to automatically increase in a recession (more welfare and other transfer payments to those same people now out of work). This is an acceptable response to a mild recession caused by the normal process of the business cycle (a recession caused by high interest rates, themselves a monetary policy response to check inflation in a high-GDP-growth environment). In a recession caused by the bursting of an asset bubble (such as our recent, post-Nasdaq collapse recession, or the decade long funk in Japan after the bursting of their real estate bubble) neutral fiscal policy relying on automatic stabilizers will not prove adequate. We've had three rounds of tax cuts, and are in no danger of accidentally having employed restrictive or neutral fiscal policy.

3. Let's leave aside discussion of what's really causing our currency to decline lately, and whether that's George Bush's fault; that's a complex discussion but it's not relevant to what we're considering here. Massive currency devaluation, which we've had a mild form of lately, tends to be beneficial to the economy in the short run as our exports become more affordable to foreigners, and they tend then to buy more of them. At the same time, foreign goods become more expensive to import into this country, so more Americans buy American goods. So the short run consequence of our recent currency trends would be to increase GDP and create jobs, not the opposite. In the longer run, a cheap currency tends to decrease foreign investment in US capital markets, making the cost of capital higher for US firms, which tends to result primarily in compromising worker productivity levels, not GDP or employment directly. [Yes, I'm aware that productivity will indirectly influence both GDP growth and employment. But all this is a change in the opposite direction from what we're experiencing now so it's not really relevant.]

4. A big deficit will, over time, tend to crowd out private investors and may result in long term interest rates being higher than they otherwise would be. All the estimates I've read credit this influence with being real but minimal, on the order of one-third to one-half of one percent (0.33% to 0.50%) higher interest rates. This element tends to be very slightly restrictive (most normal recessions come from the Fed increasing interest rates more like 3% to 4%) but is dwarfed by the fiscal stimulus which the deficit itself represents. I'd rather see a balanced budget, but it's simply not responsible to be running a surplus during a significant recession.

5. The steel tariffs were bad, and anyone who's read this space before knows I despised them. I'm glad they've been rescinded, and they were the one fiscal policy George Bush has embraced which was unquestionably bad for the economy. But the cost to the American workforce was estimated, even by opponents of the tariffs, at "only" about 30,000 jobs. For anyone looking to blame the whole 2.2 million jobs lost on President Bush, they will have to come up with more than just this one misguided instance of protectionism.

6. The tax code should be fundamentally reformed along the lines of what Ronald Reagan supervised in the early 1980s: cut all marginal rates, close as many loopholes as possible, and simplify the tax code. I've perused a copy of the actual IRS code (not the little instruction books or publications they give you, but the actual law), and it runs to literally 10,000 pages. The money a company spends on lawyers and CPAs to guide them through this maze is certainly better than running afoul of the law, but a simpler tax code would allow businesses (especially small businesses) to rechannel this money to be spent on higher wages to workers, newer machinery, more advertising, and generally growing the business instead of paying what is essentially a surcharge on tax compliance. Paul O'Neill spent his time as Treasury Secretary advocating tax reform instead of paying attention to current economic issues, and this rightly cost him his job; but tax reform shouldn't be abandoned just because it's not the single absolutely highest priority.

So what did cause this current recession, and why did we really lose these 2.2 million jobs? An asset bubble burst before George Bush came to office. There was a massive terrorist attack which cost the economy many billions of dollars directly. And a group of very bad men was identified who needed killing halfway around the world, which has contributed to a high deficit (though not directly affecting economic output). Anyone who would blame all this on George Bush clearly is angling for selfish political advantage, and has demonstrated themselves as being utterly immune to facts.