By Brian Faler March 12 (Bloomberg) — In 1972, when he was trying to spur the economy to win re-election, President Richard Nixon ’s Defense Department bought a two-year supply of toilet paper. Nixon was participating in what economists call the political business cycle, election-year efforts by politicians to prod the economy before voters go to the polls. Almost 40 years later, Democrats are debating proposals aimed at cutting the nation’s 9.7 percent unemployment rate in time for the November congressional elections. Among them: tax breaks for companies to hire, infrastructure spending and expanding jobless benefits. Congress can do relatively little by then to reduce unemployment and the jobs talk has more to do with politics than economics, said Nariman Behravesh , chief economist at the Lexington, Massachusetts-based forecasting firm IHS Global Insight. “This is very much a question of Democrats being able to at least go out there, as they run for re-election, and say, ‘I voted for this,’” Behravesh said. “They can say, ‘We did something,’ but the reality of the effect on the economy is going to be minimal.” Even a $150 billion jobs bill approved in December by the House, he said, will only reduce unemployment by two-tenths of a percent, “three-tenths if we’re lucky.” ‘Grave’ Danger The issue threatens big losses for Democrats, likely to face voters with the second-highest Election Day unemployment rate in a half century. Charlie Cook , who publishes the independent Cook Political Report in Washington, said last month that Democrats are in “grave” danger of losing their House majority and could lose seven of the 59 seats they control in the Senate. Lawmakers are pushing a series of jobs bills, including an $18 billion plan offering companies a payroll tax break. The Senate this week approved plans to spend $100 billion to extend unemployment benefits and send aid to state governments to help prevent layoffs of public-service employees. Democrats said they don’t know how much more they will spend on job creation because it’s hard to predict what can pass the Senate, as illustrated earlier this month when Senator Jim Bunning , a Kentucky Republican, held up an extension of unemployment benefits. Senate Vote “We’re all constrained by the votes in the Senate: you need 60 votes to go to the bathroom over there,” said Representative James McGovern , a Massachusetts Democrat. Facing continued questions from Republicans over whether last year’s $862 billion stimulus package was effective, Democrats are reluctant to estimate how many jobs any new measures would produce. “Hopefully, a good number,” said Senator Charles Schumer , a New York Democrat. “This is not just a game of statistics — these are individual people and any people that we can try to get back to work, so much the better.” No one in recent history went to greater lengths to prime the economy before an election than Nixon, historians said. In the run-up to the 1972 election, when unemployment reached as high as 6.1 percent , the Republican incumbent imposed wage and price controls, leaned on the Federal Reserve to cut interest rates, increased Social Security benefits and urged federal agencies to spend down their budgets, which led to the Pentagon’s toilet-paper stockpile. Order to Spend “He lashed all the departments to spend as much as they could in the first six months of the year,” said Allen Matusow , a historian at Rice University in Houston and author of ‘Nixon’s Economy: Booms, Busts, Dollars and Votes.” “The economy tortured him for years, but in the year it really counted, everything worked.” The task facing Democrats this year is tougher. The Fed has already slashed rates, the unemployment rate is higher, and the deficit , estimated to reach a record $1.5 trillion this year, is deeper. In addition, stimulus spending takes time to take effect. Just one-third of the package approved in February 2009 was spent by the end of last year. The U.S. may add as many as 300,000 jobs in March, the most in four years, David Greenlaw , chief fixed-income economist at Morgan Stanley in New York, said in a Bloomberg Radio interview. Over a longer period, though, the jobless rate may move higher as the economy improves and discouraged workers, no longer counted in the labor force, begin searching again for work, said Mark Zandi , chief economist of Moody’s Economy.com . Bigger Measure Zandi, who backs additional stimulus spending to prevent the economy from tipping back into recession, said he would want a jobs bill totaling about $200 billion. Even that wouldn’t trim the unemployment rate by more than a half-percentage point, he said. “I don’t think there’s any way to get it down below nine by Election Day,” he said. Lawmakers are at odds over how to boost the economy. Many House Democrats said the payroll-tax idea is likely to win approval less because it would create jobs than because it was able to win bipartisan support in the Senate. “It’s important for us to look like we’re doing something,” said Representative Lloyd Doggett , a Texas Democrat. “But we need to be thoughtful about whether the proposals we have will make any difference.” To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net .
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Democrats’ Election-Year Jobs Push Recalls Nixon’s ‘72 Toilet-Paper Gambit
