Better Off Than 4 Years Ago? Nation Is Divided

WASHINGTON â€”  Linda Caterino and Bill Ellis don’t need a stack of government statistics to tell them whether the nation is better off than it was four years ago. All they need are their own eyes.

Caterino, a self-employed tax accountant in Somerville, Mass., has watched her net worth rise along with Boston-area housing prices. She sees evidence of an improving economy all around her.

Ellis, a retired auto service department manager in Falls Church, Va., has been dipping into his diminished retirement account to make ends meet. He sees a similar decline for the country as a whole.

Their divergent views did not budge last week when the Census Bureau reported that family income had flattened out last year after falling for the previous two, while the ranks of the poor and uninsured had swelled.

Just as all politics is local, perhaps most economics is personal.

“I form my view of the economy based on personal experiences,� Caterino said.

What matters, Ellis observed, “is what’s happening in my neighborhood, like the man next door who was out of work for almost two years.... Things aren’t exactly average in everybody’s neighborhood.�

Since Ronald Reagan posed the question with devastating effect in his 1980 bid to unseat President Carter, it has become an economic litmus test for incumbent presidents: Are you better off than you were four years ago?

The question resonates loud as ever this year, as President Bush defends his handling of the economy against attacks by Democratic challenger Sen. John F. Kerry. Like nearly everything else about this election, the nation has perhaps never before been so divided in its response.

“It depends on where you sit,� said Kim Wallace, chief political analyst at Lehman Bros. “If you’ve got a college degree and a job that’s paying $70,000 or better, your answer almost invariably has to be yes.... Everybody doing less well than that, on both the education and economic front, is probably going to answer no.�

The split is reflected in recent surveys. In an Aug. 21-24 Times poll, 28% of registered voters said they were better off financially than they were when Bush took office, 27% worse off and 43% about the same.

On the nation as a whole, their judgments were somewhat harsher: Twenty-seven percent said the country was better off because of Bush’s economic policies, 45% said it was worse off and 26% about the same.

Such findings “suggest that Bush hasn’t made the case very well yet that the economy is improving for most Americans, even though most people personally think they’re doing OK,� said Karlyn Bowman, a polling expert at the conservative American Enterprise Institute in Washington.

Luke Williams, a 54-year-old cattle trader in Greeley, Colo., hasn’t voted for a Democratic presidential candidate since 1976, but he’s about to switch his allegiance from Bush to Kerry in this year’s election. The war in Iraq is the main reason, but Bush’s economic policies and Williams’ own financial situation figure into the equation.

“I don’t think I’m better off,� Williams said. “Everything I see costs more, and I’m not making any more, bottom line. I don’t know that government’s the answer, but something needs to start working better.�

Analysts say that in strictly economic terms, the nation appears to be slightly less well off today than it was when Bush took office. Jared Bernstein, director of the living standards program at the liberal Economic Policy Institute in Washington, said the three-year decline in median household income made it clear that there had been more economic losers than winners since Bush took office.

Although many economic benchmarks have declined on Bush’s watch, a few have moved higher. Economy.com, a consulting firm in West Chester, Pa., has charted several basic measures of the economy’s performance since January 2001:

* Gross domestic product has expanded at an average annual rate of 2.5% after adjusting for inflation, one of the weakest performances during any presidential term since World War II.

* Despite the addition of 1.5 million jobs in 11 months, payroll employment remains 1.1 million below the January 2001 level. Bush stands to become the first post-Depression president to end his term with a net job loss.

* Unemployment has remained relatively low, averaging 5.5% despite the downturn. But it would have averaged 6.5% if many discouraged workers had not dropped out of the labor force. And the average duration of unemployment has been long.

* Inflation-adjusted median household income has fallen. Last week’s census figures pegged the three-year decline at $1,535, with the losses concentrated in 2001 and 2002.

* Homeownership has increased steadily during Bush’s presidency, thanks in large part to the lowest interest rates in 40 years. Yet mortgage foreclosures are near record highs, along with personal bankruptcies and auto repossessions.

* Household net worth has fallen after adjusting for inflation. Although housing prices have risen sharply in some areas, stock portfolios have shrunk and household debt has grown.

* Inflation has remained tame. Consumer prices are up just over 2% a year, compared with more than 10% during Carter’s term in the late 1970s.

“Despite the improving economic statistics, it is likely that the economy’s performance during President Bush’s term will end up being as poor as during any other presidential term since World War II,� said Mark Zandi, chief economist of Economy.com.

Yet even if the nation as a whole is slightly worse off, analysts say, there may be a more even split between winners and losers than there was in the late 1970s, when high inflation sapped the financial strength of rich and poor alike.

The president and his defenders note that the economy’s spotty performance reflects the cumulative effect of the 2000 stock market collapse, the 2001 recession, the Sept. 11 attacks, the war on terrorism, the invasion of Iraq, corporate accounting scandals and high oil prices.

“You look back at history, and it’s better to be lucky than good on economic policy,� said Greg Valliere, chief strategist for the Charles Schwab Washington Research Group. “It’s better to be taking office as an economic cycle is accelerating rather than decelerating. Bush caught the wave at the exact wrong time. So you’ve got to cut him some slack on that.�

For some people, the link between public policy and personal finance is clear.

“It’s pretty simple for me: I’m not rich enough to vote Republican,� said Tom Clemmons of Portage, Wis., who retired last year from a job delivering parts to farm implement dealers.

Clemmons, 63, said he and his wife, Karen, were living mainly on Social Security and managing to make ends meet, but they had cut back on discretionary spending. “We used to go to Vegas twice a year,� he said. “Now we go once every two years.�

His view of the economy mirrors his personal finances. “In my honest opinion, I think it’s in much better shape for the well-to-do. But I don’t see where the middle class is making out. The way it reads to me is the very wealthy got the big tax cuts.�

Magdaline Pappas, 68, sees a direct connection between Bush administration policies and the rising health insurance premiums and medical expenses that are chewing up nearly a third of her retirement income.

Pappas and her husband, Gregory, 81, live outside Pensacola, Fla., in suburban Escambia County, and all of their annual retirement income of $17,000 comes from Social Security. Of that, they spend about $5,000 on Medicare, supplemental health insurance and prescription drug co-payments.

“We’re insurance poor, to be perfectly honest,� said Pappas, who cuts costs by eating out only on birthdays and anniversaries and driving rarely. “I believe the drug prices have risen because the pharmaceutical companies have backed President Bush, almost exclusively.�

For others, the calculation involves more than dollars and cents.

Substitute teacher Stacey Thieme, 26, was in college four years ago. She received her education degree in 2001, got married in 2002 and has been searching unsuccessfully since for a permanent teaching position in the Milwaukee suburbs.

Although her husband, Geoff, is making more money as a Web programmer than he was when Bush took office, Thieme said, her inability to find a full-time job has undermined her personal sense of worth.

“We’re better off in the sense that he’s had some raises,� Thieme said. “But four years ago I was looking forward to getting this great teaching job. I was very idealistic, very optimistic. Now I’m thinking, oh my goodness, what happens if I end up subbing the rest of my life?�

Some Americans have had the opposite experience.

“It’s a great economy for me,� said Amy Stewart, who left a big consulting firm two years ago to start a financial services advisory firm in Washington with a colleague. Their practice has grown to eight people.

“We’ve done really well,� Stewart said. “I can say the one thing the Republicans have got right is the whole issue of ownership, whether it’s homeownership or ownership of your own business.�

Linda Caterino, the Massachusetts accountant, feels the same way. She says she is better off than she was four years ago because her tax preparation business has been steady, her retirement accounts are bouncing back, and the big house she shares with two paying tenants has appreciated substantially.

“I haven’t been hurt by the economy,� said Caterino, 42. “I haven’t lost a tenant. I haven’t been unemployed. My IRA money is coming back. My mutual fund investments are going up. I know a lot of people have been unemployed and some industries have been hit pretty hard. I’m just insulated from that.�

She credits Bush with helping the recovery by cutting taxes. “In my tax practice, everybody derived some benefit,� she said. “Everybody got something.�

Little wonder, then, that Caterino plans to vote for Bush. By contrast, Bill Ellis, the northern Virginia retiree, believes Bush’s tax cuts left him out, and he expects to be a Kerry voter.

Bush “didn’t cut everybody’s taxes, by any means,� said Ellis, 70, who with his wife, Marilyn, is living on Social Security supplemented by retirement savings they had hoped to keep in reserve. They share their three-level house with Ellis’ 40-year-old son and his family to cut costs.

Ellis blames Republican economic policies for the deterioration in his personal finances, and he’s not persuaded by government statistics suggesting that the economy is improving.

“The economy is supposed to be getting better because we have more jobs being created, right? Except we don’t have nearly as many jobs as we started with. So it’s an illusory indicator, and everything that’s based on it is going to be illusory too,� Ellis said.

“They report what they want to report, is what it amounts to. They look for the thing that makes them look good.�

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Economics of election

Ever since Ronald Reagan first asked Americans in 1980 if they were better off than they were four years before, the question has echoed through presidential campaigns. Here’s how President Bush’s record compares with those of other presidents. Figures are annual averages.

Real Real Consumer Avg. median Real GDP price Job job- househld househld growth inflation growth less income net worth Presidency rate growth growth

George W. Bush (through March 2004) 2.5% 2.1% -0.2% 5.5% -0.3% -0.6% Clinton, second term 3.9 2.4 2.3 4.4 1.7 5.7 Clinton, first term 3.3 2.8 2.5 6.0 1.2 3.5 George H. W. Bush 2.1 4.2 0.6 6.3 -0.7 0.7 Reagan, second term 3.8 3.4 2.7 6.5 1.7 4.3 Reagan, first term 3.2 5.3 1.4 8.6 0.4 1.2 Carter 3.2 10.1 3.1 6.5 0.9 1.9 Nixon-Ford 2.2 8.2 1.7 6.7 -1.2 -2.4 Nixon,first term3.3 4.6 2.1 4.8 1.8 0.9 Johnson 5.0 3.2 3.9 3.9 3.9 3.4 Kennedy-Johnson 5.2 1.2 2.3 5.8 3.3 3.1 Eisenhower, second term 2.0 2.0 0.5 5.5 NA NA Eisenhower, first term 2.8 0.8 1.5 4.3 NA NA Previous 50 yrs 3.5 4.0 2.2 5.7 1.3 2.2

Note: Figures are adjusted for inflation as applicable. Sources: Bureau of Labor Statistics, Bureau of Economic Analysis, Federal Reserve Board, Economy.com