A recent poll on CNN.com reveals that 74% of all Americans believe that the US economy is in a recession, and nearly 90% of self-identified Democrats believe it so.  However, what that poll doesn't ask is what percentage of those polled actually know what the definition of a recession is, or on what specific economic indicators the recession opinions are based.

Certainly the economic news has been mostly negative over the past several months.  The collapse of the "sub prime" mortgage market and prices in certain housing market has had repercussions throughout the economy.  Economic growth, while strong through most of last year, ground to a near halt in the 4th quarter, growing by only 0.6%.  According to the preliminary reports from the Department of Labor, the payroll employment report (one of two different employment reports undertaken by the Labor Department; the finalized payroll report and the household survey results were not available at the time of this posting) showed a net loss of 63,000 jobs, following a January loss of 22,000 jobs.  The dollar has hit all-time lows against the Euro and 14-year lows against the Japanese Yen.  Producer prices as measured by the Producer Price Index, were up, stoking inflation concerns.  Just this past weekend, venerable investment bank Bear Stearns was swallowed up by JP Morgan Chase in a deal facilitated by the Federal Reserve and the Treasury Department (although not funded by the government nor a "bailout" of Bear Stearns, as it is widely described).  Home foreclosures are up.

All the economic news is not negative, however.  The 4th quarter 2007 growth, while not stellar, was the 25th consecutive quarter of economic growth since the 3rd quarter of 2001 -- the quarter in which 9/11 occurred.  The unemployment rate fell slightly between December 2007 and February 2008, from 5.0% to 4.8% (the 60-year average for US unemployment is 5.6%).  The net job losses followed 52 consecutive months of job increases; from September 2003 to December 2007, nearly 8.3 million jobs were added to the economy.  Hourly wages were up for the 53 consecutive month in February, and productivity rose as well.  Consumer prices as measured by the Consumer Price Index remained steady, and exports increased.

[Note:  All economic data presented are official government reports available at www.bls.gov and www.bea.gov.  All referenced wage and GDP data are presented in constant-dollar terms to discount the effect of inflation.]

So the data would suggest that while there are real problems in the economy, it certainly isn't in dire straits.  But lost in all the numbers is a simple question:  exactly what is a recession?  Campaigning for President in 1980, Ronald Reagan used to joke that "a recession is when your neighbor loses his job, a depression is when you lose yours, and recovery is when Jimmy Carter loses his".  Given the double digit inflation, interest rates, and unemployment rates that characterized the mid-to-late 1970s economy, that was an apt description.  Economists, however, have a more specific definition:  a recession is two consecutive quarters of negative economic growth, what Seinfeld's George Costanza might call economic "shrinkage".

In 2000 and 2001, negative economic growth occurred in 3 of the 8 quarters; however, none of the negative quarters were consecutive.  Therefore, while the economy was certainly not strong following the tech bubble burst, there was not a recession under the official definition.  The last actual recession occurred in the 4th quarter of 1990 and the 1st quarter of 1991.  Unemployment peaked in June of 1992 at 7.8% (it has not been higher than 6.6% since then).

So if people do believe we are in a recession, what is the basis?  It is possible that 1st quarter 2008 GDP growth will be negative; if the economy shrinks again in the 2nd quarter of 2008, then the poll respondents are correct:  we are in a recession at this moment.  However, the data are at best inconclusive in this regard, and the earliest we could make a definitive recession claim would be when the 2nd quarter numbers are released -- in July.  An interesting side question to the polling would be whether or not the respondent knows the actual definition of a recession, and on what specific economic indicators are they basing their decision.  Of course, that would require facts rather than pure opinion, and who needs facts when we can take a poll?

April 15, a day that each year lives in infamy for taxpayers, is approaching, and it is especially noteworthy this year.  Democrats in the House and Senate passed a budget resolution calling for the largest tax increase in United States history by phasing out the tax cuts passed in 2001 and 2003.  This tax increase raises taxes on every single tax payer, with additional rate increases on businesses, capital investment, dividends, families with children, and even marriage, via the return of the so-called "marriage penalty".  Own a business that creates jobs?  Pay more taxes.  Invest in capital?  Pay more taxes if the investment pays off.  Invest for a more comfortable retirement?  Pay more taxes.  Get married?  Pay more taxes.  Have children?  You get the idea...

This monumental increase in government-sponsored confiscation of personal and business income and investment gains comes at a time when the economy is teetering on the brink of recession; 4th quarter 2007 growth was a paltry 0.5%, and many think that 1st quarter 2008 growth could be negative:  two consecutive quarters of negative growth equals a recession.  I know of no economic theory or economist who believes in raising taxes during a recession or to prevent a recession.

Ironically, in criticizing the economic policy of the Bush presidency, New York Senator Charles Shumer compared Bush to Herbert Hoover, the failed president on whose watch the recession that would become the Great Depression began.  While he had no control over the Federal Reserve, which maintained tight credit during the bank run (to be contrasted with the current Fed's expansion of credit during the present credit crunch), President Hoover's approach to the economic mailaise was to raise taxes and sign the Smoot-Hawley Tariff Act -- essentially another tax increase in the form of a stiff tariff on imported goods.  The resulting trade war (other countries retaliated by raising tariffs on American goods) struck the mortal blow in the economy, helping turn a recession into the Great Depression (with assistance, of course, from wage and price controls imposed by the subsequent Roosevelt Administration's New Deal).  The irony in Sen. Shumer's comparison is that it is he who advocates raising taxes and who sponsored a bill that would slap a huge tariff on imported goods from China.  Senators Clinton and Obama have also taken the Hooverian stance on trade, threatening moratoria on trade deals and even threatening to renegotiate President Bill Clinton's NAFTA deal.  "Hoovernomics" is alive and well, but not in the policies of President Bush.

With both Democratic presidential candidates running on the platform of tax increases, I thought it might be interesting to survey the success of previous campaigns based on increasing taxes or opposing tax cuts.  In 1960, Democrat John F. Kennedy ran on the side of tax cuts that were opposed by Richard Nixon.  Kennedy won, as we all know.  In 1964, Democrat Lyndon Johnson ran on successfully enacting the Kennedy tax cuts and overwhelmed Barry Goldwater, who was more inclined to emphasize budget balancing over tax reduction.  But in his first full term, Johnson raised taxes to pay for the Vietnam War, helping lead to a Richard Nixon victory in 1968, with a successful re-election against tax increase-advocate George McGovern in 1972.

As there was little difference between the tax policy of Ford and Carter in 1976, fast-forward to 1980, where a central plank was Ronald Reagan's plan to cut income tax rates (the top rate at that time was still 70%).  In 1984, the central plank of Walter Mondale's campaign was a tax increase.  Reagan won landslide victories in both races.  In 1992, Republican George Bush had a problem:  he had broken his "no new taxes" pledge, while Democrat Bill Clinton was advocating a middle class tax cut.  Clinton cruised to victory, and while he raised taxes early in his term (helping the Republicans take control of Congress for the first time in 40 years), he ended up cutting taxes on families with children, negotiating free trade deals (thus cutting taxes on imports), and cutting the capital gains tax.  Then of course George W. Bush, perhaps learning from his father's taxing mistake, won in 2000 and 2004 with tax cuts as the center of his economic message.

So in the past 40 years, when Americans have had a clear choice between a tax cutter for President and a tax raiser, they have chosen the tax cutter each time.  Obviously the elections were much more complicated and not decided on the single issue of taxation, but Democrats might do well to learn the lessons of history, lest they be doomed to repeat it.  They might also listen to their own criticism and take it to heart:  the policies of Herbert Hoover are certainly not what we need.

Back in 2002, the government announced a major contract with Boeing for production of new refueling tanker planes for billions of dollars.  The deal seemed strange -- the government wasn't purchasing the tankers as it typically does, but rather leasing them.  The price of the tankers seemed excessive, and the deal was not done on a competitive bid.  In short, the plan was a windfall for Boeing, with the cost of course falling on American taxpayers.

Closer inspection revealed salacious details.  One of the lead Boeing lobbyists was Linda Daschle, wife of Tom Daschle, then-Senate Majority Leader.  Even further inspection led to the dismissal of Boeing's CEO and jail for the Air Force purchasing officer and a Boeing executive.  Critics of the deal were correct:  the contract was a classic example of government corruption.

Fast-forward six years, after the investigations are completed and the whole deal re-bid, this time competitively.  Boeing, which expected to win the bid, lost to a partnership consisting of American-based Northrup Grumman and Europe's Airbus consortium.  The resulting deal saves US taxpayers approximately $6 billion.

Immediately, howls of protest came up; from Boeing, of course, which had been confident they would win the bid.  But any issue in a presidential election year becomes fodder for presidential politics as well.  That Airbus is a European (largely French) company made the issue a perfect platform for the protectionists to raise the specter of relying on the French for outfitting our military, for supposedly shipping jobs overseas, and the usual anti-competition rhetoric.  Another wrinkle makes this perfect for the presidential campaign, however:  it was Republican nominee John McCain who led the charge against the original deal, starting the investigations that uncovered its corrupt nature and sending participants to jail.  Democrats, assisted by some protectionists on the right, want to blame McCain for the fact that Boeing lost the bid, and they are using anti-free market language to do so.  Of course, more importantly, they are also ignoring the facts and previous positions they have held.

Let's consider the facts for a moment.  As mentioned above, Airbus is partnering with an American company to supply the contract.  While many of the parts will be made in Europe, the tankers themselves will be assembled in Alabama, providing thousands of manufacturing jobs to that state.  That's hardly "shipping jobs overseas".  Many more thousand support jobs will be created by the deal, and Northrup Grumman (and its shareholders) will benefit from their role in the deal, creating further jobs.

Of course, had Boeing landed the deal, jobs would also have been created in the US.  However, military procurement is not for the purpose of creating jobs; rather, its purpose is (obviously) outfitting the military.  The government owes its citizens a military properly equipped but at the best price possible.  So long as the proper specifications are met, we should not spend one more dime of taxpayer money than is necessary.

One complaint against Airbus is that it receives financial support from the French and other governments.  If so, all the better:  this would mean that we've found a way to get the French to subsidize our own military.  That sounds like a problem for the French citizens, not American citizens.

Democrats have quarreled with the Bush Administration, sometimes justifiably so, concerning no-bid contracts, particularly with the military.  In this case, they should be jumping for joy, as not only was the contract awarded on an open-bid basis, but the underdog won.  The competitive nature of the award will send ripples through future bids, as all companies choosing to participate in the bid will realize that they aren't a shoo-in based solely on lobbying contacts and campaign contributions.  The winners in this aren't just Airbus, but the American military and the American taxpayers.

I've previously detailed the flawed economic underpinnings of the respective anti-free market platforms advocated by Sens. Obama and Clinton, particularly with regard to free trade.  The Ohio primary became a contest of who could demagogue NAFTA with more virulence, without regard to the fact that free trade is good for the economy, for workers, for businesses, and for consumers.  Rather, economic problems throughout the Rust Belt are more to blame on anti-business, pro-union tax and regulatory policy coupled with technological innovation -- fewer workers are required to produce more goods and services.

Further inspection yields some interesting facts.  Dr. Don Boudreaux, an economics professor at George Mason University, investigated the unemployment rate in Ohio, comparing pre-NAFTA employment data to that experienced post-NAFTA.  The result is as would be expected:  the unemployment rate is lower following the enactment of NAFTA.  Ohio's unemployment rate in the month before NAFTA took effect on January 1, 1994 was 6.5%.  It fell to a low of 3.9% in February 2001, increasing to its current level of 5.8%; it has not reached 6.5%, its immediate pre-NAFTA level, again.  Enactment of NAFTA simply has not caused an increase in the unemployment rate in Ohio.

Even more investigation was performed by the Wall Street Journal's Daniel Griswold, who is Director of the Center for Trade Policy Studies at the Cato Institute, a pro-free market think tank:  "Canada and Mexico are the top two markets for exports from Ohio, accounting for more than half of the state's exports in 2006. According to the Ohio Department of Development, 283,500 workers in the state earn their living in the export sector, with machinery, car parts, aircraft engines and optical/medical equipment among the leading exports. A trade showdown would put those good-paying jobs at risk."  Pulling out of NAFTA would raise imports on American goods and services in the top two export markets for Ohio.  Are Clinton and Obama ignorant of these facts, or are they simply saying what they think will win votes?  Neither options speaks well of their respective candidacy.

Nationally, the news about NAFTA is even better.  As Griswold continues:  "Since NAFTA took effect on Jan. 1, 1994, the U.S. economy has added a net 26 million new jobs. The average real hourly compensation (wages and benefits) of workers has climbed 23%. Real median household net worth has increased by a third. ... Since NAFTA, U.S. manufacturing investment in Mexico has averaged a modest $2 billion a year -- a tiny fraction of the $150 billion or more those same companies invest annually in domestic manufacturing capacity. American factories actually added a net half-million new manufacturing jobs in the five years after NAFTA."

Free trade has many benefits.  Lower government restrictions and taxation on importation of goods and services provides more choices and lower prices for individuals and families.  Competition drives American businesses to improve, or redeploy capital and resources to other areas that more effectively emphasize American advantage.  Free trade also lowers foreign barriers to US exports, as evidenced by the success of NAFTA in increasing American exports to Canada and Mexico.

Unfortunately, the Democrats have no monopoly on flawed economic thinking that favors more government restriction in spite of the facts -- right wing protectionists such as Pat Buchanan and Phyllis Schlafly make government intrusion into the marketplace a centerpiece of their economic populism.  Conversely, Republicans have no monopoly on free trade advocacy:  NAFTA passage was a collaboration of Republicans in Congress and Democratic President Bill Clinton, acting in the JFK example.  Apparently, Hillary didn't learn from the economic successes of her husband's time in office.

The 2008 election may well become a referendum on free trade.  Hopefully, facts will trump demagoguery on trade, and the US will continue to pursue less government interference in the economy and more prosperity.

Apparently understanding economics is not a prerequisite to running for President of the United States, judging from the flawed rhetoric we're hearing from some of the candidates.  Either that, or we have some truly remarkable candidates, who are able to suspend the laws of supply and demand through the exertion of willpower.  My bet is with the former rather than the latter.

Hillary Clinton has proclaimed that as President, she will create jobs, good jobs at that.  Never mind that under a capitalist system, the government is not responsible for employment policy of businesses and industries.  No amount of Presidential bluster will cause Microsoft to hire more engineers or GM to hire more assembly line workers.  Both Sens. Clinton and Obama are choosing instead to pursue policies that would dissuade businesses from hiring more workers, by raising taxes on capital, corporations, and individuals.  Every additional dollar that a business or individual sends to the government is one less dollar that can be used to purchase equipment or hire employees; every additional tax levied on American businesses puts them at even more of a disadvantage when competing against foreign companies.

Both Obama and Clinton have also decried free trade agreements, such as NAFTA, on the flawed premise that opening up foreign markets to American products somehow hurts American workers and that families having access to less expensive goods and services somehow hurts American families.  Clinton in particular tries to have it both ways -- she claims to be the natural heir to the economic success of the 1990s, while pursuing policies in direct opposition to those that helped create that success:  free trade (which is, of course, lower taxes on imports and lower taxes on exports) and decreased capital gains taxes.

Meanwhile, Obama practices anti-free trade demagoguery in areas like Ohio, blaming factory closings on competition from foreign products or the so-called outsourcing of jobs to foreign countries.  This was the message in Michigan, where the auto industry remains decimated.  In doing so, he ignores the fact that while manufacturing jobs are departing the highly unionized, highly taxed, highly regulated areas of the so-called "Rust Belt", they are springing up in less unionized, lower tax states of the American South.  Ford and GM might be closing factories in Ohio and Michigan, but Nissan and Mercedes are expanding factories in Tennessee and Alabama.  Of course, to criticize states for anti-business policies would highlight the corresponding anti-business platform on which both Democrats are running.  Seemingly forgetting that businesses create jobs while providing goods and services we want, economic populists denigrate job-creating entrepreneurs and corporations.

On issue after issue, we're seeing a lack of economic understanding.  Obama and Clinton decry high gasoline prices, yet block drilling for American oil and expansion of our refining capabilities.  Restrict supplies of gasoline, and prices increase -- simple Economics 101, but apparently beyond the comprehension of Democratic candidates for President.  Both candidates want to increase government interference in health care, ostensibly to make it more affordable; yet there are no examples of any industry that has become more efficient or effective with increased government control.

If we want to increase economic prosperity, we need less government intrusion into the marketplace, not more.  When something is taxed, we get less of it.  The solution to economic malaise is not to increase taxation and interference on corporate profits, individual income, job creation, and health care -- in each case, the government "solution" ultimately reduces the incentives for providing them.  The road to a stronger, more prosperous economy is to remove the shackles of high taxation and regulation.  The strongest economies are the ones with the most economic freedom -- we should be moving towards more freedom, not less.