Rove May Find `It's the Economy, Stupid' Won't Work Karl Rove, President George W. Bush's top political adviser, laid out a plan to win the 2002 congressional elections by stressing national security. For 2006, Rove is framing a strategy for Republicans to sell the U.S. economy. In a recent speech, Rove argued that Bush's policies of tax cuts and trade agreements had pulled the nation out of recession, created millions of jobs, boosted productivity and increased disposable income. That record can help lead Republicans to victory in November, Rove said in the May 15 speech at the American Enterprise Institute in Washington. Seventy percent of 1,002 respondents in a May 8-11 Gallup poll said the economy was in fair to poor condition, up from 63 percent in an April poll. In his AEI speech, Rove, 55, emphasized the creation of 5 million jobs in recent years. He also said Bush's tax cuts have stimulated growth, making up for revenue lost with lower rates. A tax reduction on stock dividends to 15 percent from 40 percent prompted the biggest companies in the Standard & Poor's 500 Index to raise dividend payments on 725 occasions, he said. That money is ``going into retirement funds and individual retirement accounts and people's pocketbooks,'' he said. `The president's tax cuts, trade liberalization and spending restraint helped strengthen the economy's foundation and added fuel to our economic recovery,'' Rove said. ``Not a bad record.'' Other factors, though, may explain why Bush has consistently failed to get credit from the public for growth, and illustrate the difficulty Republicans will have turning Rove's message of economic optimism into votes. Since the last recession ended in November 2001, the U.S. has added a net 4.35 million jobs, or an average of 82,000 a month, according to the Labor Department. That's less than half the 9.57 million jobs, or 181,000 a month on average, created in the same period of time after the previous recession ended in April 1991. Companies Gain ``Almost all the benefits of productivity growth have gone to firms, and very little to workers,'' says Harvard University economist Jeffrey Frankel, a member of the Council of Economic Advisers under President Bill Clinton, whose adviser James Carville used the slogan, ``It's the economy, stupid,'' to stress the importance of the issue in the 1992 election. One explanation for the public malaise may be the distribution of prosperity. Total compensation for Americans fell to 65.4 percent of national income in 2005, down from 66.2 percent in 2001, Federal Reserve figures show. At the same time, corporate profits rose to 12.3 percent of national income, up from 8.5 percent in the year Bush took office. ``From middle incomes down, there has been very little gain,'' says Robert Solow, an economist at the Massachusetts Institute of Technology who won the 1987 Nobel Prize in economics. ``No wonder they feel they're not sharing in this prosperity.'' Tax Revenue As for Bush's tax cuts, Treasury Department figures show that as the economy recovered from the 2001 recession, federal revenue fell 6.9 percent in fiscal 2002 to $1.85 trillion and dropped again in fiscal 2003. In the third quarter of 2003 -- the strongest three months of economic growth in the Bush presidency -- revenue fell 4.9 percent to $430 billion from the same quarter a year earlier. Rove's argument about the impact of dividend tax cuts on retirement savings doesn't take into account a Fed study on the effect on the broader investing world. The December report found ``little if any imprint of the dividend-tax-cut news on the value of the aggregate stock market.'' Two days after Rove spoke, the government revised upward the inflation figure he had cited to 2.3 percent, the biggest year- over-year gain since March 2005. Economists say that may be a sign the robust economy is allowing companies to pass along higher costs of labor and commodities. --------- Looks like fall elections will come down to the "Are you better off..." It appears that people are saying they weren't better off as evident by the poll cited: "Seventy percent of 1,002 respondents in a May 8-11 Gallup poll said the economy was in fair to poor condition, up from 63 percent in an April poll."