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The Bush economic legacy: The U.S.'s decade of descent

Posted Jan 15th 2009 6:30PM by Joseph LazzaroJoseph Lazzaro RSS Feed
Filed under: Forecasts, Economic data, Politics, Recession, Financial Crisis

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The 2001-2009 presidency of George W. Bush ends in less than a week, so it's appropriate to evaluate the Bush years and his economic legacy.

Two foreign policy notes (which also affected economic conditions): History will determine whether the Iraq War did/did not further American interests of democracy and an enduring peace in the Middle East.

Also, President Bush effectively maintained the safety of the United States at home: there has not been another terrorist attack on U.S. soil since September 11, 2001.

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As the Clinton administration ended, the United States entered the new century and decade with the strongest, most-resilient, most-adaptable, and technologically advanced economy on the face of the earth, according to an analysis by the U.S. Central Intelligence Agency. Job growth had been enormous in the 'Roaring 90s' -- with more than 22 million jobs created in eight years. Median incomes were rising, poverty rates were at their lowest levels in decades. Business investment and new business formation were strong. The stock market was booming, capital markets were sound, and driven by the promise of new technologies, the United States was poised to enter a new phase of growth and development, with the benefits spread across its society.

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The Bush administration began in 2001 with the passage of a $1.35 trillion tax cut -- a cut many economists and analysts felt was not necessary, given that the U.S. economy was already recovering from the mini 2001 recession.

Tax cut favored the rich

But the biggest problem with the tax cut was that it was tilted too much toward the rich and upper-income citizens -- Bush's political base -- and it almost guaranteed that, over time, broad-based demand would remain soft, and probably fail, in a few years.



Moreover, Bush's refusal to build on President Clinton's successful earned income tax credit (EITC) policies -- which literally lift millions of working poor / lower income adults and families out of poverty annually -- further prevented the bulk of society from benefiting as much as upper-income groups during his years.

President Bill Clinton favored the EITC because he believed that, "If you work hard, play by the rules, you ought to be able to live a decent life." President Bush disagreed with Clinton's policy, and sure enough, as his presidency continued, the decent life slipped away for many, typical citizens, including millions of working families.

Low job growth

Further, given a lack of legitimate engines of growth (new sectors), and the continuing march of globalization, low- to moderate-job growth -- job creation inadequate for sustainable U.S. GDP growth -- was almost guaranteed, as well, and this is exactly what transpired during the Bush years. President George W. Bush presided over the creation of fewer jobs in the U.S. economy in the modern era than any president since President Herbert Hoover, according to U.S. Labor Department data.

True, for a while, aided by lower interest rates, and dozens of new mortgage products, GDP growth hit adequate levels of 3.6%, 2.95%, and 2.8% in 2004-2006, but too often the consumption-led commerce gains were fueled by unsustainable sources: home-equity loans, refinances, and house sale gains, not job creation and new sectors of growth.

Massive budget deficits

Further, a debt trap began to build. Excessive homeowner borrowing increased private debt, and that fact, combined with public borrowing to pay for defense spending for the Iraq War and the War on Terror -- Bush opposed tax increases to pay for the increased defense spending -- meant the United States was piling-up debt at a record rate, in just about every corner of its economy: private, public, corporate. At the end of President Clinton's presidency, the federal government was running a yearly budget surplus, and the national debt was about $6 trillion. At the end of President Bush's presidency, the federal government will run a record budget deficit of more than $1 trillion this year, fiscal 2009, and the national debt has grown to $10.6 trillion.

In short, Bush's tax cut massively benefited upper income citizens at the expense of both squandering the budget surplus achieved during the Clinton presidency and jeopardizing the nation's financial health.

No energy policy

Further, Bush had no energy policy, preferring to 'let the market determine the price for oil' and the kinds of cars auto makers want to manufacture. Bush also opposed Democratic Party efforts to make domestic vehicles more fuel-efficient. As a result, when emerging market oil demand and investor speculation pushed oil over $80 per barrel in 2007 and then over $100 in 2008, high energy costs squeezed disposable income further, almost guaranteeing a recession. The recession appeared, starting in late 2007, aggravated if not outright triggered by the U.S.'s third oil shock in 35 years. Further, sales of less-efficient U.S. manufactured cars and SUVs slumped badly. And by the end of 2008, Detroit's auto makers, devoid of stylish, high-m.p.g. vehicles, would need a massive government loan to avoid bankruptcy.

To be sure, the oil patch states of Texas and Oklahoma boomed, but every other region of the country suffered economically during the Bush years. Further, when the housing bubble burst and hundreds of billions of mortgage-backed securities went bad, the financial crisis began, spread around the world, and the U.S. recession deepened, with corporate revenue and earnings declining and job lay-offs mounting. More than 2.6 million jobs were lost in 2008 alone, and the unemployment rate, which stood at 4.2% when President Clinton left office in January 2001, has rocketed to 7.2% in January 2009, as President Bush leaves office.

Another stat for the ages: The current recession is already the worst since the 1981-1982 Reagan recession and many economists say the U.S. will be fortunate to enter a recovery by Q4 2009. Very fortunate.

And the stock market? Even after discounting for the overvalued stock market at the end of the Clinton Administration in January 2001, the stock market has still declined, in real terms, as President Bush leaves office in January 2009. That's eight years, no gain in Dow. Further, the Dow is currently trading around 8,000 and many economists say the U.S. will be lucky if it ends 2009 at that level.

There were some economic successes during the 'Bush 43' era: trade ties were expanded, exports rose, and inflation remained low/moderate through his eight years. And, as noted, one segment of society (upper-income citizens) saw an increase in wealth.

But those few positives in no way blot-out the Bush Administration's many failures: scant job creation, unemployment high and rising, declining real median incomes, record budget deficits, record home foreclosures, a large trade deficit, no energy policy, no health care policy, and increasing poverty rates, among other problems. Add on to the above two other unknowns: two wars.

As noted, it's too soon tell if President Bush's foreign policy will further American interests of democracy and an enduring peace in the Middle East, so his foreign policy performance is inconclusive. But on economic policy, President George W. Bush has performed abysmally, and he will most likely rank as the United States' worst president on economic policy since President Herbert Hoover.

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Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.

Tags: Bush Administration, featured, gdp, George W. Bush, U.S. economy

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