Imagine going to a clinic to remove a splinter. The trained physician sees blood coming from your finger tips and remarks, “Blood emanating from the indexes is generally indicative of a severe stomach bleeding. I’ll schedule surgery immediately.”
As you picture yourself bolting from the clinic with such rapid speed that you bump into the good doctor and break his stethoscope, thereby doing a small favor to the world by putting him out of business for a day, remember that had this surgeon extraordinaire met his true calling as a TV economist, he’d be in high demand as a network pundit.
The above analogy holds true when analyzing the current US economy. Every administration in history has had a series of successes as well as a series of failures. Since the early 1950s, the start of a multi-decade boom cycle, the United States has experienced 6 recessions. The reasons for each one were different, but the main reasons for all were the ups and downs associated with any economy.
The government doesn’t create economic growth and it isn’t generally the cause of market decline. To be sure, while a government can cause economic chaos through its actions or as a result of counterproductive pronouncements, in reality such a scenario is rarely the case. In an economy that’s based on general market conditions, ups and downs are inherent, as products and services that are in less demand make way for those that meet the needs of more people. By contrast, in countries where the economy is micromanaged by the government the results are consistently abysmal.
After five years of unprecedented growth and over 16 years since the last major recession, a substantial economic slowdown was to be expected. What’s more, there was no specific action of the current administration that caused the recession and there’s nothing specific that they could have done to prevent it. Those who would point to the subprime mortgage crisis need to recognize three factors:
• First and foremost, the subprime crisis is not even close to being the main catalyst of the economic downturn.
• Had the President acted sooner and curtailed mortgage financing abilities, his opponents would have skewered him over hot coals for “taking away the dream of homeownership from the poorest of Americans in the midst of an unprecedented rise in housing values.”
• While I believe that the policy that would have best served the public on this issue would have been to restrict subprime mortgage lending (in spite of the inevitable backlash that would have been caused by the mischaracterization described in the point above), the same is true of the tech boom in the 90s. President Bush should not be skewered over failing to act while President Clinton gets a pass for not trying to curb margin rates to stave off that crisis. And in both cases one should bear in mind that they would have been accused of improper interference by their opponents.
As a side note, the downturn in housing prices is the result of a record level of homeownership, which was enhanced by many governmental programs spearheaded by this administration. The result of these efforts will be increased levels of homeownership across all income levels, even after the initial boom and bust cycle ends, the bust cycle being a temporary blip along the way to a society in which owning a home is the norm. For this, one can thank the actions of the current administration.
Delving further into the issue, while no direct actions of the Bush administration caused the economic downturn, many of the administration’s actions early on did directly lead to the staving off of the recession that effectively started in the third quarter of 2000, one that was amplified on 9/11, when millions of jobs were lost in a single day.
The twin reactions of the tech bust and the collapse of the World Trade Center, not to mention the downfall in tourism and all related industries after the terror attacks would have been enough to cripple the economy. Instead, the tax cuts, based on figures recommended by top analysts, were directly responsible for job creation, as businesses were left with more money to invest in their own growth and consumers were left with more to spend or to invest. The actions of the current administration led directly to a 5 year economic boom, record levels of investing and even to increased government revenues (as the lower tax rate netted higher revenues by stimulating economic growth). The President’s encouragement of ownership and investing will also have long term benefits that will mostly be of help to the middle class.
Incidentally, contrary to popular mantras, under the Bush tax rates the lowest income levels received the greatest percentage rate cuts, with the lowest level seeing their tax rate cut by a third. They saved even more when the minimum taxable amount was raised, a measure that took thousands of the lowest income earners off the income tax rolls entirely. In the end, the Bush tax cuts also caused the total percentage of all tax revenues that are paid by the wealthy to increase in proportion to the total amount paid by those in lower income brackets. In other words, the wealthy now pay a greater percentage of all taxes because of the Bush tax cuts, even while paying a lower rate along with everyone else.
In the end, if anything is shocking it’s that the current administration hasn’t received more credit for staving off the recession of the early 2000s and for the unprecedented economic growth that was the norm for most of its time in office, even though these favorable economic factors were directly stimulated by their actions.
But what else is new? The same media that touted the 5.4% unemployment rate in the 1990s as the “lowest since WW2,” then advancing it as a reason to reelect President Clinton, wholly ignored the same 5.4% rate under President Bush in 2004. And while it’s true that unemployment rates are only partially accurate (as they only reflect those currently receiving benefits), they are calculated no differently than they were in the 90s and are totaled the same way in almost all industrialized nations.
This is also the same media that hyped the 11,000 Dow at the beginning of 2000, crediting Clinton with a great economy. When the Dow reached 12,000 just before the midterm elections of 2006, based on actual earnings instead of inflated tech stock, the media was nowhere to be found. This happened again when it reached 13,000 and 14,000 soon after. If anything, those headlines were buried in depressing economic news. In fact, for many people the only reason they even know that the Dow ever reached 13,000 and 14,000 points is because they heard the news when it fell from those levels. The media had no problem reporting that news.
This doesn’t mean that the economy isn’t headed for trouble. What we need to be careful about doing is assigning blame where it doesn’t belong lest we do the economic equivalent of performing intestinal surgery on a patient suffering from a splinter. And it also wouldn’t hurt to give credit where credit is due, if for no other reason than to continue with an economic policy that has done far more for working class Americans than anything the Democrats have put forth in a long time, other than the bill proposed by Rep. John Dingell to raise gas taxes by 50 cents a gallon. That would certainly do wonders for the economy. Just ask John Kerry who proposed the same thing over 10 years ago, when it would have increased gas prices by almost 50%.
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