Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
The Obama campaign has made a curious economic argument as part of its attack on Paul Ryan:
Ryan rubber-stamped the reckless Bush economic policies that exploded our deficit and crashed our economy. Now the Romney-Ryan ticket would take us back by repeating the same, catastrophic mistakes.
Actually, Team Obama is saying the same thing twice here since the deficit would not have initially exploded without the Great Recession. (In 2007, the federal government ran a tiny budget deficit of 1.2 percent of GDP)
So which Bush policies, exactly, “crashed the economy”?
Certainly not the much reviled — at least by Democrats — Bush tax cuts, most of which President Obama says he wants to keep.
And certainly not Bush’s spending and debt, since Obama wants more of both. The most recent Obama budget, according to the Congressional Budget Office, would add $6.4 trillion more to the federal budget deficit over the next decade, leaving debt as a share of the economy stuck at around 76 percent of GDP vs. 37 percent pre-recession.
OK, if it wasn’t the taxes Bush cut or the money he spent, then what were the Bush policy actions that led to the Great Recession and “crashed our economy”?
Maybe the villains here are the Bush policies that deregulated Wall Street? A few problems with this theory, though. For starters, the law that ended Glass-Steagall was signed by President Bill Clinton — the guy who will be introducing Obama at the Democratic National Convention — in 1999. Second, few analysts think the end of Glass-Steagall directly contributed to the financial crisis.
Another candidate — and you hear this one a lot — was a 2004 rule change by the Securities and Exchange Commission — the Bush SEC! – that supposedly allowed broker dealers to greatly increase their leverage, contributing to the financial crisis. But as Prof. Andrew Lo of MIT notes in a 2011 paper,” … it turns out that the 2004 SEC amendment to Rule 15c3–1 did nothing to change the leverage restrictions of these financial institutions.”
And besides, there’s a strong case to be made that it was the economic downturn — begun by negative wealth effects from the collapse in the housing market and then greatly exacerbated by the Fed — which caused the financial crises rather than the crisis causing the severe downturn. As Robert Hetzel, an economist with the Richmond Fed, argues in The Great Recession: Market Failure or Policy Failure:
A moderate recession became a major recession in summer 2008 when the [Federal Open Market Committee] ceased lowering the federal funds rate while the economy deteriorated. The central empirical fact of the 2008-2009 recession is that the severe declines in output that appeared in the [second quarter of 2008 and the first quarter of 2009] … had already been locked in by summer 2008.
Now, since the housing bubble did play a role, you could pin some of the blame there on Bush, as the New York Times did in 2008: “[Bush] proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.” Yet the homeownership push was begun by Clinton. As is pointed out in the book Reckless Endangerment, in 1995 Clinton launched Partners in Homeownership, a public-private partnership to raise home ownership.
So now we arrive at the backup argument: Even if Bush isn’t directly to blame for the Great Recession, the economy stunk even before the downturn because of his policies.
Really?
There was an eight-month recession in 2001 that officially began in March and ended in October. It was marked by a huge decline in business investment, while consumer spending stayed positive. You can blame Bush for that if you wish, but doing so demands an explanation of how his policies caused a stock and investment bubble to burst in 2000, months before he was elected.
The 2002-2006 period was the core of the Bush recovery after the 2001 recession. GDP growth averaged 2.7 percent a year, and the economy added an average of 102,000 jobs a month. Hardly a powerful rebound. But then again, we shouldn’t have expected one given how mild the downturn was. As a Fed study said late last year, recoveries “tend to be faster” after severe recessions, such as the one we just had. The deeper the downturn, the more robust the rebound. The 2001 recession was mild, and so was the recovery after.
And isn’t the most obvious explanation for the “weak” Bush recovery simply one of mean reversion? Things more or less returned to average. The Clinton boom veered too far above the real growth and job creating potential of the U.S. economy, so it was balanced off by a weak recovery after the 2001 recession.
From 1996-2000, GDP growth averaged 4.3 percent a year, and average monthly jobs growth was 240,000 jobs per month. Now, if you combine those five years with the 2002-2006 Bush recovery, what you end up with is average GDP growth of 3.3 percent and monthly job growth of about 170,000 a month. Both figures are right around the average for the U.S economy. The Clinton economy was a bit on the hot side, so the Bush years were a bit on the cool side. The U.S. economy reverted to its mean.
You can reasonably knock the Bush years for spending too much and failing to reform the tax code and entitlements. But it is difficult to make the case that the Bush tax cuts or deregulation or other unnamed “reckless” policies “crashed our economy.”
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Comments:
Aug '12
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
James Pethokoukis slices like a hammer!
Jan '12
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
Because Congressman Paul Ryan voted to SUPPORT nearly all of President Bush's increased spending over the eight years of his (Bush's) presidency, VP Paul Ryan will be continually forced to defend HIS inconsistency.
The question from one reporter after another will go something like this:
"How come you voted for all of President Bush's spending programs and only adopted your fiscally conservative position once President Obama took office?"
It has a damaging effect on two fronts: first, it makes VP Paul Ryan look a lot less principled than he is understood to be, when Romney picked him to be VP, and it reminds voters that the Republicans under George Bush were not much different than Democrats, regarding spending what we don't have.
Too bad, Paul Ryan can't just say, "I've matured and learned a lot since first being elected to congress, and I regret those votes." Surely this would qualify him as a Romney-style flip-flopper , and so we must continue the fable that a politician is never allowed to change his mind, or his vote!
How is this to be handled?
Mar '11
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
“We cannot go back to the failed policies of the past that got us here in the first place.” Every time I hear this I want to hurl. But nobody ever questions the premise.
Would somebody please ask Team Obama: what specific Bush policy caused the recession and financial crisis that followed it, and what specific policy is Romney promising to “go back to”?
The first question is really the most important, I think. Usually, you hear some vague references to “tax cuts for the rich”, and possibly lax regulation. But as Dr. K once put it, “How did tax cuts cause the fall of Lehman Brothers?”
I’d add, “What Bush policies inflated the housing bubble? What Bush policies caused the housing collapse? What Bush policies led to low-quality mortgage backed securities ending up with AAA ratings and therefore to become widely held by banks and other financial institutions? What Bush policies led to crippling retiree benefit programs at GM and Chrysler that left them unable to withstand a downturn in demand?” You get the idea.
I don't know about you, but I'd happily take a return to the economy of 2006 under GWB right now.
Jun '10
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
I remember quite well how the Democrats reacted to Bush's spending:
Feb '12
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
Barbara Kidder:
The question from one reporter after another will go something like this:
"How come you voted for all of President Bush's spending programs and only adopted your fiscally conservative position once President Obama took office?"
And of course this question would start from a falsified position, in an thinly veiled attempt to deceive.
Paul Ryan's first budget proposal (the initial "Roadmap for America's Future") was introduced as HR 6110 in May, 2008.
For those who do not remember May, 2008, George W Bush was still President, the financial collapse had not yet occurred, and Senator Obama was not even the democrat nominee, much less President.
By looking at facts, you can see Mr Ryan has a record to refute the mischaracterizations you have ascribed to him.
Jul '10
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
If I recall correctly, Mr. Bush approached Congress many times to warn about Freddie Mac and Fannie Mae, but both Dodd and Frank waved him off saying all was fine. That coupled with another fact that seems to go missing in the 'reporting' is that he had a Democratic congress and to keep things afloat for the military, he agreed to far too much that they proposed and Republicans, understanding this, went along.
Mar '11
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
Unexpectedly!
Apr '11
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
Please take us back to the "catastrophe" of sub-trillion dollar annual deficits!
Apr '11
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
This is the Obama Recession, entirely create by government.
He didn't do it by himself, but he has been at a lot key points, starting with working for ACORN, which advanced the Democrats' program of "increasing home ownership" by bullying banks into making sub-prime loans, continuing through my being laid off literally (and I mean that literally) as he was giving his Inaugural Address (a smoking gun!), to his following the Hoover-FDR recovery program.
And how much was the rate of home ownership increased? Some thing around one percentage point. Another Democratic solution that didn't work for a problem that didn't exist.
Obama has been at his best when he's continued Bush's policies; Bush was at his worst when he applied Obama's principles.
Edited on August 15, 2012 at 1:27amJul '11
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
It's not that they're trying to make a logical case that Bush "crashed" the economy. It's enough that they paint him with it, and thereby paint Romney/Ryan with the same brush. All of this is geared toward the 10% or so "undecideds", who really need to wake up and smell the taco if they haven't decided by now who they're going to vote for.
The largely discouraging part of this is that the undecideds often end up deciding who wins. No matter what ad gets thrown out there, I'm pretty sure of who I'm pulling the lever for in November. It's the middling squishers who react to ads, and decide or change their minds based on them.
That's the part of the advertising that I really don't like. Because it works.
Nov '10
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
"These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''
From The New York Times, September 11, 2003 issue
An article criticizing the Bush administration's efforts to increase oversight of Fannie Mae and Freddie Mac, which were felt to be lending irresponsibly.
Frankly, I'm surprised the Times hasn't disappeared the article..
http://www.nytimes.com/2003/09/11/business/new-agency-proposed-to-oversee-freddie-mac-and-fannie-mae.html?pagewanted=all&src=pm
Edited on August 15, 2012 at 4:07amAug '12
Re: Obama Wrongly Accuses Bush (and Paul Ryan) of Causing the Great Recession
Ryan and Romney need to make the case if pressed that the great recession was a byproduct of the culture of corruption they are running against. The book Reckless Endangerment, where I get my handle from, discusses them in gory detail. It was a bipartisan failure, but as David brooks put it when reviewing the book, mostly Democratic corruption in the ranks of Fannie Mae, Freddie Mac and the people charges with their oversight in Congress and the executive branch.