During his lackluster speech at the Democratic National
Convention, Barack Obama mocked Republicans for prescribing tax
cuts as the solution to every problem. Interestingly, Obama and the
Democrats have had their own stock response line to every problem
— it’s George W. Bush’s fault.
Blaming the current economic mess on tax cuts, as Obama and his
warm up act, Bill Clinton did, is a bit bizarre, but the Democrats
don’t have a whole lot to work with. Tax cuts had nothing to do
with the financial panic of 2008 or the real estate bubble that
preceded it. At no time in American history can a tax cut be shown
to have caused a recession. Perhaps there is some new theory being
pushed by left wing economists, always looking for reasons to
justify government taking away more economic freedom from
individuals, that allowing people to keep more of their money
results in an uncontrollable urge to borrow irresponsibly.
There was a lot of blame to go around — in both the public and
private sector — for the real estate bubble and resulting
financial panic. But “deregulation” was not a cause and Democrats
have never actually forwarded a coherent argument making this case.
The real culprits on the public policy side were government
mandates put on Fannie Mae and Freddie Mac supported by President
Bush, but pushed by Democrats. From 2005 to 2007, driven by a
mandate by HUD that 50% of Fannie and Freddie’s loans were to be
“affordable,” Fannie and Freddie purchased over $1 trillion of
lower quality subprime and Alt-A loans, which in turn stoked the
demand for, and hence the profitability of, those types of loans.
This is a big reason why nearly 40% of U.S. home mortgages were
lower quality subprime or Alt-A loans when the housing bubble
burst. It wasn’t deregulation that increased the demand for lower
quality loans (just the opposite, actually) and deregulation didn’t
cause a lot of people who should have better understood the risks
from buying, or insuring, pools of low quality loans.
Most Americans it seems, and certainly most politicians don’t
have very long memories. But regardless of who you want to blame
for the recession of 2008-09, there remains the fact that it ended
in June 2009. Since then, the U.S. has experienced the slowest
economic recovery since the Great Depression. It’s a tough sell to
blame that on the guy who left office four years ago.
It is true that when Obama took office that things were in a bad
way. But George W. Bush inherited the “tech wreck” from Bill
Clinton’s final days, and then got slammed by the economic
repercussions from 9/11 only 8 months later. For some reason
Democrats saw no reason to cut George W. Bush any slack, instead
(incorrectly) accusing him during the 2004 campaign of having the
worst jobs growth record of any president since Hoover. Comparing
Obama’s record to that of Bush from 2000 to 2004 is not a good one,
however, for President Obama. When John Kerry was slamming Bush’s
economic record, unemployment was well under 6.0%, and under the
average during the Clinton years.
The recession that Obama inherited officially ended in June
2009. Since then median household income has not recovered, but has
actually fallen an inflation-adjusted 4.8%. Unemployment
is still above 8.0%, and if it weren’t for millions of Americans
giving up and dropping out of the workforce, or taking part-time
jobs, the official rate would be well into the teens. Compared to
the last financially induced recession — the Savings & Loan
debacle of 1990-91, the jobs growth in the three years following
the end of the recession was about 5 times greater after the
1990-91 recession (up 5.32% from March 1991 to April 1994) versus
the current recovery (up 1.06% from June 2009 to July 2012).
Housing prices fell all the way back to their pre-boom (2003)
levels way back in 2009. But instead of then staging a recovery, in
the three years since, housing prices have stayed flat and have
actually eroded a little more.
Is this all George W. Bush’s fault?
By the time Obama took office, the actions needed to stem the
financial panic were already in place. It was the Bush
administration that enacted the Troubled Asset Relief Program
(TARP) which arrested the financial free-fall. And the Federal
Reserve had already started a massive expansion of its balance
sheet, flooding the system with liquidity. Obama’s contributions
were to add a bailout of GM and Chrysler to TARP, a nearly $1
trillion “stimulus” spending program, and “Obamacare.”
It appears that the Treasury will break even or possibly even
make a few billion dollars off of TARP, excluding Obama’s auto
bailouts. And though, yes, GM is alive, as Joe Biden proudly crows,
at what price? The fact is, GM and Chrysler had no choice but to go
into bankruptcy and they did, indeed, go into bankruptcy under the
Obama plan. What Obama did, however, was to protect the United Auto
Workers’ pension benefits and union contracts by using the bullying
force of government to extract money from GM’s and Chrysler’s bond
holders, and by making an “investment” that will, including tax
breaks, likely cost tax payers well in excess of $20 billion
(unless GM stock, which has fallen more than 30% since its
post-bankruptcy initial public offering price, stages a dramatic
recovery). The Democrats have thrown out the number of 1.5 million
jobs saved by the GM and Chrysler bailouts (which equates to every
job in the U.S. automobile industry, including prime suppliers,
U.S. based employees of foreign automakers, and Ford). This
demonstrates just how disingenuous Democrats are when they make
economic arguments. In reality, under a traditional bankruptcy, GM
and Chrysler would have continued operations as they reorganized
into smaller companies, with many of their assets and workers
ending up at Ford, or Toyota, or Honda, or other companies with a
U.S. manufacturing presence. Paul Roderick Gregory of the Heritage
Foundation, using bankruptcies in the airline industry as a model,
believes that actual automobile related jobs “saved” by the
bailouts was more like 4,000. At a cost of $20 billion, that’s only
$5 million per job. That is the Obama administration’s big
“success” story.
The “stimulus” program was, likewise, an exercise at throwing
money around with no concept of value. As a result, most of it was
wasted on the politically well-connected, and temporary “make work”
projects of unjustifiable costs. Yes, Republicans like to utilize
tax cuts to stimulate economic activity, and it works because
private individuals, using their own money, seek to invest in
opportunities that create economic growth. Obama Democrats, on the
other hand, are the champions of government controlled spending
because, it seems, they do not understand that prosperity comes
from productivity, not just spending.
U.S. banks, though now worth far less than they were in 2008,
have shored up their financial positions and are far healthier than
they were before the crash. U.S. corporations, as a whole, are
sitting on historically high levels of cash. And as mentioned
before, housing prices fell back to pre-boom levels way back in
2009. So what is stopping a powerful recovery from taking hold?
It’s not George W. Bush. It’s not the prospect of Mitt Romney
coming in and throttling the country with tax cuts. It is all the
promised new taxes and regulations coming from the mouth of
President Obama, and all of the new taxes and regulations (still
not all fully understood) in the process of being dumped on
businesses and individuals from Obamacare. The economy is stuck in
neutral because the Obama administration has paralyzed economic
activity by introducing massive burdens and uncertainty that has
been keeping businesses afraid to invest and expand. The
responsibility for the unprecedented lack of an economic recovery
is clearly on the shoulders of the current occupant of the White
House.
