A Further Perspective

No More Excuses

Blaming George W. Bush doesn't get Obama off the hook for an economic recovery he's choked off at every turn.

By 9.25.12

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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.

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About the Author
Brandon Crocker is the chief financial officer of a commercial real estate development and management company in San Diego.