Sunrise, Sunset

Jon Chait says the so-called Bush Boom didn't do much for most people:

George W. Bush's Economy: The Invisible Hand Slaps Conservatives Again, by Jonathan Chait, TNR: ...Ah,... the Bush Boom. It's a bygone era, ... cut short--by ... the Bush recession. Actually, the second Bush recession, to be precise.

Now, I don't really think it's fair to blame a president for having the economy tank on his watch. But... For several years--the "Bush Boom" years--Republicans were essentially arguing that the mere fact that the economy was expanding should be taken as proof that Bush's economic policies succeeded.

President Bush would routinely announce facts such as..., "During the time when we cut taxes to today, our economy has grown by more than $1.9 trillion." He would mock his critics...

The whole trick here was to start at the bottom point of the economic cycle and assume that any subsequent improvement was the result of his policies. Of course,... the economy ... goes through cycles. ... Bush was claiming his miracle fertilizer succeeded because his plants were taller at the end of the summer than at the beginning of spring.

So the justification for Bush's economic policies was that the economy was no longer in recession. Now they can't even claim that any more. It's as if Bush's plants suddenly wilted in August.

I'd never go as far as conservatives do in attributing economic growth to tax rates. But ... let's see how the Bush Boom measures up... A recent paper by the Economic Policy Institute compares the Bush Boom to the ten previous periods of economic expansion since 1949. If you measure it from the peak of the previous business cycle, the Bush Boom ranks eighth out of the last ten expansions. If you measure it from the trough of the recession, Bush's preferred gauge, it ranks dead last.

And the meager growth that did occur accrued almost entirely to the rich... Median family income actually declined. ... So, from the standpoint of making most people better off--which, of course, is the whole point of economic growth--the Bush Boom was a staggering catastrophe.

The Bush Boom was accompanied by frantic attempts to convince Americans that things were actually going better than they thought. One comical subgenre of Republican argumentation was to explain away polls showing persistent economic pessimism as ... the fault of the liberal media playing up bad news and ignoring the glories of the Boom. ...

When Phil Gramm recently remarked that we were becoming "a nation of whiners, " he gave voice to what had become the standard Republican view. What's the matter with you people? Can't you see that Phil Gramm and everybody he knows are making out like bandits? ...

The initial effect of tax cuts for the rich is to increase public debt and income inequality. Conservatives justify these consequences by pointing to the alleged second-order effects of tax cuts--promoting stronger incentives and higher growth. But, if the second-order effects are so tiny they get washed out by larger economic factors--and the evidence overwhelmingly suggests they are--why should we pay the price for them?

When the macroeconomic rationale for upper-bracket tax cuts is gone, you're left with nothing but a naked upward-redistribution scheme. ...

Comments

[kett82]

If we vote for four more years of this (i.e., shoot ourselves in the other foot), in the form of John McCain, I will be...very disappointed.

[bakho]

The wealthy did very well under Clinton when the bottom quartile managed to keep pace with EITC increases and Jobs Jobs Jobs. This is in spite of the higher top income tax rate.

All economies need redistribution, because wealth flows from the bottom to the top. The wealthy have the most resources to take advantage of economic rules and will always manage to recoup the distributional losses. If the bottom is cash starved and unproductive, everyone does worse because there is less produced and there is less cash at the bottom of the economy for the wealthy to collect.

Conservatives and libertarians are in denial of this simple fact. Bush can deliver great benefits to his base in the short term. In the long run, it is a loser. How much money has the Bush base lost in the housing price collapse? How will it affect their profits going forward? How do record profits for Big Oil affect the rest of the economy? Bush has delivered great benefits to special interests on the backs of everyone else, rather than lifting all boats.

[Noni Mausa]

Shorter Bakho: "If you want the garden to grow, you water the roots, not the roses."

[Callahan]

What boom? The "Great Ownerschipp Schowschiety, heh, heh, heh"?

Go ahead and vote another Dumpublican in, and kiss your backside goodbye.

[bakho]

"Now, I don't really think it's fair to blame a president for having the economy tank on his watch."

I disagree. Bush never had a fiscal stimulus that anyone thought would be very effective.
Bush refused to deal with energy other than to allow energy companies to make obscene profits. CaliforniaBlackoutsEnronFERC,CAFE,ConservationAlternatives blah blah. Economies don't tank when the leadership is creative and believes that the government can have a role in directing excess labor to building infrastructure, workforce development and other investments that will grow the economy. Bush has underinvested and allowed special interests to plunder. Plunder is not sustainable. Bush policies (or the lack of coherent policies) really is responsible for our tanking economy. Bush does not deserve a pass on this.

[howard]

did jon chait note this in real time? or is he just figuring it out now?

[Francois]

Those of us who merely observed the facts knew all this.
Having to repeat the above over and over again reminds me of the immense frustration of a top AIDS expert who had to debunk Thabo Mbeki (President of South Africa) denialism of what causes AIDS, to the point of having to say at the opening of the World AIDS Conference in 2004: "HIV virus is the cause of AIDS." (can you spell "D-U-H!"?)

Looks like there are an awful lot of Thabo Mbekis among American voters.

[reason]

bakho...
I like to call this idea the bubble up economy. But there is not just the financial aspect. The point is that if the real income of the vast base of the population is not growing, there is only growth potential for a small number of niche products. New mass products will have no market, or only have a market to the extent that they are substitutes for old products. And that means that the dynamism (inventiveness) of the economy will die. And that is without considering the impact on the people themselves or the effects on the areas where the people live.

An economy with wide spread purchasing power will reward the most productive in terms of general welfare. That is simply not true of economy with concentrated purchasing power.

[lonesome moderate]

"Now, I don't really think it's fair to blame a president for having the economy tank on his watch."

Usually, no. When it tanks in the eight year of his presidency, after his party has controlled congress almost the entire time... well, let's just say that somebody's got some 'splainin to do.

[John V]

Chait:

"Now, I don't really think it's fair to blame a president for having the economy tank on his watch. But..."

But what?

Chait commits a terrible error of economic commentary. He admits a truth but then goes on to speak as if that truth weren't, in fact, true. And why? Because Bush and Co. like to commit the same fallacy when it suits their argument. Not a good reason in either case.

That's not to say that presidents can't influence economies on a large scale...take Clinton signing NAFTA or Nixon imposing price controls on gas...but to truly and justifiably attribute growth or cycles or any other measure that gives any shred of helpful info as to how the economy is actually *doing* in a grand and general sense to a president is a very difficult thing to do.

And considering the relatively small tweaks that are actually in play in terms of policy differences, it's nearly impossible.

The sad part is that people like Chait know this and admit it...but then go on to dismiss it so they write stuff their readers want to see.

After all, it's hard to expand your polemical and partisan horizons on economic commentary when you constrain yourself with the reality that Chait admits in the first paragraph.

I'm looking forward to see the shifts in tone and content of economic commentary when Obama wins.

The conservatives will start digging up the bad stuff liberals are currently digging up and blaming it all on Obama and the liberals will start digging up the positive stuff conservatives are looking for and using it to defend Obama.

[James]

Bakho has a compelling case and thanks for it.

Some nations try to perpetuate this model utilizing offshore markets to supplement consumption, as in the case of the British Empire in the Victorian era. To some extent this is the path that China has been taking recently.

At aproximately the same time failure to let off some pressure on the lower classes via a colonial empire or reforms had a highly negative effect in Russia, culminating in the October Revolution.

Britian, battered by war, gave up its empire and instituted reforms.

China will take the next step in reform, or be torn apart by a new revolutionary fervor.

As for the US, the decline of the American Empire is well underway. What course it will take, no one really knows.

[Cyrille]

Well, John V, in simple terms, no.

Chait's point is that there is absolutely zero indication of the smallest validity of the Republican argument that lowering taxes on the rich have any positive effect on the economy.

It's either negative (most likely), or no effect.

So, since there IS an obvious, undisputable penalty in lowering those taxes, and absolutely no positive except in National Review and Wall Street Journal propaganda, we can use that as evidence that they must be raised.

On top of that, during the "boom", it was forbidden to say that it was not much of a boom, or that there was no evidence of a positive effect of tax cuts. You were called sore loser.
Now that it's over, people like you will come out and claim it is absurd to use that as evidence that Bush economics were not exactly top drawer. So it's everything for Republicans, right?
Besides, "very small tweaks"? Pull the other one... Turning a surplus into a record deficit in a few years, purely because of the tax cuts, small tweaks that? Starting an imperial and neverending war? Removing each and every significant regulation? No bid contracts aplenty? Blocking healthcare reform?

I'm with Bakho. While it is not fair to necessarily blame everything on a president, the Bush administration had a LOT of unchecked impact. And it was ALL destructive but for the hugely rich.

[donna]

Noni Mausa, I love that. I'll add it to my favorite financial quote, "Money is like manure -- it's no good unless it's spread around encouraging things to grow". To which I always add, "Otherwise it just sits around in big, stinking piles."

The Bush economy is a big, stinking series of big stinking piles.

[donna]

Left by big, stinking elephants who really need to take a bath now...

[John V]

people like you will come out and claim it is absurd to use that as evidence that Bush economics were not exactly top drawer. So it's everything for Republicans, right?

I claim no such thing. YOU want to insert that intent in my post. Perhaps it's inconceivable to you that I would be making the simple and true statement that I did with no ulterior partisan. Of course, when you factor in the fact that I'm not Republican, didn't vote for Bush and am I not voting for McCain, it's not inconceivable at all. But then, again, you probably find it impossible that anyone could say what I did without a partisan agenda. Again, projection.

There's something to gained in the ability to discuss these matters without projecting your partisanship assumptions onto others.

For starters, you wouldn't approach the matter in the manner that you did.

says...

"If the bottom is cash starved and unproductive, everyone does worse because there is less produced and there is less cash at the bottom of the economy for the wealthy to collect. Conservatives and libertarians are in denial of this simple fact. "

Conservatives and libertarians are in denial that demand side economics works and supply side economics does not work.

'Nother case in point. Supply side means, essentially, "build it and they will come."

Like, for example, housing. Oh... yeah, right. Bubble trouble. Ha, ha, ha.

[Noni Mausa]

Thanks Donna. Be my guest.

[John V]

"Conservatives and libertarians are in denial that demand side economics works and supply side economics does not work."

Well, I'm not a supply sider or demand sider per se. But I will say this:

If you are a demand sider, why not just advocate a steeply progressive income tax that doesn't kick in until about 75-80K (tacked for inflation) per year with a starting rate of about 15% and 30% at about 150K per year and 35 at about 300K per year? I'd be all for that. Then you make supply-siders AND demand-siders happy. Of course, then you have to acknowledge that many social service programs become less necessary at income levels that may require social spending of some kinds while boosting demand (watch state sales tax receipts start jumping), savings and individual investment at the same time. One of first things you could easily cut benefits on is social security. Here's where Obama's "nudge" libertarian paternalism could have a test run to evaluate. You could then do default manual "opt-out" retirement savings with a portion of the person's much larger post-tax income.

There's a "3rd rail" I'd be on board for.

[Jack]

"When the macroeconomic rationale for upper-bracket tax cuts is gone, you're left with nothing but a naked upward-redistribution scheme."

And that is indeed what Republican economic strategy is.

Economists ought to be constantly pointing out again and again and again that the Republican party is not the party of the free market but rather the party of the wealthy. The free market can be used in many ways and targeted on many parts of the economy/population. Republicans want to use the free market to depress the wages of the lower class while giving the ultra-wealthy a free ride (free for them, of course).
The fact that the Republican party is still regarded as in favor of the free market and that economists have not been doing everything in their power to dispell this myth is a serious moral failure on their part.

[bakho]

"On June 22, 1944, President Franklin Delano Roosevelt signed into law one of the most significant pieces of legislation ever produced by the United States government: The Servicemembers' Readjustment Act of 1944, commonly known as the GI Bill of Rights. By the time the original GI Bill ended in July 1956, 7.8 million World War II veterans had participated in an education or training program and 2.4 million veterans had home loans backed by VA."

Someone please make the argument that the GI Bill did NOT make a huge impact on the economy for years to come. Who will argue that we would have had results as good or better if instead most of the veterans returned to the rural farm economy from which they came?
(This would make an interesting exam question).

The argument that fiscal policies (other than tax cuts) do NOT affect the economy is simply wrong. An administration should be judged by its record and policies it pursued as well as missed opportunities. In my book we have had 7 1/2 years of missed opportunity.

[don]

kett82 says...
If we vote for four more years of this (i.e., shoot ourselves in the other foot), in the form of John McCain, I will be...very disappointed.

We appear to be aiming higher.

[Gegner]

It's threads like this that make you wonder who the MSM is polling to forecast the race as tightly as they do.

I believe that 70% of us would sooner vote for the Anti Christ than vote Republican come November, but that's not what our media tells us.

And since the Anti Christ isn't running, it will be Obama by a landslide.

[german_reader]

Bush and his "boom", a fascinating subject. How did it look in concrete? Lets look at the raw numbers.

http://www.bea.gov/newsreleases/national/gdp/2008/xls/gdp208a.xls

( Table 3A/3A2 )

From Q1/2004 - Q2/2008 the nominal, not inflation adjusted U.S. GDP grew from $11.401 billion in Q1/2004 to $14.256 billion in Q2/2008. A nominal growth of 2.851 billion, almost the size of the total GDP of the U.K., within 4 years, really impressive.

But was has constituted this impressive growth? What were the main factors behind the Bush "boom"? Why not construct - similar to the official inflation measure - a GDP growth measure ex basic needs like food, energy, housing or medical care which are necessities and where more spending normally doesn't reflect rising living standards? And exclude in addition ( debt driven ) government spending which is not really a good proof for the beneficial effects of the "free market"?

From Q1/2004 - Q2/2008 private consumption expenditures for food have gone up by $321.8 billion, for gasoline, fuel, oil etc. by $219.6 billion, for electricity/gas by 71.7 billion, for housing by $307 billion, for medical care by $413.8 billion and goverment expenditures ( all levels federal, state, local ) by $700.5 billion. Makes a total of $2,034 billion or 71.3% of all nominal growth. The remaining $817 billion over 4 years include such exciting things as transportation, $70.5 billion, or clothing and shoes, $58.3 billion ( cheap China imports? ), and the very constructive engagement of the financial sector. And they are not inflation adjusted nor adjusted for the enormous debt burdens the U.S. society has created over that period.

But that's not all. The "Bush economy" is improving. From Q2/2007 - Q2/2008 the U.S. economy grew by nominal $519 billion. Expenditures for food, energy, housing or medical care during this period increased by $365.9 billion and government expenditures by $213.7 billion. Makes a total of $579.6 billion. Without government spending and basic needs the economy shrank by $80.6 billion. And that's nominal, not inflation adjusted.

And things get better and better. From Q1/2008 to Q2/2008 when Washington reported that fantastic ( inflation adjusted ) 1.9% annual growth, the nominal U.S. GDP grew by a quarterly $105.7 billion or annualized $422.8 billion. Expenditures for food, gasoline, electricity, housing or medical care have gone up by a quarterly $116 billion or $464 billion annualized, government expenditures by $71.5 billion or annualized $286 billion ( "We are not in a recession" ). Without basic needs and government spending the U.S. economy was on an annual base by around $327 billion in the red and - see above - that's nominal not inflation adjusted.

Your man in the White House really knows how to raise the living standards of the "average" American.

Anybody for the next republican president in the White House? John McCain?

God bless America!

[RW]

Gegner: Here's a couple examples of the other side of the polls:

http://www.newsmax.com/
http://www.freerepublic.com/

Product warnings:

If you take a look do advise you stay seated: Hyperventilation accompanied by sudden motion can cause blackout.

Also beware of delayed reactions; e.g., the realization that willing habitués of such places may actually be fellow citizens has been known to cause mild depression punctuated by occasional spasms of incredulity or rage.

[german_reader]

"From Q1/2004 - Q2/2008 the nominal, not inflation adjusted U.S. GDP grew from $11.401 billion in Q1/2004 to $14.256 billion in Q2/2008. A nominal growth of 2.851 billion, almost the size of the total GDP of the U.K., within 4 years, really impressive."

Point and comma. Europe and America. Must be $11,401 billion, $14,256 billion and $2,851 billion!

[Richard H. Serlin]

"A recent Wall Street Journal editorial argued that, if the economy was sinking, it must be in part because markets fear the prospect of Barack Obama winning and raising taxes. (You thought Obama was up because the economy was bad? Turns out you had it backward. )"

Historically, and for very good reason, the economy has been far better under Democratic administrations, and there are many sources reporting this, for example these two posts on the blog of Princeton Economist paul Krugman:

http://krugman.blogs.nytimes.com/2008/04/02/bartels-alfred-wegener/

http://krugman.blogs.nytimes.com/2008/07/29/look-whos-talking-2/

What's much less known is that the stock market does tremendously better historically under the Democrats than under the Republicans. UCLA financial economists Pedro Santa Clara and Rossen Valkanov report this in a 2003 paper published in arguably the most prestigious journal in academic finance, the Journal of Finance. The paper, "The Presidential Puzzle: Political Cycles and the Stock Market" can be downloaded at:

http://personal.anderson.ucla.edu/pedro.santa-clara/Politics.pdf

From the abstract, they report just how amazingly better the market does under Democrats:

"The excess return in the stock market is higher under Democratic than Republican presidencies: 9 percent for the value-weighted and 16 percent for the equal-weighted portfolio. The difference comes from higher real stock returns and lower real interest rates, is statistically signicant, and is robust in subsamples. The difference in returns is not explained by business-cycle variables related to expected returns, and is not concentrated around election dates. There is no difference in the riskiness of the stock market across presidencies that could justify a risk premium."

[Cyrille]

John V: no, I assumed no intent necessarily.
But you did say that. So I said it was people like you who would come out and say that. And the end result is that at every stage of the most appalling of economic cycles, the most positive story for Republicans was the one heard.

It's even sadder if it's heard from people who are not Republican and should be fuming at the huge strides that were made in the destruction of the country, rather than small tweaks.

[Cyrille]

Ah, Richard, but they have a ready-made explanation for that: it's because at the end of Republican administrations, the markets would tank because they would expect a Democratic president to come next. Sometimes that would happen as early as day 1 of the presidency when markets expected such an ape couldn't ever run for another mandate (ie, Bush).
Whereas Democratic administrations would get markets rejoicing on the expectation of Republicans coming soon.

See, I could write for the Wall Street Journal.

[ken melvin]

Bush is not a policy man, he's an agenda man; all else - rationalization.

[Patricia Shannon]

The owners of a restaurant I worked for a few years ago are Republican. Ironically, the day after Bush was re-elected in 2004, business dropped sharply and never got back up to the level it had been. I suspect it was because of people's fears about their future.