A Look Back at Bush's Economic Missteps

Original Link: http://www.time.com/time/specials/packages/article/0,28804,1872229_1872230_1872231,00.html

By JUSTIN FOX

George Bush is leaving the White House with a dismal economic record. By almost every measure — GDP growth, jobs, median incomes, financial-market performance — he stacks up as probably the least-successful President on the economic front since Herbert Hoover.

It's not all Bush's fault. He inherited an inevitable recession in 2001, and even last year's financial collapse was to some extent the result of unsustainable trends in place long before he moved to Washington. Also, we generally give Presidents both more credit and more blame for economic outcomes than they probably deserve. As Bush mock-moaned in his final White House press conference, "Why did the financial collapse have to happen on my watch?"

His next words, though, were, "It's just pathetic, isn't it, self-pity?" So let's spare him the pity. As the decider in the White House for the past eight years, George Bush made some economic calls that don't look smart today. Here are eight of them.

1. The Return to Deficits

When President Bush took office in 2001, Republicans and Democrats in Washington had built a strong consensus on the need for fiscal responsibility. Bush blew that apart within a few months. With the country in a recession, a temporary return to deficits was inevitable. But Bush's tax cuts and spending increases — and clear disdain for the pay-as-you-go approach that had brought deficits down in the 1990s — brought a return to permanent deficits. These actions almost certainly didn't cause the current crisis, but they have left the Federal Government in a much weaker position to combat it.

2. Iraq

Doing a cost-benefit analysis on a war is awfully hard. There are just too many what-ifs. But the cost of invading and occupying Iraq has been staggeringly high — whether you believe the $3 trillion figure of economists Linda Bilmes and Joseph Stiglitz or side with the Congressional Budget Office estimate of a mere trillion or two. It's the biggest part of the explanation for the yawning Bush-era budget deficits. So even if you think the war did bring benefits to the U.S., they would have to be pretty gigantic to justify the cost.

3. Tax Cuts for the Rich

When Ronald Reagan slashed taxes on capital gains and high earners in the early 1980s, inflation was pushing the middle class into top tax brackets, financial markets had been stuck in a funk for 15 years and income inequality had been declining for almost five decades. Like him or not, the man's actions fit the times — and the U.S. economy boomed for most of his two terms in office. Bush came to Washington facing almost diametrically opposing economic conditions, yet he offered up the same solutions as Reagan. Guess what: they weren't what the economy needed.

4. Financial Regulation

The only major piece of regulatory legislation enacted during the Bush years was the Sarbanes-Oxley Act, which dramatically increased regulation of corporate financial disclosures. The really big regulatory changes being pointed to now as possible culprits for the crisis date back to Bush's predecessors: Bill Clinton, Ronald Reagan, even Jimmy Carter and Gerald Ford. So the popular Democratic refrain that "Bush-era deregulation" is to blame for our troubles is a little hard to square with the evidence. What is true is that most Bush-era financial regulators were less than enthusiastic about the very act of regulating, and that Bush's "ownership society" push glossed over a lot of potential dangers. Bush didn't cause the financial regulatory breakdown, but he didn't jump in to fix it either.

5. Telling Us to Go Shopping

After the 9/11 terrorist attacks, President Bush didn't call for sacrifice. He called for shopping. "Get down to Disney World in Florida," he said. "Take your families and enjoy life, the way we want it to be enjoyed." Taken on its own, this wasn't such a horrible sentiment. But Boston University historian Andrew Bacevich has made a convincing case that it was part of a broader pattern of encouraging financial irresponsibility. "Bush seems to have calculated — cynically but correctly — that prolonging the credit-fueled consumer binge could help keep complaints about his performance as Commander in Chief from becoming more than a nuisance," Bacevich wrote in the Washington Post in October. Now we're paying the bill.

6. Energy Policy

Not much to say here, except that there wasn't an energy policy. Again, this wasn't new to the Bush era. But with a years-long oil-price slide finally coming to an end not long before he took office, the President's (and Vice President's) unwillingness to take serious steps to reduce the country's dependence on fossil fuels left the country vulnerable and way behind the rest of the developed world in preparing for a post-oil future.

7. A State of Denial

Every Administration spins and sugarcoats the economic truth. But the Bush White House took this disingenuousness to new levels. The surest way to get yourself fired as a Bush economic adviser was to say something that was true. Paul O'Neill was ousted from Treasury for warning about deficits. Larry Lindsey was kicked out of the top White House economic job for predicting in 2002 that the Iraq war would cost $100 billion to $200 billion — far below the actual cost but much more than what the White House was officially projecting. This disdain for reality, and for expertise, pervaded the Bush economic approach, and made it impossible for the Administration to react intelligently to real-world economic problems like the housing bubble.

8. The Muddled Bailout

It could have been much, much worse. For the first time, Bush gave someone with more expertise than political bona fides — Treasury Secretary Henry Paulson — control over economic policy and didn't let the hacks in the White House undercut him. Paulson's financial rescue has been awfully messy and expensive, but one shudders to think what might have happened if his much weaker predecessor, John Snow, had still been in charge at Treasury when trouble struck. The main problem has been the ambivalence with which both Paulson and the White House have approached the financial rescue. They backed into it, never articulating clear principles for how it should work. That's yet another thing the new Administration is going have to rectify.