Presidents are prisoners of the times. Events happen, often following a period of neglect and sometimes following stimulation. Today, our country is neglecting its infrastructure while many Congressional voices try to “stimulate” growth through lower taxes. Hmmm.
I wonder how that will work out?
George W Bush’s presidency offers several cases in point. Inheriting a budget surplus, the Bush Administration, at the first signs of a slowing economy, championed an across the board income tax reduction.
Whether the tax reduction did anything but make the rich richer is hard to say. The economy, in any case, rebounded and bloomed through the rest of the Bush years, that is until it imploded.
Credit default swaps and collateralized debt obligations certainly were not Bush Administration recommendations. They were instead manifestation of Wall Street greed without regard for the country or their customers. These financial instruments were like viruses and their unregulated use grew out of control practically taking the world’s entire banking system down.
Once the patient (our economy) was on its back, it became apparent how unprepared the “small” government was. Liquidity became the issue. Banks no longer trusted each other and lending dried up.
Corporations were faced with bleak prospects and watched their stock prices plummet. As a consequent, corporations slashed budgets and associated headcount. Unemployment jumped.
As the dust settled, one could see the economy was working, albeit much less robustly and with far more unemployed. The lesson there for anyone to see was that productivity could be increased simply by removing unneeded overhead. Corporations were operating more efficiently.
Immediately the talking heads turned to how to reduce unemployment. A worthy task, but the how to accomplish it meant everything. Stimulus.
The economy needed to be stimulated with more liquidity. The only source capable enough and willing to help was the Federal government. After authorizing about $800 billion (reflecting each Congress members’ favorite pork barrel project), it was time to move on.
Progressives argued the stimulus needed to be increased and conservatives argued it was already wasteful and too large. Hmmm.
About this time, the unfortunate legacy of the Bush tax cuts was catching up with the front page. Debt and unbalanced budgets became the political pros mantra. And single focus issues are political red meat.
Slash federal and state employment and while at it, cut benefits and pensions too, were many politicians favored recommendation. Many States and even federal agencies followed this path.
Unemployment swelled with public sector workers joining the private sector, recession idled, unemployed.
The unemployment level topped out about ten months after President Obama took office. Standing at 10.1% unemployed, the nation took a deep breath. What more needed to be done?
The stand off between progressives and conservatives may have strangely been a good dysfunction. No more damage could be unintentionally done. It was now up to Adam Smith’s silent hand to reallocate resources to their most productive places.
Five years later there are abundant signs that the economy is strong and resting upon fundamentally firm underpinnings. No particular place in our economy is red hot. Housing is ok but not great. Manufacturing is growing but not that fast. Banks are profitable but not apparently risking their financial health on murky trades. And, the service industry is perking along meeting the needs of the rest of the economy. (It is true also that income inequality rivals the gilded age but that was true before the 2008/9 recession.)
The GOP got it wrong prior to the recession and got it wrong on how to get out of the recession. Democrats got lucky since the financial implosion took place on Bush’s watch. It could have just as easily waited until President Obama was in office.
The Democrats also got it wrong by not looking for “efficiencies” in spending. How can the country get a bigger bang for its buck?
The GOP seems locked into a non-spending mindset (except for defense), while Democrats are quite happy to spend without thinking about productivity. Both parties got it wrong in the past and seem ready to get it wrong again.