Democratic National Convention – Charlotte, North Caorlina
The narrative I am hearing at the DNC is that President Bush’s policies caused the Great Recession, and President Obama’s policies ended it and launched a strong recovery. Thus the Obama slogan, “Forward.”
1. Did the Bush tax cuts cause the Great Recession? If so, why does Obama want to keep most of them, at least for a bit longer?
2. Did financial deregulation under Bush cause the Great Recession? Glass-Steagall ended during the Clinton administration, and studies have found no evidence that any rule changes by the Bush SEC contributed to the financial crisis.
3. Did the Bush deficits cause the Great Recession? Doesn’t look like Obama thinks so. The most recent Obama budget, according to the CBO, would add $6.4 trillion more to the federal budget deficit over the next decade, leaving debt as a share of the economy stuck at around 76% of GDP vs. 37% pre-recession.
4. Did the Bush housing policies cause the Great Recession? AEI’s Peter Wallison has put it simply, “The financial crisis was the result of government housing policy. … Fannie Mae and Freddie Mac were the implementers of a substantial portion of the government’s housing policy.” But Wallison adds that this was a bipartisan error, with both the Clinton and Bush administrations guilty. Clinton, by the way, will be a big player here at the DNC with a prime-time speech. Doubt he will talk about housing, though.
And as I have been arguing, the housing crash and big drop in wealth may have caused the recession. It was the Fed that made it great, just as in the Great Depression.
Now as far as the recovery goes …
1. Team Obama economists predicted — and have kept predicting — the stimulus would launch a recovery of annual 4%+ growth — about average. Instead, the recovery has averaged just half that. 2013 doesn’t look any better.
2. Team Obama economists predicted unemployment would be well under 6% by now. Instead, it has been 8% or higher for 42 straight months. In fact, they predicted unemployment would be 6% without any stimulus at all. Another missed metric.
3. The only place the stimulus seems to have worked as advertised is within the virtual U.S. economy of the White House’s economic models.
4. As economist Daniel Gros points out, even though the U.S. has engaged in far more aggressive stimulus efforts than Europe, “US economic performance has been very similar to that of the eurozone since the start of the crisis: GDP per capita today is still about 2% below the 2007 level on both sides of the Atlantic. … The unemployment rate in the US and the eurozone has increased by about the same amount as well – three percentage points.”