important document last week by his principal economic advisers that deserves more attention than it got. It is an audacious attempt to blame Barack Obama for the economic mistakes of George W. Bush and Republicans in Congress.
The document is attributed to economists Glenn Hubbard of Columbia, N. Gregory Mankiw of Harvard, John B. Taylor of Stanford and Kevin Hassett of the American Enterprise Institute. Professors Hubbard and Mankiw each chaired the Council of Economic Advisers under President Bush, while Professor Taylor served him as under secretary for international affairs at the Treasury Department. Mr. Hassett is co-author of the book, “Dow 36,000,” published in 1999.
Much of the Romney paper is taken up with reviewing the poor economic recovery, which is undeniable. Reading it, however, one is left with the impression that the recession occurred on President Obama’s watch because of policies he is responsible for.
Just to be clear, the National Bureau of Economic Research, the private research group that determines the starting and ending points of recessions, says the latest economic downturn began in December 2007 and ended in June 2009...
Factors affecting the business cycle are necessarily short-term in nature. They include Federal Reserve policy; international capital flows; industry-specific policies such as those affecting housing; fiscal policy and many others.
Such factors must necessarily have occurred after the previous recession, which ended in November 2001, according to the N.B.E.R. That’s the nature of business-cycle analysis; once a previous recession ends, the cyclical factors that gave rise to it are assumed to have been purged. The next recession will necessarily result from those factors that postdate the previous recession.
So whatever caused the 2007-9 recession had to have resulted from policies that the Bush administration was responsible for – either by initiating them or failing to act against them.
Space prohibits a full discussion of these issues, but certainly one factor had to be the squandering of budget surpluses that resulted from the policies of the Bill Clinton administration and their replacement by huge deficits under President Bush.
Mr. Bush inherited a budget surplus of $236 billion from Mr. Clinton in 2000, which fell to $128 billion in 2001. By 2002, the federal government ran a budget deficit of $158 billion, which rose to $377 billion in 2003, and $413 billion in 2004. The deficit fell to $318 billion in 2005, $248 billion in 2006, and $161 billion in 2007, then shot up to $459 billion in 2008.
It should be noted as well that the fiscal 2009 budget was submitted to Congress by Mr. Bush in January 2008 and took effect on Oct. 1 of that year – almost four months before President Obama took office.
Thus the government was running historically large budget deficits long after the end of the 2001 recession. As I have previously documented, these deficits resulted to a large extent from legislated tax cuts during the Bush years.
It is also important to note, though one will not find it in the economists’ report, that much of the legislated increase in the deficit under President Obama resulted from tax cuts. According to the Congressional Budget Office, tax cuts in the American Recovery and Reinvestment Act of 2009 reduced revenues by $253 billion between 2009 and 2011 – about a third of the budgetary cost of the stimulus package.
Further tax cuts agreed to by President Obama in 2010 added another $354 billion to the deficit in 2011 and a similar amount this year. Thus about $1 trillion of the deficit since 2009 came from tax cuts.
Most economists believe that running large deficits during cyclical upturns is a bad idea because they overstimulate the economy when it’s not needed and thus sow the seeds of economic imbalances that lead to subsequent recessions. One can argue that George W. Bush’s budgetary profligacy was a major cause of the 2007-9 recession – the longest and deepest of the postwar era.
Even if one isn’t willing to go that far, it is apparent that had Mr. Bush reduced budget deficits rather than enlarging them through tax cuts and spending increases for wars, pork-barrel projects and a new entitlement program (Medicare Part D), the federal government would have had more fiscal ammunition available to fight the recession that President Obama inherited from President Bush.
Because of the large deficits Mr. Bush bequeathed Mr. Obama – on Jan. 8, 2009, the C.B.O. projected a deficit for the year of $1.3 trillion that didn’t include any Obama policies – Congress was deeply reluctant to enact a stimulus larger than $787 billion, even though President Obama’s economic advisers thought that one at least twice as large was necessary to turn the economy around. The opposition of every Republican to the 2009 stimulus was a major factor in its inadequate size...
But it was Republican policies during the Bush administration that brought on the sickness and Republicans in Congress who have denied the economy an adequate dosage of the cure. Now they want to implicitly blame President Obama for causing the recession and the failure of stimulus to fix the problem, asserting that fiscal stimulus is per se ineffective.
There is a word for this: chutzpah.
Wednesday, August 15, 2012
Sane conservative Bruce Bartlett at Economix: