How Long Can You Get Away with Blaming Bush?

Greetings from the Left Coast!

My rant of the day is against those purveyors of revisionist history that are maintaining that four years simply aren't enough for poor President Obama to clean up the gigantic mess that George Bush left behind.

Please. That doesn't fly with those of us who lived through it and were paying attention. For the benefit of those of you who didn't, or perhaps did but weren't paying attention (maybe you were just too young), here are the facts.

The economy is cyclical. Recessions come around every now and then, regardless of which party holds the Oval Office, and nobody has figured out yet how to stop them from happening. But what government does in response to them certainly can effect their severity and how long it takes to recover from them.

The economy was already in decline when George Bush took office in January of 2001. Before the end of the year, he was dealing with the double-whammy of the dot-bomb bubble burst and the aftermath of 9/11. Instead of whining about the horrible situation he had inherited from the Clinton administration, he took decisive action: he cut taxes. In response, by the beginning of 2002, the economy was growing again, and continued to grow through most of the rest of his term. Between 2001 and 2005, annual GDP growth averaged 2.8%. The number of jobs grew by an average of 6.5%. Median income increased. Average salaries increased. According to a report released by the U.S. Congress Joint Economic Committee, the U.S. outperformed its "peer group of large developed economies" (Canada, the European Union, and Japan) over that period - it led in real GDP growth, investment, industrial production, employment, labor productivity, and price stability. All while we were fighting wars in Afghanistan and Iraq. The budget deficit peaked at $600 billion in 2004, and was on its way back down...until the Democrats took control of both Houses of Congress in the 2006 elections. They took office in 2007, passed the 2008 budget, and, for the first time in history (but, unfortunately, not the last) we ran a deficit in excess of $1 trillion. The fact is that most of Bush's years in the White House were pretty good years economically. When he left office, the average price for a gallon of regular gas was $1.79. I don't know about you, but I'd love to see that again.

I think that most of us understand that the late-2008/early-2009 recession was largely the result of the bursting of the housing bubble - and specifically, the collapse of the sub-prime mortgage market, which took a lot of financial institutions down with it. Many will argue that this was Bush's fault, since it happened "on his watch." But I believe that the historians of the future will spread the blame more widely...and there is plenty to go around. Democrats had a very large role in fueling the growth of sub-prime mortgages by strong-arming lending institutions to make loans to low-income borrowers in the name of fairness and economic justice - low-income borrowers who, it turned out, were not capable of making their payments. The Congressional record is clear that the Republicans wanted more oversight of Fannie Mae and Freddie Mac. The hearings were filmed by C-SPAN, and are out there on YouTube for the world to see...as Democrat after Democrat expressed shock and outrage that anyone would imply that there was anything wrong with those fine institutions, particularly Fannie Mae under the direction of that outstanding leader Franklin Raines. That would be the Franklin Raines who ultimately took "early retirement" because the SEC was investigating accounting irregularities, which ultimately led to the filing of charges against him for cooking the books and overstating earnings by roughly $3 billion, helping him collect $20 million in compensation the last year he served as CEO. I'm still amazed that he and his two co-defendents aren't wearing orange jumpsuits.

But, be that as it may, the housing bubble burst, and the economy went off the cliff. That part certainly wasn't Obama's fault. But the cold truth is that pretty much nothing he has done since then has made things better. For the first two years of his Presidency, he could have done nearly anything. His party had a majority in the House, and a filibuster-proof "supermajority" in the Senate, rendering the Republicans completely powerless. But let us not forget the words of Rahm Emanuel: "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before." So we got a stimulus bill that was primarily a giveaway to the Democrats' union supporters - particularly public employees' unions - and large contributors (see "Solyndra") and that, as a result, didn't stimulate; and we got ObamaCare, which 2/3 of the country does not want, and which is suppressing job creation because employers don't know what the heck is coming at them next. We got more regulations, more government intrusion into our lives, and a virtual shutdown of the oil industry along the Gulf Coast. Yes, I know that the spinmeisters will point out that oil production is up these days, but that's because of increased production on private land, not public land. Production is up in spite of Obama's policies, not because of them, although he's still trying to take credit for it.

Unemployment is still above 8%, more than three years after the statistical "end" of the recession. And, if we had the same labor force participation rate today that we had when Obama took office, the unemployment rate would be over 11%. The only thing that's keeping it this low is the number of people who have given up looking for work and dropped out of the labor force (the labor force participation rate for men is now the lowest ever recorded). In August, the U6 unemployment rate, which includes people who would like to work but have given up looking, and those who are only working part time, but would like to work full time, was 14.7%. Median income has fallen during Obama's Presidency. Prices have soared. Businesses are afraid to invest. He will be, in all probability, the only President since the Great Depression to see fewer total Americans working at the end of his first term than were working when he took office.

Reagan arguably inherited a worse mess than Obama. Unemployment was higher when he took office, and inflation was running at over 10% per year. Yet by the third quarter of 1983, GDP was growing at an annualized rate of over 8%, and twice as many jobs were being created as are being created today - which had an even greater impact back then because the labor force was smaller. The average GDP growth during Reagan's 4th year in office was 7.75%. Where are we now? Oh, yeah, still struggling to break 2%.

The biggest problem is that Obama is an idealogue. He is philosophically incapable of changing course, which is why, in every speech he gives, he keeps trying to double down on the same policies that aren't working. Which, if I recall, is pretty close to Einstein's definition of insanity: continuing to do the same thing and expecting different results. If he somehow wins re-election, you can look forward to four more years of the same kind of economic stagnation, ballooning national debt, and growth in both the size of government and its intrusion in our lives as we've seen in the last four years. And I will get absolutely no pleasure out of saying I told you so.

Here's Another Prediction I Hope Is Wrong

Greetings from the Left Coast!

Last week, I heard Arthur Laffer interviewed on a national radio program. Laffer is a pretty bright guy who, by the way, supported President Bill Clinton in 1992 and 1996 because of Clinton's conservative fiscal policies. He's the guy who reportedly drew the "Laffer Curve" on the back of a cocktail napkin during a 1974 meeting with Dick Cheney and Donald Rumsfeld. The Laffer Curve basically states that at a 0% tax rate, and at a 100% tax rate, tax revenues would be zero. Therefore, somewhere between those two extremes is a point where tax revenues are maximized. Therefore, raising tax rates beyond that point will actually reduce revenues, and if rates are beyond that point, lowering them will actually increase revenues.

This absolutely worked during the Reagan administration, despite what you may have been told. Every time in modern history that federal taxes have been reduced, federal tax revenue has actually increased. The problem is that Congress is congenitally unable to stop itself from spending more money than it has - so even though tax revenue went up, spending went up even more, and debt increased. But I digress.

Back in June, Laffer wrote a column in the Wall Street Journal predicting what would happen if the "Bush Tax Cuts" were allowed to expire. This is now almost certain to happen, for reasons I'll explain later. Here are the salient points of Laffer's column:

• If people believe that taxes are going to be higher next year, they will attempt to shift production and income into this year if possible. This was demonstrated in the early 1990s when "high income taxpayers" shifted income into 1992 to avoid the expected increase in the top tax rate in 1993, then again at the end of 1993 to avoid the increase in Medicare taxes that went into effect in 1994.
• It is entirely likely that at least part of the reason that the economy is looking as good as it is in 2010 is because that's already happening.
• "When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe 'double dip' recession."

Laffer's estimate is that if the Bush tax cuts expire, Americans will see an average 3% tax increase. If you take away an additional 3% of people's disposable income through added taxation, it's logical to conclude that spending will drop by at least that 3%. Since the economy is currently growing at less than a 3% annual rate, if spending drops by 3% next year, we're back in recession - and that doesn't even take into account the effect the higher tax rates will have on investment and job growth.

The Democrats already chose to kick the ball down the road, and recess for their last-ditch campaign efforts without passing a tax cut extension. It probably won't get any better when they reconvene after the election, either, and here's why.

Even if the Republicans do see a sweeping victory on election day, they won't take office until next year. So the "lame duck" Congress that reconvenes after the election will be the same Congress that we have today. And here's what the math looks like. Nancy Pelosi already has in her hands a letter from 31 Democrats saying that the tax cuts should be extended for all Americans. So, although Pelosi is committed to extending the tax cuts only for the middle class, and allowing the "tax cuts for the rich" to expire, she may not have the votes to pass such a bill. So here is Laffer's prediction of what she'll do:

House rules allow her to bring a bill to the floor under "suspension" of debate, meaning that an immediate up or down vote must be held on the bill, without any debate taking place. However, such a bill requires a 2/3 majority for passage, which the Speaker does not have. So she will bring to the floor, under "suspension," a bill that extends the tax cuts only for the middle class, knowing she doesn't have the votes to pass it. Then, when it fails to pass, she will immediately blame the Republicans for voting against tax relief for the middle class. And if the economy does go off the rails next year, as Laffer predicts, she will blame the Republicans for that, too.

You see, for the Democrat leadership, it's all about their power. They were perfectly willing to see America lose the war in Iraq and come home in disgrace, as long as they could blame the Republicans for it. (Remember Harry Reid's "This war is lost?" And Obama's comment after he took office and saw that the surge was clearly working that, even knowing what he knew now, he would still have opposed it?) And they're perfectly willing to see the economy go off the rails, no matter how many Americans are hurt, as long as they can blame Republicans for it.

Thanks for listening.