It looks like the economic history of the Bush era is going to end much the same way it began: with the government struggling to prevent a recession from turning into a depression. The downturn in President Bush’s first term was brought on by a selloff in overheated stock markets that grew worse after the terrorist attacks of 9-11, slicing over a third of the value off the Dow Jones industrial average in two years. Today’s downturn is driven by a similar meltdown in overheated housing markets that threatens to compromise the nation’s credit system. In both cases, the Treasury Department has worked closely with the Federal Reserve to avert the kind of self-fulfilling panic that led to the Great Depression.
Unfortunately, these sorts of reverses are a common phenomenon in market-based economies, a price we pay for the wealth and opportunity generated by the free interplay of economic forces. For all of President Bush’s failings, the track record of his administration in managing such downturns has been remarkably good. However, there is a back-story to the economic history of the Bush era that is less encouraging, one that seldom gets noticed in the ebb and flow of market coverage. During this decade, the overall health of the U.S. economy has deteriorated markedly, in ways that are barely perceptible from day to day but are likely to have profound consequences over the long run. For instance:
— The nation’s trade deficit, already a staggering billion dollars per day when President Bush took office, has doubled to over $700 billion annually, representing 5% of Gross Domestic Product (GDP).
— The national debt has risen from less than $6 trillion when the President took office to $9.4 trillion today, reversing the trend of the last decade in which the debt represented a declining percentage of GDP each year.
— The dollar has steadily lost value against a trade-weighted average of 26 other major currencies since the President took office, suffering a cumulative decline of over 25% in seven years.
— The rate of private-sector job growth during the Bush years has been barely 0.5% annually, close to the worst performance of the postwar period, while government employment at all levels has zoomed higher.
— Despite tax cuts and deficit spending, the administration has only managed to generate an after-inflation growth rate of 2.4% in the economy during the past seven years — far below the 3.3% rate of the much-derided Carter Administration.
Clearly, that old Reagan magic of tax cuts, free trade and deregulation isn’t working. What went wrong? Since nobody on Wall Street seems to think beyond the next fiscal quarter, let’s ask the CIA. Its current World Factbook says of the U.S. economy: “Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups.” There isn’t much we can do about the fact that baby boomers are getting old, but the other four items — infrastructure, wage stagnation and the twin deficits — stand out as action items. Any presidential candidate who doesn’t have credible new ideas about how to address those problems doesn’t deserve to be elected, because it’s pretty obvious that the current formula isn’t going to cure what ails us.
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