I remain somewhat baffled by the relentless procession of news articles stating the US is in recession, or is at risk of slipping into recession. I remain somewhat baffled because apparently it has escaped most everyone’s notice that the US has been in a recession for the last 7 years, more or less since the worst administration in the country’s history* took office. How can I maintain this position given that GDP has been positive? Because GDP growth has been largely illusionary, fueled by massive run-ups in debt, and has been in no way reflective of real growth. Let me explain the key factors involved.
- The Bush Tax Cuts
Quick economics lesson - if you want to stimulate the economy, you give money to people that plan on spending it. Everyone knows this, which is why the (incredibly pointless) stimulus package targets the lower and middle classes. The Bush tax cuts did just the opposite, reducing taxes on upper income earners through direct income tax reductions, and of course lower capital gains and dividend tax rates. Some economic theory holds that by lowering taxes on investment gains, one stimulates investment - which would be true if tax rates were so high as to make investing in more risk-prone ventures no more attractive than their “safe” alternatives (aka tax rates + risk premium = safe return rate). This is however nowhere near the case, so net-net all these tax cuts did was free up a pool of money for Wall Street, thus triggering the….. - Housing Boom
All the extra money floating around needed a home, and much of it went to, well, homes. The additional cash had the dual (and reinforcing) effect of driving down the cost of credit, and driving up house prices. Inflated housing prices made people feel wealthy, and they took out home equity lines to supplement their income. This cash helped fuel much of the economic expansion of the last seven years, but as it wasn’t invested in anything that builds economic return, any gain from it is at best temporary. Even better, it all has to be paid back. But the housing boom has another dark side, in that it distracted people from the … - War on Terror!
During every one of the Bush administration’s years in office, it has run a deficit, largely due to the aforementioned tax cuts and defense spending. Much like the home equity loans above, the government has been stimulating the economy with deficit-spending, which, according to Keynesian economics, is just the sort of thing one does when one is trying to combat a recession. Contrary to popular belief, money for endeavors like the Iraq war does not go into a black hole – it goes directly into the hands of defense contractors, who in turn use it to buy stuff. This is the heart of the “war is good for the economy” argument, a statement which is not inherently wrong, but perhaps a bit misleading. Deficit spending can be good for the economy, but something like the war in Iraq is one of the worst uses of those funds. When one borrows in the present, one tries to invest in something that has a return. Investment in the future was just what Keynes had in mind; deficit spending used to build power plants, roads, schools, and telecommunications lines in the long run strengthens the economy, which allows one to pay back debt through increased tax revenue. Investment in bombs, on the other hand, is the equivalent of your borrowing money and just giving it to Best Buy. It might help the economy a bit, but your shiny new wide-screen TV isn’t going to generate much of a return a year down the road.
And thus we have two policies, and three pillars, which have supported an economy which would otherwise have been characterized as recessionary. Remove the trillion or so dollars a year the housing boom and deficit spending pumped into the economy and economic growth would have been decidedly negative. This is also why so few people have felt any improvement in living conditions or wages.
I believe this situation can be fixed, but massive government funded and or prodded fiscal mismanagement has created a very, very deep hole to climb out of. I’d suggest moving to Australia, but it would mean becoming a victim of our foreign policy.
*”The worst administration”, you ask quizzically. “Yes”, I reply, “No government has before done so much harm, perhaps even irreparable harm, in so short a time. If you don’t believe, me, you should read this.”
Spot on! And that’s why I moved to New Zealand 3 years ago and haven’t regretted it (though I miss family, friends and the soil of America).
Comment by Brent Lawrence — April 10, 2008 @ 11:28 pm
Its sad but true. Many of us voted for a buffoon who was known not for his academic prowess or intelligence but his cheerleading, drinking and nepotism. It an embarrassing complement on our political system, that with millions of smart and talented people ready to serve their country, we vote for losers who have more talent as used failed oil managers (Bush), B actors (Reagan) or low shelf lawyers from the great state of Arkansas. Hillary failed the bar three times before passing it. What does that say about her “brilliance” and the debarment of her husband for lying?
Comment by Steve Jones — April 10, 2008 @ 11:43 pm
The only thing Americans think they own is unfortunately their homes and cars on credit. Actually, the County owns everything and the home owners are just financing improvements on their rented land. This coupled with a declining dollar and outsourcing of American industry will result in a bananna republic in the near future. If you don’t think you’ll be around to see it, then you better plan on dieing or moving in the next two years.
Comment by Sara — April 11, 2008 @ 6:02 am
I’m so glad I wised up in the second election of this horribly enept, tradgic comedy of errors that continues with no real end in sight. What should we do, how about trying a return to unabashed civility on a grand universal scale. We have had a very long run of the other caustic, polarising, negative bashing everyone everywhere. How about if we just started treating everyone as we might like to be treated.
Comment by mike — April 11, 2008 @ 6:46 am
Actually, if we look back after 100 or more years in the future, we’ll see how deep, how wide and how severe the Americans hurt by Bush and his administration with no parallel in human history.
Comment by Dodge — April 11, 2008 @ 7:16 am
The Bush administration and it’s cronies were more than warned about their illegal war profiteering and war mongering misadventures.
This nation, the Congress and the next President needs to investigate, charge
try and imprison these thugs, hoodlums and criminals as well as seizing their overseas money accounts.
Comment by mikey — April 11, 2008 @ 8:50 am
Yet another Bush Lied people died, now he is responsible for all the ails the world has come to endure. It was greed, plain and simple greed that caused this financial situation. Trying to explain, in one’s own twisted and skewed view, the reality that plagues the world as one persons fault is simply DENIAL. IT WAS THE GREED, STUPID!
Comment by jasaz — April 11, 2008 @ 8:52 am
If the Bush tax cuts caused the housing/re-modeling boom isn’t this an example of trickle-down economics that Republican economists are always talking about?
I know more than a few lower to middle income people who sold their homes for vast profits to greedy upper-income speculators and left town (I live in SF) for somewhere cheaper, like Texas, where they could retire early on their gains.
Comment by Moloko — April 11, 2008 @ 9:37 am
Blaming everything on Bush Admin is pointless. This is a Democracy! People voted for Bush, not once, twice. Why? Didn’t we have a recession at the first George H. Bush’s admin? Why are people so forgetful? It seems Bill Clinton’s affair far outweighs everybody’s welfare. American people are self-righteous, self-centered and ignorant. That why we elected this president who most resemble us(not me, I didn’t vote for him). Blaming Bush Admin is like blaming american people.
Comment by Don — April 11, 2008 @ 9:52 am
Do “events make men” or “men make events”. Clearly most of your respondents think the President has greater control then history would indicate. The economic cycle clearly pointed to a nation losing growth momentum and in need of massive debt stimulus when Bush took office. It is not that debt fueled growth is good, but it was the nation’s only option at that stage of the cycle. Bush is only the fall guy.
Comment by Don — April 11, 2008 @ 10:22 am
I agree! Remove the FAKE MONEY! And the USA is messed up! Here is my solution to our problems!
1=150-200 Nuke plants @$1B each=Grant!
Must be exact similar designs 4 easy builds!
2=New law 50% of all cars sold in 5 years must be Electric & 25% Must Alt-comboE Fuels!
3=100% Employment by 2009 from above!
4=In 5yrs oil/coal consumption down 50%!
5=In 10yrs USA will be #1 AGAIN!
6=USA Debt & Social Security will be PAID!
7=Tell me I’m not right!
8=UYA USA!!!
Comment by repo4sale — April 11, 2008 @ 11:21 am
Off the subject, but Dodge… did you once live in Prague?
Comment by Debbie U — April 11, 2008 @ 12:18 pm
Last time I checked, we don’t elect a King — a President can’t do much without the consent of Congress and legislation passed by Congress. So . . . Pres. Bush had nothing to do with “tax cuts” — Congress passed the legislation — all Bush did was decide not to veto it and it became law. It is fine for Congress to put the blame on a President and to snooker the American sheeple into thinking that it is Bush’s War (no . . . Congress passed legislation telling the Commander in Chief to invade), or that it is Bush’s tax cuts (no . . . again, Congress passed the tax cut bills). The fact is that Congress is the blame — both political parties playing partisan politics instead of allowing the free market to work without all the laws messing things up. Or do we elect a King every 4 years and Congress is simply a President’s rubber stamp — if so, we are in trouble as a Republic — oh, wait, now we are a democracy, not a Republic.
Comment by Hadley V Baxendale — April 11, 2008 @ 12:38 pm
The rich and powerful own the remaining 95% of the population. You step out of line and these Lawyers / Politicians will write a law to control you even more.
Maybe a nice peaceful friendly march in the Capitol will serve as a reminder of who these people a supposed to work for. This political system has become a laughing stock, for those in the political trenches. Time shop was cleaned…
Comment by Zeppelin — April 11, 2008 @ 1:22 pm
The Bush Administration summarized in just ONE word: FRAUD!
FRAUD when he allegedly went to both Harvard and Yale ..yet cannot put a coherent sentence together in plain English and exhibits the IQ of a trucker.
FRAUD when he claims to represent everything that is decent ..yet supports torture, clandestine arrests/jails and illegal foreign invasions.
FRAUD when he claims to ‘fight terrorism’ ..yet has STILL failed to capture Osama Bin Laden and the REAL culprits of 9-11, while proving the USA to be the greater terrorist in the process.
FRAUD when he swore to uphold the Constitution of the US ..yet has done nothing more than VIOLATE it continuously from the outset.
If the US people voted for this dunce twice they deserve to go to hell TWO TIMES!. Allah Akbarrrrrrrrrr! It pleases me to watch this nation COLLAPSE under its own stupidity!
Comment by Dan — April 11, 2008 @ 1:26 pm
Also, I agree with Don “to a point”. Since the (Mid 60’s) there has been this tendency to live beyond our means. We have been running rampant as a nation since the drug generation evolved. I know, nobody inhaled. PACs (Political Action Committees) have been deeply rooted in these elected officials pockets for years. This is the GREED and CORRUPTION that has taken over the political system. Bring back hanging. Build the gallows, starting on Wall St. and clean out these “Rats Gone Wild”. Eliminate the IRS and the FED. Come up with a sales tax to pay for our future. Enact limits on spending, and lets start living by the Constitution. CLEAN SHOP is the ONLY WAY!
Comment by Zeppelin — April 11, 2008 @ 1:44 pm
By voting for GW Bush NOT ONCE BUT TWICE the US population has voted in favor of TORTURE, WAR CRIMES, ILLEGAL FOREIGN INVASIONS, MARKET FRAUD, CRONYISM and plain ol’ STUPIDITY.
And yet some are still SURPRISED that this nation is TANKING?. Please …
Comment by Sal — April 11, 2008 @ 2:58 pm
And what was the price of oil 7 years ago?
… and corn, wheat, fertilizer, milk …….
Comment by NB — April 11, 2008 @ 3:39 pm
Whoever voted Bush, they are paying for it in the next 20 yrs. hahaha… There are three bubbles, first one, housing, second, credit, and third, which hasn’t brust yet (but will soon) government debt. baby boomer are starting to retire this year. the next twenty yrs will be a funny year. and too bad, back in the 70, US sold all the gold that they had. Now, they have nothing to sell (maybe keep printing paper money).
Comment by no name — April 11, 2008 @ 4:47 pm
Roughly half the population has an IQ of 99 or less, so it doesn’t surprise me that many people voted for Bush. Voters want a president they can identify with. Thus, democrats try to take away votes from a stupid republican president by offering gifts and perks to stupid people. The republicans push back by promising the stupids that they will never have to think for themselves, that they are taken care of for life, and that the world will never change. It is a black and white world, with a god and a devil, and for any problem, there are only two possible solutions.
Of the people with IQ’s of 100 or above that voted for Bush, many were brainwashed by their parents to follow rules and live within a hierarchy. Others simply have never developed the right hemisphere of their brain, which is responsible for big picture thinking. And still others were just too busy living their lives to notice what was happening.
The Bush elections weren’t all that different from when Hitler came to power in Nazi Germany. Human nature being what it is, most people are too scared to think for themselves. When growing up, their parents and teachers took responsibility for their thoughts and decisions. When they became adults and left home, they looked to the government to satisfy their superego and make their decisions for them. Hitler put it best when he said, “What good fortune for government that people do not think.”
It’s an easy formula, appeal to people’s sense of nationalistic pride, stimulate their superego, touch off their greed, and then start a war to keep them fearful and distracted. Meanwhile, you can rob em blind.
The only way I see to stop these tragedies is to validate and reward children from a very early age for being unique and thinking independently. Such children would never put up with the BS control sick society that we live in that is completely cut off from perceiving the big picture. But our society is currently much to fear-based to allow that to happen anytime soon.
Thus, I expect our next president will be really super stupid and control sick–whether democrat or republican.
Ha ha, how about that war on drugs? We spent trillions of dollars and didn’t do a darned thing to curb addiction. We still have homeless drunks in the streets and meth addicts cooking for glory in our finest cities. We managed to get rid of Pablo Escobar, but it didn’t seem to stop the flow of cheap cocaine across our borders.
What did we get? Well, we got brain washed by a series of stupid presidents who ran up our national debt. But we also got something much more important, the feeling that someone held our hand through all those tough years.
Everything is exactly as the American voters wanted. The only reason they complain now is because the grass is always greener on the other side of the upcoming election. Although we don’t talk much about the drug war these days, we continue to fund it, which of course would be better funded by giving the money to intelligent scientists who actually have a shot at curing addiction. But Americans believe it is best to sweep it in the closet, continue paying for it, and then get on to the next multi-trillion dollar expensive topic. I suppose in a decade, we will still be financing the failed war on Iraq as well, but no one will say much about it. And long forgotten will be the fact that we declared war due to Iraq having WMD’s that endangered our children. Yet, when it came down to it, Iraq didn’t even have the power to launch a missile past its own borders. To think that some people are still so brainwashed that they believe we saved America from terrorists makes me shudder. But it goes back to what Hitler observed about governments profiting from people’s preference to not think.
IMO, President Bush isn’t nearly the Buffoon many people think he is. Prior to becoming president, he bilked those who invested into his company out of millions and walked out with a huge pile of cash for himself. Then he became President and bilked the country out of trillions. Yet, his daddy’s weapons stocks have shot through the roof, his oil buddies are making money hand over fist, and his own bank account has far more money in it than yours or mine will ever see. When you look at his track record of accomplishing what is important to him, he has a nearly perfect record. So what if his desires are to reward himself at your expense? Did you really believe that he cared about you? It’s time to wake up because we are about to elect a new president, which of course means we get to go back through the vicious cycle all over again.
Is a democracy a democracy when the media brainwashes 80% of the population to believe what rewards those in power? Do people who vote really have a choice when their vote has been pre-conceived by those in power?
If people are incapable of thinking for themselves and simply parrot one of two political religions preached everyday on their televisions, what does the meaning of “power to vote” really mean? Heck America, we are free just as long as we never think for ourselves and do exactly what we are told. As Mel Gibson once said in the movie Braveheart, “Freeeedooooom!!!” Then the powers that be cut off his head.
Life is about choices. You make good ones, and you are rewarded. You make bad ones, and your are punished. You can blame your choices on whomever seems convenient, but in the end, you made the choice, thus you must live with the consequences. That kind of means, that people need to be less emotional when making important choices and be more big-picture oriented.
America has made some bad choices. Now it needs to suffer the consequences. If it learns from this, it will be ok in the future. If it fails to learn, it will probably have to get used to bending over and taking its own lashing on the bottom side fairly often.
My best guess is that America will continue to freely borrow money without any concern of ever paying it back. This will go on right up until there is no more money to borrow. Our system is setup to fail. Nobody gives a rat’s rear-end about the long-term outlook. It is now, now, now. Gimme, gimme, gimme. I’m an impulsive mindless little baby, so please don’t make me have to think while you take care of me, make my decisions for me, and make me rich.
As you might expect to hear on American Idol, “America, you voted, and…”
Comment by jonness — April 11, 2008 @ 11:04 pm
I agree,Americans deserve the mess that they are in,whoever voted for bush must have been brain dead,this donkey does not belong in the white house he should be put away in a donkey barn,this international terrorist should be charged for war crimes,murder of thousands of innocent lives,treason,and prosecuted in the court of law,this monster alone destroyed the U.S. economy,the currency and the country and the only thing left to complete his job is to use his nukes and destroy the World.
Comment by momo — April 11, 2008 @ 11:25 pm
Republicans I know abroad still insist GW Bush is one of the greatest presidents ever, possibly even second after The Greatest, Reagan. When you point out the polls, they claim that Roosevelt was hated while in office or that Kennedy was considered incompetent (I don’t believe Kennedy is very highly rated anyway). The recent poll of American hstory professors by the History Channel which put Bush at or near the bottom of the list is discounted since all college teachers are communists anyway. This kind of SameThink is what got us into most of the messes we are in now.
Never before in history has so much time and effort gone into creating illusionary and transitory wealth. We made either financial wealth (debt) or consumer wealth (disposable crap). At the end of what Republicans tout as the greatest boom in history since God created America, only the rich are richer. Everyone else is screwed.
Bush, Rove, Cheney, Rumsfield, Gonazalez, Mukasey, Libby, Pelosi, Greenspan, Bernanke, Chayne, Prince, Weil, Blankenfein, and many others are guilty of the worst crimes against America and humanity in history. The elected and appointed officials on the list deserve death for treason and crimes against humanity. The others (Wall Street) should have all assets seized and be made to work in public hospitals or welfare centers until physically incapable of doing so.
Personally, I would gladly preside over a Great American Trial of all those involved and extract information from the accused using Waterboarding and all the other methods they so gleefully use and defend. Frankly, we should waterboard Bush, Cheney and Gonzalez just for fun.
Comment by Expat — April 12, 2008 @ 1:44 am
I just finished my bills for the month. So far my #1 expense category this year is medical, then house, with taxes following closely after. My point, out of control taxes and out of control medical costs. The government does not represent the working people. BTW, tell me more about New Zealand…
Comment by timjowes — April 12, 2008 @ 11:25 am
Nothing to do with Bush or Reagan (who introduced deficit spending) or Nixon (who got rid off dollar-gold back up). It is the American people themselves who are getting greadier and greadier with the generations, like the Roman emoire that collpased due to similar reason.
Comment by Sancaka — April 12, 2008 @ 11:26 am
AMEN!!!
Whoever wins in November is a soul to be pitied. He/She has the biggest mess in US history to clean up. There has never been such widespread corruption in government(YES,nonsense accounting by the government IS corruption) God save us all.
Comment by Mike — April 14, 2008 @ 10:28 pm
Consider:
Top 1% of population makes 21 PERCENT of all US income
Top 300,000 Americans make as much as bottom 150 MILLION!!!
Worst economic distribution since 1929…COINCIDENCE???? NOT!!!!
WAKE UP SHEEPLE!!!
Comment by Mike — April 14, 2008 @ 10:33 pm
So, there are a few really weak points in this article:
1. “if you want to stimulate the economy, you give money to people that plan on spending it.” I think this is very arguable. When we spend money on a god, where does the money go? Well, a portion goes to Wal-Mart (or whoever distributes the good) and a portion of it goes to China (or whoever manufactures the good). Since most of our goods come from outside the US, who is benefiting from this economic policy? On the flip side, if someone wealthy gets a tax break, what happens to the money? A portion of it goes to supplement their lifestyle, but another portion is probably invested - likely in whatever business the wealthy individual owns. So, if you work for a wealthy individual (or want to work for one) this economic plan has a reasonable chance of helping you out… This is not to get carried away with the concept, but just sticking it to the rich is bad policy, because those who work for the rich are the ones likely to get hurt.
2. This article seems to imply that the Bush tax cuts to the wealthy caused the housing crises. I’m curious about the stats, but I would seriously doubt many of the foreclosures are coming from the “wealthy” with the exception of home speculators who got caught upside down. If the tax cuts caused middle to low income folks to take huge risk in the housing market, then it would seem that they were seeing the affects of those tax cuts (contrary to the premise the the cuts were “for the rich”). I guess it is still possible that extra tax dollars inflated the housing market, but it would seems that those dollars would cause across-the-board inflation. But, since inflated housing prices have far exceeded inflation, it seems that something else is at work beyond just “more money.” I would say that low interest rates combined with ridiculous speculating is the culprit.
3. I completely agree that the economy has not been roaring the past seven years. It has not been as rosy as the GOP has been spinning it - but it hasn’t been as gloomy as the Dems spin it either. I think this article is remiss in omitting one significant event that took place seven years ago. That event changed many things in this country, and probably plays a much larger role that one man, even if that man is the president.
Comment by Brian — April 15, 2008 @ 5:47 pm
Add my Bookmark
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Comment by WebsterPetra33 — June 27, 2010 @ 7:34 pm