When President George W. Bush (finally, mercifully) boarded Air Force One for the last time and made his exit from Washington in January of 2009, the U.S. appeared headed straight for another Great Depression.
Amidst the partisan clamoring and bellyaching that has been the bane of President Obama’s first two years in office, it is easy to forget just how apocalyptic things seemed then. Perhaps many of us have already blocked that critical period out of our memories, trying not to dwell on the irreversible damage that the financial sector’s criminal misconduct has created; millions of Americans continue to see vastly depleted retirement accounts, savings, and of course the official unemployment rate as measured by the Labor Department stands at a stubborn 9.3%. The whole ordeal has shaken our collective confidence in markets to accurately price risk and arrive at good outcomes, and left the economic security of far too many people in a continual state of uncertainty. Yet I feel that, given recent events and the idiotic insistence of Republican lawmakers that Obama has somehow further endangered the American economy, a brief review of where we were then (and where we are now) might be in order.
December 2007 marked the beginning of a collapse in financial markets which would persist for months and months to come. In March of 2008, Bear Sterns, a financial powerhouse which was considered in that perilous “too big to fail” category, collapsed, its subprime mortgage-backed assets caught up in the epidemic of toxic securities. That September, Lehman Brothers, another gargantuan Wall Street bank, filed for bankruptcy. The end of finance as we knew it seemed imminent; the economy was plunging into the depths of recession faster than any could have predicted—millions of people suddenly owed more on their mortgages than their houses were worth, a status quo which also led many to predict the end of residential fixed investment as a source of household wealth. The last two quarters of 2008 saw the overall economy contract at an alarming 4% and 6.8% rate, respectively, in the 3rd and 4th quarters of 2008. The Great Deregulation which, in all fairness, has been an ongoing venture since the days of the Carter Administration and has been the mantra of presidential administrations both Republican and Democratic alike, had finally been exposed as a recipe for unbridled greed and risk-taking which place our collective standard of living in grave peril.
The Bush Administration’s response to the crisis was (and regular readers of my column will know it takes a great deal of effort for me to find even a single Bush policy initiative with which I have agreed) a reasonable one. The Troubled Asset Relief Program (derided in the public discourse as the ‘bank bailout’) was a crucial first step to take in order to avoid a total collapse of our financial sector. Despite all their bad behavior and practices, well-functioning financial markets are imperative for any advanced economy, and particularly one as large and variegated as the U.S. economy. Of course, TARP was an expensive venture, committing the taxpayers to the purchase of some $700 billion in toxic bank assets, but I would argue it was a necessary one. The TARP measure received support from both sides of the aisle, despite the fact that the Bush Administration had already added nearly $5 TRILLION to the debt by the end of Bush’s 8 years in office. And that was during a mostly-good economy.
It’s sadly ironic, then, that the GOP and its nascent Tea Party faction, who were nowhere to be found or heard on issues of the deficit or debt when it came to multi-billion dollar tax cuts, two costly wars, an expensive prescription drug benefit, and the largest expansion of the size of government in recent memory under the Bush years, decided to wait until Barack Obama had inherited the disaster to begin the anti-spending, anti-government crusade. These guys act as if President Obama delights in adding to the Federal budget deficit and public debt; they forget that, of the total publicly-held U.S. debt, 40% of it has been a result of President Bush’s boom-time penchant for reckless spending, whereas a mere 8% has come from President Obama’s policies, all of which have been counter-cyclical measures such as extending unemployment benefits and direct economic stimulus to confront the disaster he faced upon taking office. President Obama entered office facing a $1.2 trillion projected budget deficit and, to boot, $245 billion of increased spending beginning in FY2009 which was actually spillover from Bush. It really makes one wonder: if the Tea Partiers and Republicans were apparently OK with a $700 billion TARP measure under Bush in 2008, what was the sudden change of heart that led to accusations of “socialism” and “reckless spending” only months later when President Obama enacted a stimulus package of similar size and magnitude ($787 billion)? The fact of the matter is that the attacks on Obama-era spending expose the extent to which the Republican posture of “small government, less spending” really means “small government if there’s a DEMOCRAT in the White House, less spending if it means spending for POOR and WORKING-CLASS Americans”.
Most important of all, though, we need to take to task the GOP claim that the stimulus package hasn’t worked. Despite the bleak scenario I outlined at the beginning of this column, in less than two years’ time the prospects for U.S. growth look much improved, and are improving every day. Would we all like to see more rapid reductions in unemployment and greater improvements in labor market conditions? No question. But, objectively, under President Obama the economy has gone from a nearly 7% rate of contraction to six straight quarters of growth, with a 3.2% rate of annualized GDP growth in the 4th Quarter of 2010 characterized by high corporate profits and job growth led entirely by the PRIVATE sector (not, as Republicans repeatedly assert, growth in the government sector). Banks have gone from bankruptcy to multi-billion dollar profits. The Dow Jones has passed the 12,000 point threshold for the first time in 2 ½ years. The International Monetary Fund released a report last week which upgraded its forecasts of growth for the American economy, and attributed the more optimistic assessment to the prudent fiscal policies of the Obama Administration.
As a new Republican-controlled House of Representatives seeks an all-out repeal of health care reform, let us please remember the lunacy of the GOP logic: the party which got us into the mess and spent, spent, spent during the 2000s decade now wants the American people to trust them over the President who has actually managed to extricate us from the depths of depression. Now isn’t that rich.