The Bush-Obama Era


Photo Courtesy of the White House Museum


Economically speaking, the George W. Bush administration was bracketed by bubbles.  It opened in the recessionary wake of the bursting of the dotcom bubble.  It ended, and the Obama administration commenced, with the drama of a world financial crisis, a stock market crash, the depression in real estate values, and the beginning of the Great Recession.

Political historians understandably are and predictably will remain fixated on the drama and heroism of 9/11, the Iraq war, and a polarized nation.  But of at least equal, and arguably greater, importance is the economic stagnation that beset America during both administrations.  That economic stagnation may be seen in the erosion of wages for workers, in the increase of unemployment, and of the intensification of poverty.

Unemployment is the marquee indicator.  Addressing the political skirmishing around poor job growth, The Washington Post’s fact checkers concluded, on May 21, 2012:

There’s no perfectly objective way of looking at employment numbers in this case, since people disagree about when to begin blaming Obama for the lackluster job growth of recent years and when to stop faulting Bush. Then there’s the question of when to start the clock on Bush, since he inherited a bit of a recession himself.

We sliced the numbers at least a half dozen ways and realized that Obama and Bush could both win the award for worst jobs record, depending on what timetable we used. Here’s a sampling of the various results we came up with:

Obama worse than Bush

Bush’s entire tenure: +11,400 jobs per month

Obama’s entire tenure: -14,300 jobs per month

Bush worse than Obama

Obama’s tenure minus Great Recession: +71,000 jobs per month

Bush’s tenure plus Great Recession: -19,200 jobs per month

The Post goes on to slice and dice the numbers in a variety of ways and concludes “neither president has a great track record, but neither of them has a clear advantage over the other.”   This formulation politely avoids the observation that — under two dramatically different presidents, one Republican, one Democrat, and dramatically different circumstances and policies (but both with aggressive deficit spending) — this era evidences nothing but stagnation.

Contrast it with the 14+ million jobs created under Reagan’s eight years in office and the 20+ million under Clinton’s.  The right policy mix allows America to generate millions, not thousands, of jobs per month: prosperity.

A common denominator for both administrations is the Federal Reserve: monetary policy.  After the long prosperity of the “great moderation” established by Fed Chairman Paul Volcker and maintained, during the first half of his tenure, by the “Maestro” technocrat Alan Greenspan, quality of Fed policy began to slump dramatically.

As The Economist noted about both Chairman Greenspan and Chairman Ben Bernanke’s defense of their records:

In Mr Greenspan's telling, central banks were innocent and impotent bystanders in a global macroeconomic shift. Thanks to the end of the cold war and reform in China, he argues, hundreds of millions of workers were absorbed into the global economy. As GDP growth in emerging economies soared, their consumption could not keep up with rapidly rising income, and saving rose. The rise in desired global saving relative to desired investment caused a global decline in long-term rates, which became delinked from the short-term rates that central bankers control.

This explanation is broadly similar to the idea of a “global saving glut” which Ben Bernanke, the Fed's current chairman, has long espoused. The similarities between the two men's defence of their monetary records do not end there. The most combative section in Mr Greenspan's paper—arguing that monetary policy in the early 2000s was not a cause of the housing bubble—is strikingly similar to a speech given by Mr Bernanke at the American Economics Association's annual meeting in January.

The Economist finds these arguments unconvincing:

There is something odd about central bankers denying any responsibility at all for long-term rates, which are, in principle, based partly on an assessment of a stream of short-term rates. Nor is it clear that low short-term rates were as irrelevant as Messrs Bernanke and Greenspan suggest. Jeremy Stein of Harvard University, a discussant of Mr Greenspan's Brookings paper, points out that low policy rates may have mattered a great deal for income-constrained borrowers. He points out that adjustable-rate mortgages were used much more in expensive cities, a trend that became more pronounced as the fund rates fell.

By looking only at the effect of monetary policy on house prices, Messrs Bernanke and Greenspan also take too narrow a view of the potential effect of low policy rates. Several economists have argued convincingly, for instance, that low policy rates fuelled broader leverage growth in securitised markets.

One is reluctant to indict a president for failure to appreciate the potency and centrality of monetary policy to economic growth and job creation.  Keynes, in The Economic Consequences of the Peace, wrote, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Great men like Churchill, while chancellor of the Exchequer, got monetary policy brutally wrong.  Peter L. Bernstein's The Power of Gold: The History of an Obsession wrote:

Between the end of December and the deadline at the end of April, Churchill would spend a miserable four months trying to come to grips with the matter (of monetary policy).  'When I held other offices under the Crown, he complained to a friend, 'I could always find out where I was.  Here I'm lost and reduced to groping.'  He also grumbled that "The governor [Norman] shows himself perfectly happy in the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed.' A senior advisor, Otto Niemeyer of the Treasury, observed that "None of the witch doctors see eye to eye and Winston cannot make up his mind from day to day whether he is a gold bug or a pure inflationist."

Yet history demonstrates that much as war, as wryly noted by Clemenceau, “is too important a matter to be left to the military,” monetary policy is too important to be left to central bankers.  No matter how technically proficient and civic minded Alan Greenspan or his successor might be, managing a fiduciary currency consistently well over long periods is a demonstrated impossibility.

Central planning in other areas, such as industrial policy, has been discredited and repudiated.  While the gold standard is by no means perfect, its historical record — in terms of job creation, stability, and security — shows it to be unrivaled by the record of any managed fiduciary currency.  It is due to poor monetary policy for the past decade, and the absence of what Lehrman Institute founder and chairman Lewis E. Lehrman has called the golden “gyroscope”, that America — and the world — has found itself mired in a state of monetary and financial disorder and economic stagnation.

Next: Fed Chairman Ben Bernanke

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