But Bush also had learned from Reagan that incentives (more than anything else) drive a free economy right back up. So Bush adopted the Reagan recovery pattern. My colleague Peter Wallison recently recounted how: first, one set of across-the-board personal tax cuts retroactive to the beginning of 2001. Followed by another series of tax cuts in 2003 to reduce investment taxes. That gave new businesses a fresh incentive. Once these incentives were in place, the nation sprang out of that nightmare-time quite quickly. Just as it had under Reagan (and as it had under Jack Kennedy in the 1960s).
As Wallison points out, the Bush tax cuts “stimulated consistent job and salary growth: an average of almost 1 percent a year in job growth between 2001 and 2007 and almost 1.8 percent growth in real wages and salaries over the same period.” Under Bush, U.S. GDP grew at a rate of 2.8 percent through 2007.
Wallison compares this with the Obama record in the 36 months between the end of the recession in June 2009 and June 2012: “In that period, when one would expect the fastest GDP growth — after a steep recession — the average has been 2.4 percent . . . [while] job growth has averaged .64 percent per year, and real wages and salaries have been stagnant. Not a very good return on an $800 billion stimulus investment.”
A pitiful result, many of us think. Which only a naif would boast of.
In fact, 2007 was one of the economy’s five best years ever, in terms of the unemployment rate (4.6 percent) and the actual numbers employed (14.6 million); and also in terms of inflation (2.8 percent) and mortgage rates (6.34 percent for a 30-year fixed-rate mortgage). The Bush economic policy worked smashingly well, until — the crash.
What crashed in September 2008 was the housing market. That crash was not caused by Bush-era tax cuts. It was caused by the house of cards that Congress had built of home mortgages, the bread-and-butter underpinning of many financial institutions. As Wallison points out, Bush did not do enough to stop the flood of very weak mortgage payments, often behind schedule, often in serious default, that were about to engulf the entire financial system. At that point, Wallison adds, the U.S. financial system was supporting half of all U.S. mortgages on very weak grounds, and “74 percent of these were on the balance sheets of government agencies like the GSEs [government-supported agencies] and the Federal Housing Administration.”
President Obama’s mantra blames President Bush for the collapse of 2008. But President George W. Bush did better in overcoming his recession in four years than Obama has done in his four years. And, as I noted yesterday, President Reagan did better than both, from a deeper hole.
To be blunt: President Obama’s economic policies have dug a hole far worse than the one he stepped into in 2008, and his mantra blames exactly the wrong economic theory. Pity his successor. Think of the mess that poor man will inherit.
— Michael Novak is a distinguished visiting professor at Ave Maria University and a co-author, with Jana Novak, of Washington’s God: Religion, Liberty, and the Father of Our Country.