The Corner

‘The Hole that We’re In’

Look, as a conservative who dragged my six-months-pregnant wife from beautiful Colorado to the swamp of Washington, D.C., in 2004 to serve Pres. George W. Bush, no one was more frustrated by the big-government growth that occurred under Republican rule than me. That said, I have grown tired of the near-constant assault on the Bush years, especially when those assaults focus on the economic weakness of those years and conveniently ignore what happened in the few years before President Bush took office. Today, Pres. Barack Obama once again hit the Bush years: “It took nearly a decade to dig the hole that we’re in.” But it is intellectually and factually dishonest to ignore the alleged boom years of the Clinton presidency.

As I wrote in “The Lost Decade: Reevaluating the False Booms of the Clinton and Bush Years,” the Clinton boom was built upon the mirage of the dot-com and technology craze, as well as the book-cooking of companies like Enron, Global Crossing, and WorldCom. The fact of the mirage is clear when one looks at the S&P 500. Specifically:

On December 9, 1994, the S&P 500 traded at 446.96. From that day until May 24, 2000, it grew by 242%, or an annualized growth rate of 26.15%, to a then record 1,527.46. Even the dotcom and corporate fraud bust failed to totally squeeze the inflated gains out of the market. On January 19, 2001, the day before Bush started his presidency, the S&P 500 traded at 1,342.54, which was still a 200% net gain from December 1994 or a 19.71% annualized growth rate.” Although written in January 2009, when the S&P 500 traded slightly lower than it is today, “[t]he reality is that the current trading price at around 900 is where the S&P 500 would have been had it grown at 5% per year, which is close to the pre-December 1994 annualized growth rate.

The piece goes on to look at the housing bubble and makes the same comparison regarding historical growth compared to the bubble growth that occurred from 1997 to 2006. Using the Case-Shiller Home Price Index, I noted that the “historical average yearly growth rate for housing for the ten-year period before 1997 was roughly 19%. In January 1997, the C-S Index stood at 78.08. From that month to June 2006, it rose to the dizzying height of 226.29, which equated to a 190% net increase, or 20% per year average gain. Such an increase was utterly unrealistic and unsustainable.” Indeed.

And as I said in January 2009, “Given the economic recession, it is possible that the market will drop even more as consumers further tighten their wallets, the housing market declines, and government weakens the dollar with unprecedented rate cuts and by continued profligate spending.… As the S&P 500 and the C-S Index settle into their historical growth patterns, we must face the consequences of the ‘lost decade.’ For Americans who lived beyond their means or speculated during the bubble, that equates to bankruptcies and foreclosures. For those of us who played by the rules, that means significant losses in our retirement and our kids’ education accounts, as well as ‘paper’ losses in our home equity. While painful, those of us still employed and young enough have time to rebuild. We are the ‘lucky’ ones. The Clinton/Bush recession also means the loss of jobs, delayed retirements, and retirements suspended for many Americans. For them, we must hope that the recession doesn’t get worse or last too long so that they can get back on their feet.”

If we are going to talk about holes being dug, can we at least do so honestly?

Matt A. Mayer is president of the Buckeye Institute.

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