I don't think we need to say much about President George H.W. Bush, since everybody everywhere is saying almost all that needs to be said. But one thing I haven't seen said -- and if I haven't seen it, it must not have been said as much as it should have been -- is this: Bush lost for Reagan's sin.
Bush had accurately named what was later called Reaganomics when he called it "voodoo economics." It grew out of a truism (tax rates can be too high or too low) drawn on a cocktail napkin with mathematical-looking precision but lacking any kind of rigor that would make it useful. In 1980 Bush named it and shamed it.
As vice president, he had to keep his mouth shut while his principal lit the fires, beat the drums and found someone to put a magic asterisk in the budget. Then when he became president, the voodoo destroyed him.
Everybody everywhere knows he said "voodoo economics" and everybody everywhere knows he lost in 1988 because it really was "the economy, stupid." But not everybody seems able to connect the dots: Bush knew what would happen, and when it happened he did what was good for the country, not what was good for GHWB.
Voodoo economics was tried again, by Bush 43, and it blew up just in time for Obama to deal with it. It was tried for a third time, by outgoing House Speaker Paul Ryan (signed by the fat man who grasps economics as easily as he reads hieroglyphics), and we will see who has to deal with the inevitable fallout. Fool me once, shame on you. Fool me twice, shame on me. Fool me a third time, sheesh.
Hi, just a friendly correction: he won in 1988, lost in 1992. Thinking about it, I had to Google to recall who he defeated in 1988. For that matter, yesterday I had to Google to recall who his vice president was.
ReplyDeleteFWIW: here is the list of Republicans who have been president during my lifetime:
Richard Nixon
Ronald Reagan
George HW Bush
George W Bush
Donald Trump
Of them, Reagan was the greatest politician. But GHWB was the greatest statesman. Was he the greatest Republican statesman of the 20th century? Eisenhower was before my time, and his presidency is sort of a concealed portrait to me, so I offer no opinion. If GHWB outstrips Dwight, then you have to go back pretty early into the century to find the rest of his competition. I don't claim to be a historian, but he's certainly in the team photo. What about before that? Any Republicans between him and Lincoln?
Jim, the first one I can think of is Theodore Roosevelt. Liked war and imperialism but reined in monopolies and set up the national park system.
DeleteTR, given the times, was a pretty good president. Also something of a populist in the best sense.
Delete"Theodore Roosevelt: Letters to His Children" is one of the most charming things I have ever read.
Stanley, TR is a good call-out. A very different sort of Republican than what the post-Reagan GOP has presented us.
DeleteRe: Roosevelt and war: he was a scholar of war, and also was personally a man's man, and taking personal risks helped create and sustain his public persona. If I'm not mistaken, the US didn't go to during his presidency. As president he was a peacemaker: his administration negotiated the Treaty of Portsmouth that ended the Sino-Russian war. His populism also consisted of taking on Henry Ford and the other industrial barons - he was in favor of trust-busting.
Voodoo economics is just trickle-down, isn't it? Same deal as the Trump tax cut. It frontloads money to the wealthy with the idea that they will make jobs with it, thus trickling down the bounty to the deserving proles willing to work hard.
ReplyDeleteIn theory, it sounds like a great idea, but it merely rewards and maintains the status quo. It also relies on a sunny fiction of the type Americans have loved since Horatio Alger's newsboys became millionaires--that people aren't greedy cruds.
Voodoo ec ignores that those who get the money increase their own take first, and then use some of the proceeds to buy influence that keep worker wages low, that keep regulations loose, and that fund the campaigns of friendly congressional stooges.
GHWB seemed to understand this until he started licking Reagan's face like a big dumb dog.
Imo, Bush pulled himself off the dungheap of Reaganism by having clear and limited goals for Operation Desert Storm and for emphasizing community service.
And there was Barbara Bush, who was quietly doing volunteer work and making jokes about her "pearl" necklace while Nancy Reagan was consulting astrologers. I could forgive George a lot for having married her.
Jean, I disagree. Trickle-down is shorthand for what JFK described as "a rising tide lifts all boats." Trickle down actually worked until almost 1980, when some of the people riding the tide up drilled holes in other people's boats.
DeleteVoodoo economics, on the other hand, is based on the proposition that you can increase taxes by reducing taxes, which was proved one boozy night by Arthur Laffler at Michael One pub, to the satisfaction of the Wall Street Journal editorial board. The lower the taxes are on the rich, the more incentive the rich have to work, because they can keep so much money, whereas if they are overtaxed they would quit working and never go out, and millions of other taxpayers' jobs would be lost. Ergo the more you cut taxes the more revenue you take in. Paul Ryan could be heard blubbering that as recently as last spring. Papa Doc would understand.
I defer to your more detailed explanation, Tom, but voodoo and trickle-down both rely on giving economic privileges to the rich with the idea that bounty for all will accrue, no?
DeleteJean. I think the point of trickle-down was that if the economy overall was rising, good things would happen automatically -- jobs would appear, wages would go up, profits would be re-invested, happy days would be here again. When the plutocrats realized that profits could rise without new jobs or wages going up (if the plutocrats simply kept the profits for themselves) the rising tides began to swamp many boats.
DeleteVoodoo economics was a something-for-nothing plot: The government could increase revenue by cutting taxes. The tax cuts always came first. The revenue, even in Reagan's time, was promised for when the blue of the night met the gold of Fort Knox, which was in a vault where it couldn't tell day from night.
The rich rise either way. But with trickle-down, they rise with the tide. With Voodoo they are assumed to be ready and willing to CAUSE the tide.
DeleteTrickle-down might have made sense in the 19th century, or even a good part of the 20th century, when investment meant buying equipment or building factories or ships or railroads that would generate jobs. But the financial industry has become so incredibly detached from the parts of the economy that we working stiffs rely on (derivatives swaps future contracts?) that stimulating investment only has the effect of enriching investors (and, probably, impoverishing some others, as there are two sides to every trade).
DeleteManufacturing jobs still exist, and are still an important part of the economy, and I'd like to think that tax cuts could be more targeted to encourage productive investment by small business owners and entrepreneurs, i.e. the people who actually generate new jobs. But it doesn't seem like the political process allows for anything that rational and modest in scope.
Hi, a few comments.
ReplyDeleteIt's easy to overestimate the impact that any president has on the economy. Personally, I think a lot of good things came out of the era of Reagan's presidency, but how much of that to attribute to his administration's fiscal and regulatory policies, and how much to attribute to matters beyond a president's direct control (e.g. Federal Reserve policy, the effects of international events, investor psychology and so on) is complicated. I'd note that, when Reagan came into office, the prevailing economic issues was "stagflation", petroleum-market price shocks and high interest rates. Probably, the monetary policies enacted by the Fed under Paul Volcker, which started during President Carter and continued through Reagan's presidency, were at least as influential, perhaps more influential in fixing those problems, than the tax cuts and deregulation pursued by Reagan. The Fed having stabilized and moderated inflation and interest rates, the foundation was laid for the sustained economic growth that took place during the last six years that Reagan was in office.
I'd also argue that the basic formula that Reagan and the Fed put in place continued on afterward, at least through the Clinton years. Clinton's overall economic performance looks pretty good in retrospect; those were the years of the dot-com boom. A lot of my peers who were savvier and more risk-taking than me jumped on that, and some of them did very well.
In my opinion, the end of the dot-com boom was the most significant economic event of the last 30 years. I'd rank it even ahead of the so-called "Great Recession". The dot-com crash seemingly was the inflection point: GDP growth from 1983, when the economy emerged from the Volcker- and Reagan-engineered recession, until the tech bubble burst in 2000, was consistently 3%-4% or even higher (average annual GDP for those years: 3.8%). In the years since the dot-com bust, annual GDP has crossed the 3% threshold only a couple of years. Neither Obama nor Trump, who together have (at least up till now) presided over a very long period of economic growth, have managed to crank up GDP to 3% in any year of their presidency. But see my first remark: we may be giving them too much credit or too much blame.
At any rate, I guess my view of the "voodoo economics" remark is that history has been unkind to George HW Bush. Reagan won that election, proceeded with his program of 'voodoo economics', and if we give presidents credit for economic events under their watch, Reagan gets credit for a period of growth that we can only envy today (4.5% average annual GDP after the initial recession ended at the beginning of his term).
And then GHWB became president, and if presidents get credit for what happens under their watch, we need to blame him for the economy going a little haywire. In 1989, the first year of his presidency, the economy grew nearly 12%, which is so good it's bad; the economy then contracted severely, registering a 5.5% contraction the following year (triggered mainly by the S&L crisis) and staying flat the following year. By the 1992 campaign, Bill Clinton was riding "It's the economy, stupid" into the White House.
As you point out, the tech bubble burst in 2000. And then in 2001 "9/11" put the frosting on the cake. My employer was an electronics components manufacturer, and the combination of those events hit them hard. However the military was and is a big customer, and that helped tide them over. People approaching retirement age took a big hit. Some people lost a big chunk of their 401k. I lost some, but being pretty risk-adverse I had stayed out of the high-roller funds. What was worse was that the company froze their defined pension fund. What was already there was safe, but no new contributions from either the company or the employee were allowed. And no new people were allowed into the fund. Bottom line, the income from that is about half what it would have been had they continued to fund it. I guess one has to look at it as a glass half full! Now of course when you say "pension", people my kids' age and younger look at you and say, "What's that?"
DeleteJim, Thanks for the correction on the year of "the economy, stupid."
DeleteAs you say, it's easy to overestimate the effect of any president on the economy, which is a mix of many factors, including, but not limited to, the imaginary business cycle, interest rates (influenced by Fed actions), invention, bubbles (the result of collective amnesia) and the federal budget. The various factors interact. So, a new machine that can replace 10 workers may be rolled out by the manufacturer, but nobody buys it at first because interest rates are so high financing the purchase will cost too much. When interest rates come down two years later, everybody buys the machine, and layoffs follow. What "caused" the layoffs -- the machine or the interest rates?"
Rarely does a factor have an immediate effect. We just saw the stock market soar when the president said he made the greatest deal ever with China and the trade war was almost over and then plunge when China failed to say the same thing. You don't usually see such fast results.
Federal deficit spending produces a technical bubble, as it is doing now because Paul Ryan is a genius. When the tax-cut effect (sugar rush) wears off and the first, feeble effort is made (in the tax cut law passed last year) to re-balance the budget, Paul Ryan will become an idiot in retirement.
The time period you cover saw not one but two very predictable bubbles. (I predicted in print the collapse of both, and I ain't Alan Greenspan.) Bubbles are, by nature, not sustainable. Recovery in both cases, especially the Great Recession -- caused by banking playing race track games with mortgages -- is retarded by federal deficits, which are caused by voodoo economics, or the assumption, as I say, that the rich can cause a rising tide if they are only coddled enough with tax cuts. Those are the "tax cuts that pay for themselves" but never do, and the last Ryan budget is chock full of them.
Jim, I worked in intl econ for years. I believe that your analysis is pretty much on target. The observation that presidents don't have as much influence on the real economy as some think is also on target. Tom is also right in pointing out the incredible complexity of the interactions of different aspects of the domestic and world economies, most of which are not controlled by the president.
DeleteAs you pointed out, one must consider the lags. Clinton got the benefit of some of what George HW Bush did. Obama had to deal with the problems caused by the previous administration. Trump rode the positive trends rooted in Obama's work up until recently. Now his own policies are kicking in, and it's looking like that a rough ride is coming. The stock market gyrations are one sign of trouble, along with the slowing of the housing market. The stock market continued to rise after Obama left office. But it's been in the same trading range this entire year. Next year may see a falling market. A significant part of the economy is tied up with the housing market, which is slowing, and when it slows a lot, it drags down all of the related industries (appliances, furniture and other household goods and services, real estate, etc)
The economy and the stock market are now responding to Trump's policies - the spikes and drops in the stock market recently are tied to trade policy and there are signs of a slowing real economy. Neither my husband nor I ever worked for a company with a pension plan. Since our retirement is SS and IRA/401K money, we watch the stock market with trepidation. But, a 2008-2009 level crash is unlikely. I hope.
The US has not followed highly protectionist trade policies for many decades, and this has been to the benefit of the US as well as to our trading partners, and especially to the developing countries, many of which emerged from deep poverty due to (more or less) free trade policies in the world economy. The new tariffs are starting to do some damage in the US, especially to marginal manufacturers, which are laying off staff and cutting production because the cost of their raw materials has gone up. Trump's ability to continue to buy the agricultural sector's votes through bail-outs (didn't the GOP oppose Obama's bailouts?) is limited. Not every industry hurt by his economic policies can be bailed out, and the current subsidies will only save the farmers for a limited time. And then what? Obama's bail-outs were done during the weakest economy the US experienced in decades. Trump's bailouts are ludicrous, because he inherited a strong economy and is using tools normally used to stimulate growth in a weak economy. The Fed may save us in the end.
Will the tariffs remain? Who knows? The manufacturing and ag sectors need some certainty about the future cost of their inputs, and worry about the likely damage to the price competitiveness of their exports down the road.
The recent tax cuts have not had the dramatic impact on the economy that the GOP promised. Maybe a small boost to employment and business investment. Nominal wages have increased slightly, but inflation has outpaced that gain, so real wages are slightly down. The once debt-averse GOP has created a skyrocketing deficit that will cause serious problems a few quarters hence.
I hadn't thought about the dot-com bubble burst being an inflection point in the long-term growth trend. Perhaps you are right. The US is a mature economy, and GDP growth slows as economies mature. The high growth economies are the emerging economies. If Trump’s policies continue, and if other countries also turn to protectionism, the entire world economy will suffer. Then what? The long-term damage from this president's policies, if allowed to continue, is hard to assess, but may result in another restructuring of the US economy . It is not likely to be good.
As a PS - with years of studying economic forecasts during my career, I must note that most of them, including my own, are not worth the paper (or pixels) they are printed on (displayed with). One year a forecaster is right. The next year, dead wrong.
DeleteEconomics is pretty much all voodoo. Individual impacts of specific policies can be estimated in a general way in isolation - when holding all variables constant. Not exactly the real world.
National economies, ours and the rest of the world's, and the world's economy as linked, are way too complex to be able to predict much of anything. Add in an exogenous shock or two....
Anne, I'm really grateful for your comments. It was with some trepidation that I offered my views, suspecting you'd be reading them :-).
DeleteIf all economics is voodoo, all I can say is, Trump and his fellow travelers have bad mojo now. I'm aghast about the tariffs and trade wars. What the !@#$ happened to conservatives when it comes to economics? Pardon my French.
Just a comment on Bush's "kinder, gentler nation". It was certainly true for me as a government worker. Reagan wouldn't even get photographed with the Government Employee of the Year. Reagan's years were a drought for pay increases. When Bush took over, there was suddenly a loosening of pay increases including locality pay. Looking back, I'm thinking Bush did more to unReaganize the country than Clinton.
ReplyDelete