RALEIGH — The Democrats apparently have adopted a theme for this year’s elections. A vote for Republicans is a vote for the Bush-era policies that caused the economic crisis. A vote for the Democrats is a vote for the change that is getting us out. The problem with this narrative is that President Obama’s anti-recession policies have turned out to be little more than George W. Bush on steroids.
The policies of the Bush administration did, indeed, get us into this economic disaster. And the intensification of these policies has caused continued economic stagnation and increased unemployment. Obama’s monetary and fiscal policies have, in large part, been a continuation of bad policy choices made during the Bush years.
It is important to start with the Federal Reserve. The roots of our current economic crisis can be found in the monetary policies of first Alan Greenspan and then Ben Bernanke. This was a policy of inflating the money supply in order to keep interest rates artificially low. Interest rates should reflect the supply and demand for loanable funds, i.e., the amount that people are saving and the amount that people desire to borrow. When this is the case, investments tend to be consistent with present and future demand for goods and services.
These markets especially are important when it comes to interest rate-sensitive investments like housing and real estate. By depressing interest rates Federal Reserve policy was responsible for fueling the unsustainable investments that characterized the real estate bubble. Since these investments were unsustainable — i.e., inconsistent with consumers’ willingness and ability to pay — they fell apart. In the late 1990s, these same policies led to the dot-com bubble and the recession of 2001.
The important point here is that in January of this year Obama completely embraced these Bush-era policies by reappointing Bernanke for another six-year term as monetary czar. So much for change.
Obama’s anti-recession fiscal policies have consisted of stimulus spending and government bailouts, most notably in the financial and automobile industries, financed by massive budget deficits. But clearly this did not represent a change in direction from Bush administration policy.
Bush got the ball rolling in early 2008 with, by today’s standards, a modest “stimulus” plan costing the taxpayers $152 billion. The centerpiece of the bill was a Keynesian-style “income tax rebate” that doled cash out to people whether or not they had owed any tax. Then in October 2008 came the mother of all bailout bills, the $700 billion Troubled Asset Relief Program meant to save failing banks and financial institutions.
On Dec. 19, 2008, the Bush administration entered the business of bailing out the auto industry. Using TARP money, Bush’s Treasury Department authorized $13.4 billion in loans for GM and $4 billion for Chrysler, followed up 10 days later with the purchase by the U.S. Treasury of $5 billion in equity from GM. This gave the U.S. Treasury an ownership position in the company. All of this was partially financed by what, at the time, was considered to be a very large deficit of almost $460 billion.
The point of all this is to demonstrate that far from bringing a change in approach to fighting the recession, President Obama simply adopted the basic strategies that were being pursued by his predecessor. He embraced Bush’s policies and expanded them.
If Obama truly wanted to pursue a new strategy, he would have repealed the $700 billion TARP and refused to allocate any additional funds for business bailouts, regardless of how large the failing business was. Instead of implementing a new “stimulus” spending plan that was over seven times greater than the one George Bush pushed through a year earlier, Obama would have tried to find ways to cut the budget, shifting resources away from inefficient government spending toward consumer-oriented private-sector investment.
In other words, he would have reversed course truly instead of simply stepping on the accelerator and calling it change.
Dr. Roy Cordato is vice president for research and resident scholar at the John Locke Foundation.