One Final Look At The Disaster Of Bush's Economic Record

I have been no friend of this expansion. There are several reasons. The first is the mammoth accumulation of debt which has occurred over the last eight years. When I started writing about the economy four or so years ago this was one of the figure that literally jumped right out at me. Secondly, when people have to tell you the economy is doing well instead of actually seeing it for yourself you know you've got a problem - and that is something which has been happening on a regular basis for the last few years. Everyone has continually had to tell me things are really going well.

The heart of the problem starts with job growth - or more precisely, the lack of job growth.

First, we have this graph from Spencer England's Economic Review. It clearly shows that establishment job growth during this expansion was the worst of any expansion since 1958.

As the result of lack of job growth, upward wage pressure is non-existent. As a result, real median household income (that's inflation adjusted) was at a level which according to the Census Bureau is, "not statistically different from a 1999 pre-recession peak." That means we went through an entire expansion without a pay raise for most Americans.

Republicans have become extremely adept at playing with economic figures. Case in point: some Republicans have argued that because the unemployment rate was low when the expansion started the Republican policies didn't have to create more jobs than those created. In other words, because more people were employed at the beginning of this expansion fewer jobs had to be created.

There are several problems with this argument.

First, look at the lack of growth in real median family income. That indicates there was not enough job scarcity to force wages higher. Simple econ: if you have fewer people to apply for job openings you will have to increase wages to attract them. Because incomes didn't increase we have a good idea that job growth was weak.

Secondly, let's look at job growth relative to population growth. According to the National Bureau of Economic Research this expansion started in November 2001 when there were 130,901,000 jobs. The highest level of total establishment jobs occurred in December 2007 when there were 138,078,000 jobs. That means the best reading of total establishment job growth places the figure at 7,177,000 jobs over six years and one month or 73 months. Economists estimate that it takes a minimum of 150,000 jobs to be created every month to absorb population increases and naturally occurring job losses. Using the 150,000 figure and multiplying it by 73 months (November 2001 to December 2007) we get 10,950,000, or the economy must create that number of jobs over the 73 months to absorb job losses and population growth. In other words, the economy needed to create 3,774,000 more jobs than it created to deal with natural economic and population events.

No matter how you slice and dice the numbers, there is no way to make the Bush record of job creation look anything less than terrible.

Let's look a bit deeper into the expansion. Consumer spending makes up 70% of US GDP. So for the economy to expand, people need to keep spending. At the beginning of this expansion, the US was saving about 2% of their paychecks. That means the US consumer was pretty much spending everything they made. Although the US consumer kept spending for the duration of the expansion he didn't see any increase in real income. So - where did this extra money come from?

Massive amounts of consumer debt. Notice the mammoth increase in consumer debt over the last 8 years (thanks to Prudent Bear for the following charts):

And notice the total household debt outstanding is now about as much as total US GDP:

In other words, the US consumer borrowed a boat load of money for the latest expansion. This is a prime reason why some economists (myself included) have been concerned about this expansion. All of the purchases have not been from an increase in earnings; they have been financed on credit.

So, from the consumer side we have the weakest job growth in 40 years, no income growth and a mammoth accumulation of household debt.

Let's take a look at the Federal side of the equation.

Bush tried the Reagan plan of cutting taxes on the upper income levels and increasing spending, basically assuming that the tax cuts would pay for themselves. Unfortunately things did not work out very well. The following chart from the St. Louis Federal Reserve shows that under Reagan government revenues never caught up to government expenditures. Also note they never did under Bush II either.

According to the Congressional Budget Office total revenues from the Federal Government increased from $1.991 trillion in 2001 (when the first tax cuts occurred) to $2.568 trillion in 2007 for an increase of 29%. Over the same period we saw outlays increase from $1.863 trillion to $2.728 trillion for an increase of 46%. As a result the US is once again issuing mountains of debt. Note the following amounts of total debt outstanding from the Bureau of Public Debt:

09/30/2001 $5,807,463,412,200.06
09/30/2002 $6,228,235,965,597.16
09/30/2003 $6,783,231,062,743.62
09/30/2004 $7,379,052,696,330.32
09/30/2005 $7,932,709,661,723.50
09/30/2006 $8,506,973,899,215.23
09/30/2007 $9,007,653,372,262.48
09/30/2008 $10,024,724,896,912.49

Total debt outstanding is now $10,523,955,355,856.66

Notice that since 2003 the total debt outstanding has increased by over $500 billion per year. That means the federal budget was never even close to being balanced even at the outset of the Bush administration. In addition, the US is now heavily dependent on foreign purchasers to finance our way of life. Notice that foreign purchasers of US debt have more than doubled over the last 8 years:

The conclusion is clear. Job growth was extremely weak which lead to income stagnation. To keep up their spending, the US consumer borrowed a ton of money. At the federal level Bush attempted to prove the results of the "Reagan revolution" were a historical anomaly. Instead, we learned that tax cuts don't pay for themselves (again).

Comments

[JBS]

Looking at your charts, it appears there was a brief period from approcimately 1996 to mid-2000 when Federal revenues DID exceed Federal expenditures. What was happening then.

[DuganS1]

Job growth was lower this cycle because it started from a much higher base since the 2001-early 2003 recession was so shallow. Had the recession been greater, the subsequent job growth would have been greater. The small growth in real median income is not telling because according to that statistic, which is a poor one (it's down because of housing inflation, which many don't see or even benefit from, plus doesn't include fringe benefits, or fed tax cuts), incomes haven't grown much since 1973. The increase in consumer debt is almost all from people paying up for homes from 2004-2007 in severawl metro areas (CA, FL, Vegas, Phoenix). Household debt for renters is actually down and household debt for those with homes paid for or who bought before 2000 is down. Reagan tax cuts didn't pay for themselves because interest rates were increased dramatically. The job creation to match population growth is not telling because it doesn't take into account the job participation rate which is going down- one reason16-21 year olds are working less and staying in school more. Regarding the George W Bush budget deficits, the 2006 and 2007 deficits were smaller as a percentage of GDP than 7 of the 10 1970s budget deficits. The 2001 and 2002 deficits were large because of the dropoff in economy and huge droppoff in taxes from capital gains-a big reason govt revenues increased so much in late 90s-00.

[handyallen1]

we dont need to borrow more we need to earn more how about some good paying jobs instead of low interest loans we cant pay off

[Shortyfuse]

Yes and when he steps off the podium he will dust his hands together and say " My job here is done" with a smile on his face. I truly believe that it was the plan of the neo cons all along to bring this country to it knees in the name of globalization. Hell his cousin was on the board of Lehman Brothers. Yes , another Bush relative at the beginning of a financial disaster..
Hang them, Hang the High.

[olephart]

Your assessment is far too generous. It ain't over till the fat lady sings and this final quarter will be bad. The numbers don't tell the whole story.

The military is broken. Bush's Wars of aggression have consumed both personnel and equipment. He will leave a deficit that money cannot rebuild. What price can be put on the lives he has wasted? What cost is there to our status in the World? These deficits will be worn as an Albatross for years.

The Government is broken. His privatization initiatives using crony capitalism have cost dearly. The costs of management have increased as the quality of services has gone down. Look at the Walter Reed scandal and the food inspection debacle as merely the tip of the iceberg. Remember the passport scandal where CONTRACT workers looked through private data? This Administration has not only used "contractors" (Blackwater) in Iraq but also throughout the Government.

The Nation is broken. Our financial system has been compromised to the point of ruin. Their Laissez Faire What Me Worry approach has caused Great Depression II. It's not 1932 but it sure is 1930. This also led to the housing bubble that is now deflating yielding continued losses. Our manufacturing base has been thrown away, shipped overseas for quick profits by corporate written trade deals. Centrist Democrats, please take your bow as you signed on with the Republicans.

James Buchanan's spirit rejoices as he becomes number 2 on the worst Presidents list.

[Rule Of Law]

I kinda always leaned toward Woodrow Wilson as worst since he gave us the FED, the income tax and WW1 in short order...

[avraamjack]

.
What is $10,024,724,896,912.49 amongst friends ?
.

[JBS]

With friends like that who needs enemies?

[CitizenE]

And the expansion both in jobs and consumption was substantially based on just one segment of the economy: housing. Anyday now I expect to see people on the side of the street with signs that say Mortgage Papers for Food. Ya wanta home in Stockton, California? How about a whole neighborhood? And we couldn't afford to bail out New Orleans, and we couldn't afford single payer healthcare.

[BillZBubb]

Bonddad, that was a very good synopsis of the Bush mess. You left out some other key points though. The lack of regulation in the financial sector, the fudging of CPI numbers and other economic numbers, fighting a foolish war of choice on a credit card, the lack of investment in maintaining and improving infrastructure, the massive increase in unfunded government liabilities, the gutting of the dollar, the lack of enviromental action, etc.

The whole nation has spent the last 8 years living off its seed corn. We run down our environment, our military, our infrastructure, our currency, and our future. President Obama will inherit one hell of a mess.

[DuganS1]

Investment in "infrastructure" has been high since early 2005. Most people believe it's been low becaus they listen to propaganda about the Minnesota bridge rather than look at the actual construction figures. The idea that this administration "gut" the dollar is also a bit silly. Most don't realize that the dollar increased in value significantly thru the late 90s to about 2002, making our much of our industrial base completely uncompetitive against foreign competition. It was the weakening of the dollar which brought a revival of US manufacturing since about 2004. The lack of regulation in the financial sectors was both the Democrat's and Republican's fault.