I have put up three posts explaining why the current state of the economy is genuinely the fault of George W. Bush (although not for the reasons usually aimed at him). I have mentioned the damaging effects of temporary tax cuts, loose money, and rampant spending.
However, it was the Troubled Asset Relief Program that encased the Bush-the-Younger record in Fringe-like amber.
Now, I have spent more than four years ripping TARP (a.k.a. “the bank bailout”), but it needs repeating: TARP misdiagnosed the problem (which was actually paper losses created by the mark-to-market rule), followed that up with the wrong solution (a massive government buy-back of “toxic” mortgage-backed securities), destroyed political accountability by giving the Treasury Secretary the right to switch gears with no oversight (he promptly redid the entire thing as a bank capitalization, and in some cases forced banks to sell the government stock to do it), and due to the aforementioned mistakes completely destroyed what was left of American confidence in the economy (healthy banks were forced to take TARP money, making the entire banking sector look sick, while Administration officials from Bush on down expressed levels of near-complete panic).
One can certainly talk about Treasury Secretary Henry Paulsen’s role in this debacle, or the fact that neither major candidate for president bothered to seriously challenge the “consensus” – although there were some in Washington who did challenge it. However, it was President Bush who essentially set the tone for the discussion by declaring the $700-billion bailout was a necessary – free market be damned. He holds to that position to this day.
As a result, the American people still have not recovered their confidence in the economy – or themselves. Limited government suffered a political hammer-blow from which it still hasn’t rebounded. Bush’s successor has essentially received a free pass whatever the economy does, because if it was so bad that the Republicans (led by Bush) violated their political principles, it’s certainly can’t be a normal recession.
Except that it was a normal recession, created by the burst of a bubble that had been fueled by loose money, rampant spending, and tax cuts with a time-limit that made them purely Keynesian in character. A bubble is merely concentrated inflation, and in the case of the “aughts,” the concentration came in resources (including land). Contrary to popular belief, this is more the norm than the exception for economic downturns (the recessions of 1819, 1837, 1854, 1857, 1873, 1893, 1929-34, and 1990-91 all had their cause in some bubble bursting – usually land).
In short, the economic record of the Bush era was one of Keynesian stimuli and government expansion on an unprecedented scale, with just enough of an appearance of conservatism to discredit the entire limited-government/supply-side point of view by the end of 2008. As a result, government’s size, scope, cost, and borrowing are all dramatically higher; the economy is weaker; and conservatives are forced to shoulder blame for policies that caused this – policies that were the actual antithesis of what they would actually recommend.
This is the Bush economic legacy – one which has haunted the country for years, and perhaps decades.
Cross-posted to Virginia Virtucon