George W. Bush and the Reagan legacy

Written by Andrew Szabo
Wednesday, 26 January 2011 23:00

As we have seen, Bill Clinton’s Presidency enjoyed much success in economic policy — as to management of the government budget process, low inflation economic growth and significant improvements in employment. However, Clinton’s approach was ad hoc. As a correspondent (political scientist Steven Livingston) commented after our last column, “Although we all recognize ‘Reagonomics,’ there is no ‘Clintonomics.’ “ While Clinton did many progressive things, he failed to articulate a program or policy that tied together the elements of his economic and social policy — for example, emphasis on balancing the budget, encouraging entrepreneurship, creating incentives for capital investment, and limiting government bloat (as with welfare reform). Despite their apparently salubrious effects, Clinton’s economic policies — unlike those of Ronald Reagan — have left little legacy or even recognizable imprint.

George W. Bush, to secure his party’s nomination, campaigned hard to the most orthodox elements of his party. He was determined not to be eclipsed by more conservative candidates or shunned by the commentators on the right. Unlike his father’s pragmatism, for example on tax policy, it was the son’s quality to be uncompromising. His notion of an “ownership society” harked back to the supply side policies championed by the Reagan Administration. Bush defeated Al Gore in the disputed election of 2000, and he also held back Senator John Kerry’s feckless campaign of 2004, by sticking resolutely to his message.

Essentially, the economic policy was that of Reaganomics, but applied more strictly and consistently than even by Reagan himself. With Bush’s backing, Congress passed large-scale tax cuts in 2001 and 2003, affecting not only income tax but also capital gains, stock dividends, estate and gift taxes. In a gimmicky stratagem that lowered the apparent future cost of such cuts, they were scheduled to “sunset” (expire) in 2011. As an arguably unwise intervention into domestic politics, the Federal Reserve Chairman at the time, Alan Greenspan, made testimony before Congress supporting tax cuts. The cuts proved less salutary than hoped in stimulating the economy. Overall GDP growth during Bush’s two terms in office averaged about 2.5%, and median household income fell moderately. Some measures of income inequality and domestic poverty increased. While taxes were cut substantially, spending continued apace; the national debt increased to over $11 trillion by the end of his administration, about double the $5.6 trillion that he inherited.

An expensive exception to Bush’s stance against liberal redistributive programs was his support for a Medicare prescription drug program for the elderly. The cost of this highly complex program has been ghastly and the economic incentives poorly thought out.

The Sept. 11, 2001 catastrophe and Bush’s response to it defined his Presidency. The particular approach taken by President Bush, to put the country on a war footing, led of course to the invasions of Afghanistan and Iraq. Both military campaigns have become deeply problematic.

I do not buy the idea that Bush went into Iraq solely to prop up oil interests or for other mercenary reasons. The motives (varying over time, especially after the weapons of mass destruction rationale did not pan out) seemed to include an idealistic desire (which now may seem soft-headed) to destroy a cruel dictatorship and to create an example of a working democracy in the Middle East. However patriotic the motive, the effects were disastrous — costing far more and benefiting less than anticipated. From a balance of power perspective, we strengthened the hand of Iran, our regional nemesis. From a fiscal point of view, we further borrowed our way into oblivion. This is not to mention the inflammatory effect of having American forces fight anywhere in the Islamic world.

The combination of large domestic spending, massive tax cuts and the simultaneous fighting of two large-scale wars put severe strains on America’s resources. Even though America would inevitably have faced a decline in wealth and influence and military power in the 21st Century, relative to the rapid rise of emerging economies such as China’s, the effect of key Bush policies was surely to accelerate our decline, or to foreshorten the years of American dominant influence.

Both the Treasury and the Federal Reserve Board were slow to recognize or respond to the gravity of the growing financial crisis that started sprouting horns in 2007. However, when remedial action came, it was massive. The outgoing Bush administration — as well as the incoming Obama regime — deserve our gratitude for helping to prevent a financial deep freeze and collapse in the international capitalist system. We will examine these measures further in the next column on Barack Obama.

Andrew Szabo is managing director of Greenwich Financial Management Inc. Write to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .