Mises Daily Articles
Regular readers of this website know that the various writers who have recently appeared have not been kind to the economic "program" (if one can call it that) which has come forth from the George W. Bush administration. As the markets continue to wallow in bear territory, and as consumer--and, more important, investor--confidence falls, writers and commentators of all stripes have weighed in to give their two cents' worth.
Not surprisingly, Democrats have fired the latest salvos, claiming that this economic downturn is entirely the fault of the Bush administration.
Not to be outdone, her husband himself placed the blame squarely on his successor, claiming that the boom that occurred in the late 1990s was genuine prosperity that only came undone the minute Congress passed the tax cuts.
While I give no quarter in criticizing the
All together now, let us repeat the following:
Let us begin with
In fact, by 2000, the boom already had run its course, and the markets were showing weaknesses. Moreover, the massive number of new regulations the Clinton administration placed upon business activities--especially on the environmental front--were sure to become even more burdensome once a slowdown hit the economy, and would also impede any recovery.
That the boom was driven by the Fed’s credit expansion is obvious. The figure above demonstrates money growth from 1983 to 2000, and we can see that growth in M2 and M3 was especially steep, particularly after the 1994 elections when the Republican took both houses of Congress.
Even more telling is the growth of debt from 1995 to 2000, as household debt rose by 46.4 percent, corporate debt by 62.8 percent, and state government debt by 19.5 percent. For households, mortgage debt rose by an astounding 94 percent during that period.1
Granted, there were real investment opportunities that arose during this period, something that was lost in much of the "dot.com" hype that engulfed the markets during the late 1990s. First, deregulation of transportation and telecommunications, a process that began during the late 1970s, made certain sectors of the economy more attractive to investment--something that would have happened even without Greenspan's credit expansion.
Second, near-exponential developments in computer technology again opened new avenues for investment. However, because the Fed chose to open the money spigots, the amounts of new money pouring into the above-mentioned sectors was far greater than could be sustained in a profitable manner. Yes, a number of investors benefited early in the process, but as the bubble in technology stocks increased, it became clear that the markets could not continue to absorb all of the new cash, and the bubble finally burst.
Finally, the Clinton administration's anti-Microsoft jihad put the finishing touches upon any hopes for the technology sector to be able to profitably deal with all of the new investment.
In other words, it was clear that malinvestments were occurring on a massive scale in the
Unfortunately for Bush, however, the brunt of the crash has fallen upon his shoulders, and he has done little to make things better. Yes, his administration pushed through modest, back-loaded tax cuts in 2001, although the cuts were marketed as an economic "stimulus" when they should have been touted as a way to unburden the economy from the shackles of government.
Moreover, while he has recently spoken of the financial bubbles that occurred during the
As for increasing the burdens of the state,
The burden of government does not extend just to spending. Instead of pointing out that the latest attacks upon the business community are going to have long-lasting negative effects upon investment and economic growth, Bush has entered into a "race to the bottom" competition with Democrats to see who can most vociferously demonize investors and businesspeople.
At one level,
Bush's response to this whole mess, however, has been absolutely disheartening. He has made wrong choices at every turn, and the economy will pay. He is making sure that the political classes will prosper, and that the economic burdens upon the rest of us will grow. The president could have done the right thing. Instead, he has taken a bad situation and made it worse.
- 1. U.S. Statistical Abstracts, 2001. U.S. Department of Commerce.