Neither of these assertions squares with the record, however.
The “ditch” in question is unmistakable in the figure below; it is essentially the gap between the blue line, our economy’s , and the red line, our — i.e., where economists estimate GDP would be if everyone who wanted a job had one.
The financial crisis of 2008 precipitated the of 2008, indicated by the large gray area in Figure 1. But that begs the question: what caused the financial crisis? Was it the Bush tax cuts? Was it Bush-era deregulations? Was it a combination of both? Did the stimulus package Obama signed into law in early 2009 stop the bleeding, thereby preventing a second Great Depression?
Another argument — popular but controversial — also assigns blame for the financial crisis to the repeal of key banking restrictions in the Glass-Steagall Act. (For details, see Peter J. Wallison’s piece debunking this popular argument.) In any case, the key restrictions in question were repealed in 1999, before Bush took office, as shown in Figure 1.
The Bush tax cuts, however, cannot be held responsible for creating any of the above conditions that led to the collapse of the housing market in 2007-2008. Although some have blamed the tax cuts for at least a share of the deficits and debt, and others have given them credit for a share of the economic recovery from 2003-2007, the financial crisis resulted from the , not the Bush-era tax cuts or deregulation.
The stimulus package, ARRA, was signed into law just as the recession was ending. As the word “recovery” in its name implies, its intent was to stimulate our economy’s return to its potential — not to prevent an economic collapse that had already been prevented.
By contrast, the pattern of recovery from the 2008 recession (back to potential economic output levels) has so far been anemic, as shown in Figure 3.
The stimulus package had been expected to yield a “Recovery Summer” in 2010 — but two years later, the economy is still operating well below its potential.
Although the Obama campaign blames today’s economic doldrums on past Bush policies, that rhetoric doesn’t square with the record. What precipitated the financial crisis was not the Bush tax cuts, but the bursting of a housing bubble caused by other factors; what prevented the economy from collapsing into a second Great Depression was late-2008 action by the Fed (easing) and Congress (TARP) — not the stimulus of 2009 (ARRA). And lastly, Figure 3 makes one thing clear: if it is possible for fiscal intervention by the government to move the economy back to its potential — as opposed to enabling, then trusting, private-sector innovators to do that job — the stimulus of 2009 has so far not been an effective way of getting there.
Steve Conover retired recently from a 35-year career in corporate America. He has a BS in engineering, an MBA in finance, and a PhD in political economy. His website is .