The Invisible Hand Slaps Conservatives

This column was written by Jonathan Chait.

Now, I don't really think it's fair to blame a president for having the economy tank on his watch. But that's just the point. For several years--the "Bush Boom" years--Republicans were essentially arguing that the mere fact that the economy was expanding should be taken as proof that Bush's economic policies succeeded.

President Bush would routinely announce facts such as (from a speech last year), "During the time when we cut taxes to today, our economy has grown by more than $1.9 trillion." He would mock his critics and declare, "events have proven them wrong."

The whole trick here was to start at the bottom point of the economic cycle and assume that any subsequent improvement was the result of his policies. Of course, this is a ludicrously forgiving measure. Over time, the economy tends to grow, and it also goes through cycles. To point out that we're better off at the peak of a cycle than at the trough is something that could be said of any economic cycle. Bush was claiming his miracle fertilizer succeeded because his plants were taller at the end of the summer than at the beginning of spring.

So the justification for Bush's economic policies was that the economy was no longer in recession. Now they can't even claim that any more. It's as if Bush's plants suddenly wilted in August.

I'd never go as far as conservatives do in attributing economic growth to tax rates. But that's the right's game, so let's see how the Bush Boom measures up, now that it's gone to macroeconomic heaven. A recent paper by the Economic Policy Institute (EPI) compares the Bush Boom to the ten previous periods of economic expansion since 1949. If you measure it from the peak of the previous business cycle, the Bush Boom ranks eighth out of the last ten expansions. If you measure it from the trough of the recession, Bush's preferred gauge, it ranks dead last.

And the meager growth that did occur accrued almost entirely to the rich. One of the few categories where the Bush Boom really did boom was corporate profits, which rank, depending on which measure you use, second or fourth. But wage and salary growth ranks last out of the ten previous expansions. Median family income actually declined. As the EPI paper notes, "this marks the first time this has happened since World War II in a business cycle lasting anywhere near as long as the most recent cycle." So, from the standpoint of making most people better off--which, of course, is the whole point of economic growth--the Bush Boom was a staggering catastrophe.

The Bush Boom was accompanied by frantic attempts to convince Americans that things were actually going better than they thought. One comical subgenre of Republican argumentation was to explain away polls showing persistent economic pessimism as a kind of false consciousness. If polls showed that people thought the economy was bad, it wasn't because their incomes hadn't risen--it must be the fault of the liberal media playing up bad news and ignoring the glories of the Boom. Ubiquitous right-wing economic commentator Larry Kudlow even coined a catchphrase to describe the press's suppression of the Bush Boom: "The greatest story never told."

When Phil Gramm recently remarked that we were becoming "a nation of whiners, " he gave voice to what had become the standard Republican view. What's the matter with you people? Can't you see that Phil Gramm and everybody he knows are making out like bandits?

Now that the Boom has ended, the new GOP line is to acknowledge the bad times but proceed on cheerfully as if all conservative economic precepts have been borne out. Bush recently declared, "the economy is not doing as well as we'd like to do--like it to do today, but there's no question that the tax cuts provided economic vitality." John McCain asserted, "Raising taxes in a bad economy is about the worst thing you could do because it will kill even more jobs when what we need are policies that create jobs." (Last year, remember, you couldn't raise taxes on the rich because the economy was growing, which proved the tax cuts worked.)

If you're keeping score at home, this makes two consecutive economic cycles that have annihilated the premises of right-wing economics. When Bill Clinton raised the top tax rate in 1993, conservatives unanimously predicted it would destroy the economy. When Bush cut the top tax rate, conservatives insisted it would produce (in fact, already had produced) widespread prosperity.

Of course, you could say that this was all horrible luck for the Republicans, and tax rates had little effect either way. But that would also undercut the right's case. The initial effect of tax cuts for the rich is to increase public debt and income inequality. Conservatives justify these consequences by pointing to the alleged second-order effects of tax cuts--promoting stronger incentives and higher growth. But, if the second-order effects are so tiny they get washed out by larger economic factors--and the evidence overwhelmingly suggests they are--why should we pay the price for them?

When the macroeconomic rationale for upper-bracket tax cuts is gone, you're left with nothing but a naked upward-redistribution scheme. Thus conservatives continue to cling to their cherished ideas. A recent Wall Street Journal editorial argued that, if the economy was sinking, it must be in part because markets fear the prospect of Barack Obama winning and raising taxes. (You thought Obama was up because the economy was bad? Turns out you had it backward. )

Combing through the Bush economic triumphalism literature, I sought in vain for some measure of self awareness. The closest I came was this unwittingly prescient remark by Bowyer in The Bush Boom: "What, in particular, of our economic and financial pundits? When they make predictions that do not come to pass, they seem to suffer no ill consequences."
By Jonathan Chait
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